UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (x) Filed by a Party other than the Registrant () Check
the appropriate box:
() Preliminary Proxy Statement
() Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
(x) Definitive Proxy Statement () Definitive Additional Materials
() Soliciting Material Pursuant to ss.240.14a-12
LYNCH INTERACTIVE CORPORATION
-----------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(x) No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
() and 0-11.
Title of each class of securities to which transaction applies :
(1)
Aggregate number of securities to which transaction applies:
(2)
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(3)
Proposed maximum aggregate value of transaction:
(4)
Total fee paid:
(5)
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or
() Schedule and the date of its filing.
Amount Previously Paid:
(1)
Form, Schedule or Registration Statement No.:
(2)
Filing Party:
(3)
Date Filed:
(4) ___
LYNCH INTERACTIVE CORPORATION
401 Theodore Fremd Avenue
Rye, New York 10580
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 2004
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April 20, 2004
To the Stockholders of
Lynch Interactive Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lynch
Interactive Corporation, a Delaware corporation, will be held at the Greenwich
Library, 101 West Putnam Avenue, Greenwich, Connecticut, on Thursday, May 13,
2004, at 8:30 a.m. for the following purposes:
1. To elect members of the Board of Directors to serve until the next annual
meeting of stockholders and until their successors are duly elected and
qualified.
2. To transact such other business as may properly come before the annual
meeting of stockholders or any adjournments thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement. As fixed by the Board of Directors, only stockholders of record
at the close of business on March 29, 2004, are entitled to receive notice of,
and to vote at, the annual meeting and any adjournments thereof.
The Board of Directors encourages all stockholders to personally attend the
annual meeting. Your vote is very important regardless of the number of shares
you own. Stockholders who do not expect to attend are requested to promptly
date, complete and return the enclosed proxy card in the enclosed accompanying
postage-paid envelope in order that their shares of common stock may be
represented at the annual meeting. Your cooperation is greatly appreciated.
By Order of the Board of Directors
John Fikre
Secretary
IMPORTANT: Your vote is important regardless of the number of shares you own.
Please date, sign and return your proxy promptly in the enclosed envelope. Your
cooperation is greatly appreciated.
LYNCH INTERACTIVE CORPORATION
401 Theodore Fremd Avenue
Rye, NY 10580
--------------------
PROXY STATEMENT
This proxy statement is furnished by the Board of Directors of Lynch
Interactive Corporation (the "Corporation") in connection with the solicitation
of proxies for use at the Annual Meeting of Stockholders to be held at the
Greenwich Library, 101 West Putnam Avenue, Greenwich, Connecticut, on Thursday,
May 13, 2004, at 8:30 a.m. and at any adjournments thereof. This proxy statement
and the accompanying proxy is first being mailed to stockholders on or about
April 20, 2004.
Proxies and Voting Procedures
Only stockholders of record at the close of business on March 29, 2004, are
entitled to notice of, and to vote at, the annual meeting. As of the close of
business on such date, 2,774,651 shares of the Corporation's common stock, par
value $.0001 (the "Common Stock"), were outstanding and eligible to vote. Each
share of Common Stock is entitled to one vote on each matter submitted to the
stockholders. Where a specific designation is given in the proxy, the proxy will
be voted in accordance with such designation. If no such designation is made,
the proxy will be voted FOR the nominees for director named below, and in the
discretion of the proxies with respect to any other matter that is properly
brought before the annual meeting. Any stockholder giving a proxy may revoke it
at any time before it is voted at the annual meeting by delivering to the
Secretary of the Corporation a written notice of revocation or duly executed
proxy bearing a later date or by appearing at the annual meeting and revoking
his or her proxy and voting in person.
The candidates for election as directors who receive the highest number of
affirmative votes will be elected. For the purpose of determining whether
matters other than the election of directors have been approved by the
stockholders, abstentions are treated as shares present or represented and
voting, so abstaining has the same effect as a negative vote. Shares held by
brokers who do not have discretionary authority to vote on a particular matter
and who have not received voting instructions from their customers are not
counted or deemed to be present or represented for purposes of determining
whether that matter has been approved by stockholders, but they are counted as
present for purposes of determining the existence of a quorum at the annual
meeting.
An automated system administered by the Corporation's transfer agent
tabulates the votes.
Cost of Proxy Solicitation
The solicitation of proxies is made on behalf of the Board of Directors of
the Corporation, and the cost thereof will be borne by the Corporation. The
Corporation has employed the firm of Morrow & Co. Inc., 445 Park Avenue, 5th
Floor, New York, New York, 10022 to assist in this solicitation at a cost of
$3,500, plus out-of-pocket expenses. The Corporation will also reimburse
brokerage firms and nominees for their expenses in forwarding proxy material to
beneficial owners of the Common Stock of the Corporation. In addition, officers
and employees of the Corporation (none of whom will receive any compensation
therefor in addition to their regular compensation) may solicit proxies. The
solicitation will be made by mail and, in addition, may be made by telegrams and
personal interviews, and the telephone.
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GOVERNANCE OF THE CORPORATION
Board of Directors
Currently, our Board of Directors has eight members, six of whom meet the
American Stock Exchange standard for independence. Only independent directors
serve on our Audit Committee, Nominating Committee and the Executive
Compensation and Benefits Committee.
In February 2004, Frederic Salerno and Vincent Tese resigned from the Board
of Directors. At the March 2004 meeting of the Board of Directors, Morris
Berkowitz was appointed to the Board of Directors. At that same meeting, David
Mitchell advised the Board of Directors that he would not stand for reelection
to the Board of Directors at our 2004 annual meeting of stockholders.
In assessing potential directors for our Board, we look for candidates who
possess a wide range of experience, skills, areas of expertise, knowledge and
business judgment.
During 2003, the Board of Directors held four meetings and the committees
held a total of 16 meetings.
Committees of the Board of Directors
In 2003, the Board of Directors had three ongoing committees: the Executive
Committee, the Audit Committee, the Executive Compensation and Benefits
Committee. In 2003, the Executive Committee did not meet, the Audit Committee
met 14 times, and the Executive Compensation and Benefits Committee met two
times. In March 2004, the Board of Directors established a Nominating Committee.
These committees are described below.
Executive Committee
In 2003, Mario Gabelli (Chairman), Paul Evanson and Frederic Salerno were
the members of the Executive Committee. The Executive Committee is vested with
all the power and authority of the Board of Directors, except as otherwise
provided by Delaware law or by the By-laws of the Corporation, in the management
affairs of the Corporation during intervals between meetings of the Board of
Directors.
Currently, the Executive Committee members are Mario Gabelli and Paul
Evanson.
Audit Committee
In 2003, John Ferrara (Chairman), David Mitchell and Salvatore Muoio were
the members of the Audit Committee. The Board of Directors has determined that
the committee members meet the American Stock Exchange standard for
independence. In addition, the Board of Directors has determined that at least
one member of the Audit Committee meets the American Stock Exchange standard of
having accounting or related financial management expertise. The Board of
Directors has also determined that John Ferrara meets the Securities and
Exchange Commission criteria of an "audit committee financial expert." Mr.
Ferrara's extensive background and experience includes serving as the Chief
Financial Officer of Space Holding Corporation, Golden Books Family
Entertainment, Inc., and Renaissance Communications Corp.
At the March 2004 meeting of the Board of Directors, Morris Berkowitz was
appointed to the Audit Committee.
The Audit Committee operates pursuant to a charter, which was adopted in
May 2003 and revised in December 2003 and is attached to this proxy statement as
Exhibit A. The charter can also be viewed on our web site at
www.lynchinteractivecorp.com. The new charter gives the Audit Committee the
authority and responsibility for the appointment, retention, compensation and
oversight of our independent auditors, including
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pre-approval of all audit and non-audit services to be performed by our
independent auditors. The Audit Committee Charter has also been amended to give
this committee broader authority to fulfill its obligations under Securities and
Exchange Commission and American Stock Exchange requirements. The Audit
Committee Report is set forth on page 7 of this proxy statement.
Executive Compensation and Benefits Committee
In 2003, Paul Evanson, John Ferrara and Vincent Tese (Chairman) were
members of the Executive Compensation and Benefits Committee. The Board of
Directors has determined that the committee members meet the American Stock
Exchange standard for independence. The Executive Compensation and Benefits
Committee develops and makes recommendations to the Board of Directors with
respect to the Corporation's executive compensation policies; recommends to the
Board of Directors the compensation to be paid to executive officers;
administers the Lynch Interactive Corporation Bonus Plan and 401(k) Savings
Plan, as summarized on pages 13, 14 and 15 of this proxy statement; and performs
such other duties as may be assigned to it by the Board of Directors. In 2003, a
subcommittee consisting of Messrs. Tese and Ferrara addressed matters relating
to the Principal Executive Benefits Plan.
In March 2004, the Board of Directors appointed Morris Berkowitz to the
Executive Compensation and Benefits Committee and the subcommittee that
addresses matters relating to the Principal Executive Benefits Plan.
Nominating Committee
In 2003, the Board of Directors did not have a nominating committee.
Nominations for directors and officers of the Corporation were matters
considered by the entire Board of Directors. In March 2004, the Board of
Directors established a Nominating Committee consisting of Paul Evanson, John
Ferrara, Salvatore Muoio and Morris Berkowitz. The Nominating Committee is
responsible for recommending to the Board of Directors nominees for election as
directors of the Corporation. The Committee believes candidates for the Board
should have the ability to exercise objectivity and independence in making
informed business decisions; extensive knowledge, experience and judgment; the
highest integrity; loyalty to the interests of the Corporation and its
stockholders; a willingness to devote the extensive time necessary to fulfill a
director's duties; the ability to contribute to the diversity of perspectives
present in board deliberations; and an appreciation of the role of the
corporation in society. The Committee considers candidates meeting these
criteria who are suggested by directors, management, and stockholders.
Stockholders may submit recommendations in writing by letter addressed to the
Corporate Secretary. The Nominating Committee operates pursuant to a charter
setting out the functions and responsibilities of this committee. The charter
can be viewed on our web site at www.lynchinteractivecorp.com.
Compensation of Directors
Directors, other than the Chairman and those directors who are employees,
receive a monthly cash retainer of $1,500, a fee of $2,000 for each in person
Board of Directors Meeting and a fee of $1,000 for each telephonic Board of
Directors meeting (which lasts for at least one hour) and each committee meeting
the director attended. In 2003, Frederic Salerno served as the Chairman of the
Board of Directors and received an annual fee of $100,000.
In addition, each non-employee director (other than the Chairman) serving
as a committee chairman receives an additional $2,000 annual cash retainer. A
director who is an employee of the Corporation is not compensated for services
as a member of the Board of Directors or any committee thereof. The Corporation
also purchases accident and dismemberment insurance coverage of $100,000 for
each member of the Board of Directors and maintains a liability insurance policy
that provides for indemnification of each Director (and officer) against certain
liabilities which each may incur in his capacity as such.
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Employee Code of Ethics and Conflicts of Interest Policy
Since our spin-off from Lynch Corporation in 1999, we have had a code of
conduct and conflicts of interest policy. In December 2003, the Corporation
adopted a Code of Ethics that applies to all employees, officers and directors
of the Corporation, including its principal executive officer and its senior
financial officers. We require all employees to adhere to the Code of Ethics in
addressing legal and ethical issues encountered in conducting their work. The
Code of Ethics requires that our employees avoid conflicts of interest, comply
with all laws and other legal requirements, conduct business in an honest and
ethical maaner and otherwise act with integrity and in the Corporation's best
interest. All of our employees are required to certify that they have reviewed
and understood the Code of Ethics.
In addition, all employees who because of their responsibilities are
thought to be in sensitive positions and who may, therefore, be placed in
conflicts of interest situations are required to certify as to their compliance
with the Corporation's Conflicts of Interest Policy. Copies of the Code of
Ethics and Conflicts of Interest Policy are posted on our website at
www.lynchinteractivecorp.com. We have also filed copies of the Code of Ethics
and Conflicts of Interest Policy with the Securities and Exchange Commission as
exhibits to our December 31, 2003 annual report of Form 10-K.
Policy Regarding Reports Of Actions That May Be Violations Of Law
In December 2003, the Board of Directors adopted a Policy Regarding Reports
Of Actions That May Be Violations Of Law. The policy reaffirms the Corporation's
policy to comply with all applicable laws that protect employees against
unlawful discrimination or retaliation by their employer as a result of their
lawfully reporting information regarding, or their participating in,
investigations involving alleged corporate fraud or other alleged violations by
the Corporation or its agents of federal or state law. The Policy further
establishes a procedure by which Corporation employees may file anonymous
complaints regarding the Corporation's business practices including, but not
limited to fraud, violations of law or accounting, internal accounting controls
or auditing matters.
The Policy also provides the Corporation will offer a reward of $10,000
(also made on an anonymous basis) to any employee who reports information
regarding corporate fraud or other alleged violations by the Corporation or its
agents of federal or state law and such information leads to a finding of
wrongdoing by either the Board of Directors of the Corporation or a competent
state or federal adjudicatory body. A copy of the Policy Regarding Reports Of
Actions That May Be Violations Of Law is posted on our website at
www.lynchinteractivecorp.com.
Stockholder Communications
Stockholders may send communications by letter addressed to the Board of
Directors at Lynch Interactive Corporation, 401 Theodore Fremd Avenue, Rye, New
York 10580. All communications will be received and reviewed by the
Corporation's Corporate Secretary. The receipt of concerns about the
Corporation's accounting, internal controls, auditing matters or business
practices will be reported to the Audit Committee. The receipt of other concerns
will be reported to the Board or an appropriate committee of the Board.
Annual Meeting Attendance
The Board's policy is that directors standing for reelection are invited to
attend the annual meeting of stockholders if their schedules permit. All of the
directors standing for election at the last annual meeting in May 2003 with the
exceptions of Daniel Lee and Salvatore Muoio attended that meeting.
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INDEPENDENT PUBLIC ACCOUNTANTS
In February 2004 the Audit Committee appointed Deloitte & Touche LLP to
serve as the Corporation's new independent auditor to audit the consolidated
financial statements of the Corporation and its subsidiaries as of and for the
year ended December 31, 2003. Representatives of Deloitte & Touche LLP are
expected to be available at the annual meeting with the opportunity to make a
statement if they desire to do so and to answer appropriate questions.
The Audit Committee has not yet selected a principal auditor for 2004.
Consistent with the past practice, the Audit Committee begins the selection
process for the Corporation's principal auditor following completion of the
prior year's audit.
Resignation of Ernst & Young LLP
Following the completion of its review of the condensed consolidated
financial statements of the Corporation for the quarter ended September 30,
2003, on November 14, 2003, Ernst & Young LLP notified the Corporation of its
resignation as the Corporation's independent auditor. Ernst & Young's decision
was based, in part, on the existence of pending litigation initiated by Morgan
Group Holding Co., an entity that was created through a spin-off from the
Corporation. Morgan Group Holding Co. sued Ernst & Young in its capacity as the
independent auditor of The Morgan Group, Inc., a public company in which Morgan
Group Holding Co. had a majority interest.
The reports of Ernst & Young, the Corporation's principal auditor, on the
Corporation's consolidated financial statements for the past two fiscal years
(which reports were based on the work of Siepert & Co., L.L.P. insofar as it
relates to the amounts included in the consolidated financial statements for the
following subsidiaries of the Corporation: Cuba City Telephone Exchange
Corporation and Belmont Telephone Corporation in 2002 and 2001, Upper Peninsula
Telephone Corporation in 2002 and Lynch Michigan Telephone Holding Corporation
in 2001) did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
In connection with the audits of the Corporation's financial statements for
each of the two most recent fiscal years and in the subsequent interim period
through November 14, 2003, there were no disagreements with Ernst & Young on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Ernst & Young, would have caused Ernst & Young to make reference
to the subject matter of the disagreements in connection with its reports. There
were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.
A copy of the disclosure under this subheading has been furnished to Ernst
& Young and Deloitte & Touche in order to give each such auditor the opportunity
to present its views in this proxy statement if it believes that the statements
made are incorrect or incomplete.
Audit Fees
The aggregate fees billed by Deloitte & Touche for professional services
rendered for the audit of the Corporation's 2003 financial statements was
$790,000. The aggregate fees billed by Ernst & Young for professional services
rendered for the reviews of the financial statements included in the
Corporation's Forms 10-Q for 2003 was $233,450. The aggregate fees billed by
Ernst & Young for professional services rendered for the audit of the
Corporation's 2002 financial statements and the reviews of the financial
statements included in the Corporation's Forms 10-Q for 2002 was $615,000.
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Audit-Related Fees
No fees were billed by Deloitte & Touche for assurance and related services
for 2003 that are reasonably related to the performance of the audit of the
Corporation's 2003 financial statements that are not reported as audit fees
above. The aggregate fees billed by Ernst & Young for assurance and related
services for 2003 that are reasonably related to the performance of the review
of the Corporation's financial statements and not reported as audit fees above
was $7,500. The aggregate fees billed by Ernst & Young for assurance and related
services for 2002 that are reasonably related to the performance of the audit or
review of the Corporation's financial statements and not reported as audit fees
above was $164,700.
Tax Fees
The aggregate fees billed by Ernst & Young for professional services
rendered to the Corporation in 2003 for tax compliance, tax advice, and tax
planning was $5,000. These services included miscellaneous tax-related research.
The aggregate fees billed by Ernst & Young for professional services rendered to
the Corporation in 2002 for tax compliance, tax advice, and tax planning was
$47,000. These services included tax advice relating to the spin-off of Morgan
Group Holding Co., review of the Corporation's tax return and other
miscellaneous tax-related research.
All Other Fees
No fees were billed by Deloitte & Touche or by Ernst & Young for 2003 or
2002 for services other than as set forth above.
Audit Committee's Pre-Approval Policies and Procedures
In December 2002, the Audit Committee adopted policies and procedures that
require that any non-audit services to be provided by the Corporation's
independent auditor that are not otherwise proscribed by the Sarbanes-Oxley Act
of 2002 must be pre-approved by a member of the Audit Committee and that any
such pre-approval must then be ratified by the Audit Committee at its next
meeting.
The revised Audit Committee charter also provides that the Audit Committee
shall pre-approve all auditing provided to the Corporation by the independent
auditors.
Prior to December 2002, the Audit Committee did not have an established l
pre-approval procedure with respect to the provision of services other than
audit by its independent auditor. For the year ended 2002, the Audit Committee
considered that the provisions of all non-audit services were compatible with
maintaining the independence of its independent auditor. For the year ended
2003, the Audit Committee pre-approved all the fees incurred by its independent
auditors.
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AUDIT COMMITTEE REPORT
The Audit Committee of the board of Directors is comprised of directors who
meet the American Stock Exchange standards for independence. The Audit Committee
operates under a written charter adopted by the Board of Directors, which is
attached to this proxy statement as Exhibit A.
The Audit Committee met with management periodically during the year to
consider the adequacy of the Corporation's internal controls and the objectivity
of its financial reporting. The Audit Committee discussed these matters with the
Corporation's independent auditors and with the Company's chief financial
officer. The Audit Committee also discussed with the Corporation's senior
management and independent auditors the Corporation's compliance with the
Sarbanes-Oxley Act of 2002.
The Audit Committee met privately with the independent auditors, as well as
with the chief financial officer and general counsel on a number of occasions.
The Audit Committee also held meetings to deliberate the selection of new
independent auditors for 2003.
The Audit Committee has reviewed and discussed the Corporation's audited
2003 financial statements with both management and Deloitte & Touche, the
Corporation's independent auditors for 2003. The Audit Committee has also
discussed with Deloitte & Touche any matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees).
The Audit Committee has received the written disclosures and the letter from
Deloitte & Touche required by Independent Standards Board No. I, Independent
Discussions with Audit Committees and has discussed with Deloitte & Touche their
independence.
Management has primary responsibility for the Corporation's financial
statements and the overall reporting process, including the Corporation's
systems of internal controls. Management has represented to us that the 2003
financial statements were prepared in accordance with generally accepted
accounting principles.
Based on the foregoing reviews and discussions, the Audit Committee
recommended to the Board of Directors that the Corporation's 2003 audited
financial statements be included in the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 2003.
John C. Ferrara (Chairman of the Audit Committee)
Morris Berkowitz (Member)
David C. Mitchell (Member)
Salvatore Muoio (Member)
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PROPOSAL 1: ELECTION OF DIRECTORS
Upon the recommendation of the Nominating Committee, the Board of Directors
has nominated Morris Berkowitz, Paul J. Evanson, John C. Ferrara, Mario J.
Gabelli, Marc J. Gabelli, Daniel R. Lee, and Salvatore Muoio to be elected at
the 2004 annual meeting as directors to serve until the next annual meeting of
stockholders and until their respective successors are elected. If for any
reason any nominee shall not be available for election, such proxies will be
voted in favor of the remainder of those named and may be voted for substitute
nominees in place of those who decline to be candidates. Management, however,
has no reason to expect that any of the nominees will be unavailable for
election.
The By-laws of the Corporation provide that the Board of Directors shall
consist of no less than two and no more than nine members and that any vacancies
on the Board of Directors for whatever cause arising, including newly-created
directorships, may be filled by the remaining directors until the next meeting
of stockholders. Biographical summaries and ages as of March 24, 2004, of the
nominees are set forth below. Data with respect to the number of shares of the
Common Stock beneficially owned by each of them appears on page 10 of this proxy
statement. All such information has been furnished to the Corporation by the
nominees.
Vote Required and Recommendation of Board of Directors. Except where
authority to vote for directors has been withheld, it is intended that the
proxies received pursuant to this solicitation will be voted FOR the nominees
named below. Nominees receiving the greatest number of votes duly cast for the
election of directors will be elected. Abstentions and broker "non-votes" are
not counted as votes cast for purpose of electing directors.
Your Board of Directors recommends a vote FOR the election of the above
named nominees as directors.
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Name: Age; Business Experience
And Principal Occupation Served as
For Last 5 Years; and Directorships in Director
Public Corporations and Investment Companies Since
Morris Berkowitz, 81
Consultant and advisor to Lynch Interactive Corporation
and its predecessor Lynch Corporation since 1998. Mr.
Berkowitz is an advisor to Gabelli Group Capital Partners,
Inc., a private company, since 1998.......................... 2004
Paul J. Evanson, 62
Chairman, President and Chief Executive Officer of Allegheny
Energy, Inc. (since June 2003); former President (since 1995)
of Florida Power & Light Company; former President and Chief
Operating Officer of Lynch Corporation.......................... 1999
John C. Ferrara, 52
President and Chief Executive Officer (2001 to March 2002) and
Chief Financial Officer (1999 to 2000) of Space Holding Corporation;
Executive Vice President and Chief Financial Officer (1998 to 1999)
of Golden Books Family Entertainment, Inc.; Vice President and
Chief Financial Officer (1989 to 1997) of Renaissance Communications
Corp.; Director of Gabelli Asset Management Inc................ 1999
Mario J. Gabelli, 61
Vice Chairman and Chief Executive Officer since December 2002;
Chairman and Chief Executive Officer (from September 1999 to
December 2002). He is also the Vice Chairman (and from 1986 to
August 2001 Chairman and Chief Executive Officer) of Lynch
Corporation; Chairman, Chief Executive Officer, Chief Investment
Officer and a director of Gabelli Asset Management Inc. and its
predecessors (since November 1976) (and in connection with those
responsibilities, he serves as director or trustee and/or an
officer of registered investment companies managed by subsidiaries
of Gabelli Asset Management); and Chairman and Chief Executive
Officer of Gabelli Group Capital Partners, Inc., a private company.
Mr. Gabelli also serves as a Governor of the American Stock
Exchange; Overseer of Columbia University Graduate School of
Business; Trustee of Fairfield University, Roger Williams
University, Winston Churchill Foundation and E.L. Wiegand
Foundation; Director of the National Italian American Foundation
and the American-Italian Cancer Foundation; and Chairman,
Patron's Committee of Immaculate Conception School............. 1999
Marc J. Gabelli, 35
President of Gabelli Group Capital Partners, Inc., a private
company (since September 2003); Managing Director of Gabelli
Group Capital Partners, Inc. (from 1996 to September 2003);
Director Lynch Corporation (since May 2003). Mr. Gabelli
is the son of Mario J. Gabelli, the Corporation's Vice
Chairman and Chief Executive Officer........................... 2003
Daniel R. Lee, 47
Chairman and Chief Executive Officer of Pinnacle Entertainment,
Inc., a New York Stock Exchange listed company that operates
resorts and casinos (2002 to present); Chief Financial Officer
and Senior Vice President of HomeGrocer.Com, Inc. (1999 until
sale in 2000); Chief Financial Officer, Treasurer and Senior
Vice President of Finance and Development of Mirage Resorts,
Incorporated (1992 to 1999)................................... 2000
Salvatore Muoio, 44
Principal and Chief Investment Officer of S. Muoio & Co. LLC,
a securities advisory firm (since 1996); Securities Analyst
and Vice President of Lazard Freres & Co., L.L.C., an investment
banking firm (1995-1996); Securities Analyst at Gabelli &
Company, Inc. (1985-1995)..................................... 1999
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 29, 2004, certain information with
respect to all persons known to the Corporation to each beneficially own more
than 5% of the Common Stock of the Corporation, which is the only class of
voting stock of the Corporation outstanding. The table also sets forth
information with respect to the Corporation's Common Stock beneficially owned by
the directors, by each nominee for director, by each of the executive officers
named in the Summary Compensation Table on page 12 of this proxy statement, and
by all directors, nominees for director and executive officers as a group. The
number of shares beneficially owned is determined under rules of the Securities
and Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares to which a person has the sole or shared voting or
investment power or any shares that the person can acquire within 60 days (e.g.,
through exercise of stock options or conversions of securities). Except as
otherwise indicated, the stockholders listed in the table have sole voting and
investment powers with respect to the Common Stock set forth in the table. The
following information is either reflected in Schedule 13Ds and 13Gs or Form 3s,
Form 4s and Form 5s that have been filed with the Securities and Exchange
Commission or which has otherwise been furnished to the Corporation.
Name of Amount and Nature Percent
Beneficial Owner* Of Beneficial Ownership Of Class
----------------- ----------------------- --------
Kinetics Asset Management, Inc. .... 207,490(1) 7.5%
MJG-IV Limited Partnership ......... 620,000(2) 22.3%
Mario J. Gabelli ................... 658,551(2)(3) 23.7%
Morris Berkowitz ................... 504 **
Paul J. Evanson .................... 11,304 **
John C. Ferrara .................... 2,828 **
Marc J. Gabelli .................... 1,000 **
Daniel R. Lee ...................... 0 **
David C. Mitchell .................. 800(4) **
Salvatore Muoio .................... 14,804(5) **
Robert E. Dolan .................... 708(6) **
Evelyn C. Jerden ................... 105 **
John Fikre ......................... 0 **
All Directors and Executive Officers
as a group (11 persons) ........... 690,604 24.9%
* The address of each holder of more than 5% of the Common Stock is as
follows: Kinetics Asset Management - 470 Park Avenue South, New York, New
York 10016; Mr. Gabelli - 401 Theodore Fremd Avenue, Rye, NY 10580; and
MJG-IV Limited Partnership - 401 Theodore Fremd Avenue, Rye, NY 10580.
** Represents holdings of less than one percent.
(1) Because of its investment and/or voting power over shares of Common Stock
of the Corporation held in the accounts of its investment advisory clients,
Kinetics Asset Management, Inc., an investment adviser ("Kinetics"), is
deemed to be the beneficial owner of 207,490 shares. Kinetics disclaims
beneficial ownership of all such shares.
(2) MJG-IV Limited Partnership, a limited partnership of which Mr. Gabelli is
the general partner, has the right to receive and the power to direct the
receipt of dividends from, or the proceeds from the sale of, these 620,000
shares. Mr. Gabelli has approximately a 5% interest in the partnership
except in respect of 480,000 shares of Common Stock sold by Mr. Gabelli to
the partnership in January 2004, which have been placed in a carve-out
account of MJG-IV in which Mr. Gabelli has no interest therein. Mr. Gabelli
has obtained an irrevocable proxy to vote such 480,000 shares until January
16, 2007 or, if earlier, Mr. Gabelli's decease.
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(3) Represents 620,000 shares owned by a limited partnership in which Mr.
Gabelli is the general partner (see footnote 2 above), 6,008 shares owned
directly by Mr. Gabelli, 11,043 shares owned by Mr. Gabelli through the
Corporation's 401(k) Savings Plan, and 21,500 shares owned by Gabelli Group
Capital Partners ("GGCP"), in which Mr. Gabelli is the majority
stockholder. Mr. Gabelli disclaims beneficial ownership of the shares owned
by the partnership and GGCP, except for his interest therein.
(4) Held as a trustee of a family trust.
(5) Includes 2,704 owned directly by Mr. Muoio and 12,100 owned by investment
funds of which S. Muoio & Co. LLC is the general partner or investment
manager. Mr. Muoio is the managing member of S. Muoio & Co. LLC. Mr. Muoio
disclaims beneficial ownership of the shares owned by such investment
funds, except for his interest therein.
(6) Includes 70 shares registered in the name of Mr. Dolan's children with
respect to which Mr. Dolan has voting and investment power and 238 shares
owned by Mr. Dolan through the Corporation's 401(k) Savings Plan.
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EXECUTIVE COMPENSATION
The following tables set forth compensation received by the Corporation's
Chief Executive Officer and each of the other executive officers of the
Corporation for the last three fiscal years and certain information as to
long-term compensation:
SUMMARY COMPENSATION TABLE
Annual Compensation
All Other
Name and Principal Position ............... Year Salary($) Bonus($) Compensation
Mario J. Gabelli .......................... 2003 250,000 850,000(1) --
Vice Chairman and ........................ 2002 350,000 195,000 --
Chief Executive Officer .................. 2001 350,000 -- --
Joseph C. Farina(2) ....................... 2003 155,385 -- --
President and Chief
Operating Officer
Robert E. Dolan ........................... 2003 260,000 300,000(1) --
Chief Financial Officer ................. 2002 250,000 85,000 --
2001 250,000 -- --
Evelyn C. Jerden .......................... 2003 191,659 7,228 24,469(3)
Senior Vice President-- ................. 2002 148,674 6,083 23,080(3)
Operations .............................. 2001 142,093 6,706 22,233(3)
John Fikre ................................ 2003 250,000 (1)(4) --
Vice President--Corporate ................ 2002 250,000 44,458 --
Development, General Counsel and Secretary 2001 104,167 26,042 --
(1) Bonuses earned in any fiscal year are generally paid during the following
fiscal year.
(2) Joseph C. Farina was the President and Chief Operating Officer of the
Corporation from February 10, 2003 until his resignation on June 30, 2003.
All options granted to Mr. Farina were unvested at the time of his
resignation and accordingly were forfeited.
(3) Represents Western New Mexico Telephone Company's contribution to Ms.
Jerden's account with Western New Mexico's Employee Profit Sharing Plan.
(4) Mr. Fikre's bonus for 2003 was not determined at the date of the printing
of this proxy statement.
The Corporation has no outstanding stock options or stock appreciation
rights and the Corporation has not made any long-term incentive plan awards to
its executive officers.
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EXECUTIVE COMPENSATION AND BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Executive Compensation and Benefits Committee (the "Committee") of the
Board of Directors is responsible for developing and making recommendations to
the Board of Directors with respect to the Corporation's executive compensation
policies and administering the various executive compensation plans. In
addition, the Committee recommends to the Board of Directors the annual
compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Corporation, as well as to other key employees. The
Committee is comprised of three independent, non-employee directors.
The objectives of the Corporation's executive compensation program are to:
o Support the achievement of desired Corporation performance.
o Provide compensation that will attract and retain superior talent and
reward performance.
o Ensure that there is appropriate linkage between executive compensation and
the enhancement of stockholder value.
o Evaluate the effectiveness of the Corporation's incentives for key
executives.
The executive compensation program is designed to provide an overall level
of compensation opportunity that is competitive with companies of comparable
size, capitalization and complexity. Actual compensation levels, however, may be
greater or less than average competitive levels based upon annual and long-term
company performance, as well as individual performance. The Committee uses its
discretion to recommend executive compensation at levels warranted in its
judgment by corporate and individual performance.
Executive Officer Compensation Program
The Corporation's executive officer compensation program is comprised of
base salary, cash bonus compensation, Lynch Interactive Corporation 401(k)
Savings Plan, and other benefits generally available to employees of the
Corporation.
Base Salary
Base salary levels for the Corporation's executive officers are intended to
be competitive. In recommending salaries the Committee also takes into account
individual experience and performance and specific issues relating to the
Corporation. A summary of the compensation awarded to the Chief Executive
Officer and the other executive officers is set forth in the Summary
Compensation Table on page 12 of this proxy statement. The adjustments made to
salaries for 2003 was based upon a variety of judgmental factors, including the
individual performances of the officers in 2002 and their anticipated
contributions to the Corporation in 2003, the prevailing industry conditions and
the general financial and strategic performance of the Corporation.
Bonus Plan
The Corporation has in place a bonus plan that is based on an objective
measure of corporate performance and on subjective evaluation of individual
performance for its executive officers (other than the Principal Executive
Officer, i.e., Mr. Gabelli) and other key personnel. In general, the plan
provides for an annual bonus pool equal to 20% of the excess of (i) the
consolidated pre-tax profits of the Corporation for a calendar year less (ii)
25% of the Corporation's average stockholders equity at the beginning of such
year. Stockholders' equity is the average of stockholders equity at the
beginning of the period and at the beginning of the two preceding years. The
bonus pool would also be reduced by amounts paid pursuant to the Principal
Executive Bonus Plan, as described below. The Executive Compensation and
Benefits Committee in its discretion may take into
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consideration other factors and circumstances in determining the amount of the
bonus pool and awarding bonuses such as progress toward achievement of strategic
goals and qualitative aspects of management performance. The allocation of the
bonus pool among the executives is not based upon a formula but upon judgmental
factors. In 2003, the annual bonus pool was equal to $1.6 million. After being
reduced by the amount paid to Mr. Gabelli pursuant to the Principal Executive
Bonus Plan, as described below, the remainder was paid to executive officers
taking into consideration the factors discussed above.
Mr. Gabelli is the sole participant in the Principal Executive Bonus Plan
of Lynch Interactive Corporation that was adopted by the Board of Directors and
approved by stockholders in 2000. The Principal Executive Bonus Plan is similar
to the regular Bonus Plan, except that it (i) specifies a Maximum Annual Bonus
(as defined therein) which is based on a maximum percentage (80%) of a specified
bonus pool and (ii) removes the discretion of the Committee to award annual
bonuses above the established Maximum Annual Bonus. The Plan is designed to
satisfy an exemption from Section 162(m) of the Internal Revenue Code, which
denies a deduction by an employer for certain compensation in excess of $1
million per year. No bonus was paid to Mr. Gabelli for 2001 under the Principal
Executive Bonus Plan. In 2002, from the annual bonus pool of $310,000, Mr.
Gabelli was awarded a bonus of $195,000, which has not yet been paid. In 2003,
from the annual bonus pool of $1.6 million, Mr. Gabelli was paid a bonus of
$850,000.
A summary of bonuses awarded to the Chief Executive Officer and certain
other executive officers is set forth in the Summary Compensation Table on page
12 of this proxy statement.
Lynch Interactive Corporation 401(k) Savings Plan
All employees of the Corporation are eligible to participate in the Lynch
Interactive Corporation 401(k) Savings Plan after having completed one year of
service (as defined in the Plan) and having reached the age of 18.
The 401(k) Plan permits employees to make contributions by deferring a
portion of their compensation. The Corporation may make discretionary
contributions to the Plan accounts of participating employees. Although the
Corporation made a discretionary contribution of $200 to each participant in
2003, each participant was required to forfeit such contribution in order to
satisfy certain regulatory requirements governing the 401(k) Plan. A
participant's interest in both employee and employer contributions and earnings
thereupon are fully vested at all times.
Employee and employer contributions are invested in certain mutual funds or
Common Stock of the Corporation, as determined by the participants. With respect
to the individuals listed in the Summary Compensation Table, each of Messrs.
Gabelli, Dolan, and Fikre deferred $12,000 under the Plan during 2003, which
amounts have been included for each individual in the Summary Compensation
Table.
Benefits
The Corporation provides medical life insurance and disability benefits to
the executive officers that are generally available to Corporation employees.
The amount of perquisites, as determined in accordance with the rules of the
Securities and Exchange Commission relating to executive compensation, did not
exceed 10% of salary and bonus for 2003.
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Chief Executive Officer Compensation
The following table sets forth compensation received by Mr. Gabelli for the
last five years (as Chairman and Chief Executive Officer of Lynch Corporation
from January 1999 to the spin off in September 1999, then as the Chairman and
Chief Executive Officer of the Corporation from September 1999 to December 5,
2002, and thereafter as Vice Chairman and Chief Executive Officer of the
Corporation):
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Salary 500,000 350,000 350,000 350,000 250,000
Bonus 0 0 0 195,000 850,000
Mr. Gabelli performs the usual functions of the chief executive officer of
a company and is particularly involved in the development of acquisition,
investment and financial strategies. The Committee considers a number of factors
in determining the compensation of the Chief Executive Officer, including the
size and scope of the Corporation, the role of leadership, particularly that of
Mr. Gabelli, in developing existing businesses and in making strategic
acquisitions, the financial performance of the Corporation as reflected by the
increase in its private market value as well as its public market value, and
return on stockholder equity. In light of these factors, the Committee increased
Mr. Gabelli's salary to $500,000 per year effective July 1, 1995. Effective in
2000, the $500,000 salary was reduced to $350,000 in connection with the spin
off of Lynch Corporation, with no raise since then. Following Mr. Gabelli's
resignation as Chairman followed by his appointment as Vice Chairman, effective
January 1, 2003, Mr. Gabelli's salary was reduced to $250,000. In 2003, based on
the formula set forth in the Principal Executive Bonus Plan that was approved by
stockholders in 2000, the annual bonus pool was $1.6 million, with the maximum
bonus payable to Mr. Gabelli not to exceed 80% of the annual bonus pool. The
Committee, which has the discretion to reduce the bonus payable to Mr. Gabelli,
approved a bonus of $850,000, representing approximately 53.1% of the annual
bonus pool, to be paid to Mr. Gabelli.
Morris Berkowitz (Member)
Paul J. Evanson (Member)
John C. Ferrara (Member)
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PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock of the Corporation for the period September 1, 1999 (the date the
Corporation's stock began trading publicly) through December 31, 2003, with the
cumulative total return over the same period on the broad market, as measured by
the American Stock Exchange Market Value Index, and on a peer group. The peer
group index is based on the total returns earned on the stock of the publicly
traded companies included in the Media General Financial Services database under
only SIC Code 4813, Telephone Communications, except Radio Telephone (134
companies). The data presented in the graph assumes that $100 was invested in
the Corporation's Common Stock and in each of the indexes on September 1, 1999
and that all dividends were reinvested.
COMPARE CUMULATIVE TOTAL RETURN AMONG LYNCH
INTERACTIVE CORPORATION, AMEX MARKET INDEX,
OLD PEER GROUP INDEX AND NEW PEER GROUP INDEX
COMPANY/INDEX/MARKET 09/01/99 12/31/99 12/29/00 12/31/01 12/31/02 12/31/03
Lynch Interactive Corporation 100.00 192.07 167.31 265.38 101.92 91.73
Peer Group Index ............ 100.00 135.62 73.89 50.73 37.87 47.73
AMEX Market Index ........... 100.00 116.58 115.15 109.84 105.46 143.54
ASSUMES $100 INVESTED ON SEPT 1, 1999
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2003
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TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS
Mario Gabelli is affiliated with various entities which he directly or
indirectly controls and which are engaged in various aspects of the securities
business, such as an investment advisor to various institutional and individual
clients including registered investment companies and pension plans, as a
broker-dealer, and as managing general partner of various private investment
partnerships. During 2003, the Corporation and its subsidiaries engaged in
various transactions with certain of these entities and the amount of
commissions, fees, and other remuneration paid to such entities, excluding
reimbursement of certain expenses related to Mr. Gabelli's employment by the
Corporation (including a $35,248 reimbursement in connection with an airplane in
part owned by a subsidiary of Gabelli Group Capital Partners, Inc.), was less
than $60,000.
In 1998, Lynch Corporation entered into a lease for approximately 5,000
square feet in a building in Rye, New York, owned by an affiliate of Mr.
Gabelli. Following the spin off, the Corporation became the lessee of such lease
and in May 2001 the parties agreed to reduce the leased space to approximately
3,300 square feet. The lease was renewed in December 2002 and provides for rent
at approximately $28 per square foot per annum plus a minimum of $3.00 per
square foot per annum for utilities, subject to adjustment for increases in tax
and other operating expenses. The total amount paid for rent and utilities in
2003 under such lease was $103,354. Another entity unaffiliated with the
Corporation or Mr. Gabelli leases 5,069 in this building and paid rent in 2003
at the same rate of $28 per square foot plus $3 per square foot for utilities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Acts of 1934, as amended,
requires the Corporation's directors, executive officers and holders of more
than 10% of the Corporation's Common Stock to file with the Securities and
Exchange Commission and American Stock Exchange initial reports of ownership and
reports of changes in the ownership of Common Stock and other equity securities
of the Corporation. Such persons are required to furnish the Corporation with
copies of all Section 16(a) filings. Based solely on the Corporation's review of
the copies of such filings it has received and written representations of
directors and officers, the Corporation believes that during the fiscal year
ended December 31, 2003, its officers, directors, and 10% stockholders are in
compliance with all Section 16(a) filing requirements applicable to them.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 2005 annual
meeting of stockholders must be received by the Office of the Secretary, Lynch
Interactive Corporation, 401 Theodore Fremd Avenue, Rye, NY 10580, by no later
than December 15, 2004, for inclusion in the Corporation's proxy statement and
form of proxy relating to the 2005 annual meeting.
A stockholder may also nominate directors or have other business brought
before the 2005 annual meeting by submitting the nomination or proposal to the
Corporation on or before February 28, 2005. The nomination or proposal must be
delivered to the Corporation's executive offices at 401 Theodore Fremd Avenue,
Rye, New York 10580, to the attention of the corporate Secretary. The
Corporation is not required to include any nomination or proposal received after
December 15, 2004, in the proxy materials for the 2005 annual meeting.
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MISCELLANEOUS
The Board of Directors knows of no other matters that are likely to come
before the annual meeting. If any other matters should properly come before the
annual meeting, it is the intention of the persons named in the accompanying
form of proxy to vote on such matters in accordance with their best judgment.
ANNUAL REPORT
The Corporation's Annual Report to Stockholders for the fiscal year ended
December 31, 2003, has been sent herewith to each stockholder. Such Annual
Report, however, is not to be regarded as part of the proxy soliciting material.
By Order of the Board of Directors
John Fikre
Secretary
Dated: April 20, 2004
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EXHIBIT A
LYNCH INTERACTIVE CORPORATION
AUDIT COMMITTEE CHARTER
Organization
This Audit Committee Charter (the "Charter") governs the operations of the Audit
Committee (the "Committee") of Lynch Interactive Corporation (the "Company").
The Committee shall review and reassess the Charter at least annually and obtain
its approval by the Board of Directors (the "Board") of the Company, and shall
include a copy of the Charter as an appendix to the Company's proxy statement at
least once every three years.
The Committee shall be appointed by the Board. The Committee shall consist of at
least three independent directors, each of whom shall satisfy the independence
requirements of the American Stock Exchange (the "AMEX"), the Securities and
Exchange Commission (the "SEC"), and applicable law, including the
Sarbanes-Oxley Act of 2002 and the regulations thereunder (the "Act"). The
appointed Directors will be independent of the management of the Company, both
directly and indirectly, and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment
as a member of the Committee. In particular, the members will not have any
compensatory relationship with, or receive any form of compensation from, the
Company other than as a Director or Board committee member.
The Committee members will be financially literate and have the knowledge and
experience required to fulfill their responsibilities, as specified in the AMEX
requirements. At least one member of the Committee will qualify as a "financial
expert," as defined by the rules of the AMEX, the SEC and the Act.
The Board shall designate the Chairman of the Committee (the "Chairman").
Statement of Policy
The Committee shall provide assistance to the Board in fulfilling its oversight
responsibility to the stockholders, potential stockholders, the investment
community, and others, with respect to: (i) the integrity of the Company's
financial statements and financial reporting process, (ii) the performance of
the Company's systems of internal accounting and financial controls, and (iii)
the annual independent audit of the Company's financial statements and the
independent auditors' qualification and independence. In so doing, it is the
responsibility of the Committee to maintain free and open communication between
the Committee and each of the independent auditors and management of the
Company. In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and to retain independent
counsel and other advisors as the Committee deems necessary. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the independent auditors and any independent counsel or other
advisors engaged by the Committee.
The Audit Committee is vested with all responsibilities, authority and
procedures necessary to comply with Rule 10A-3(b)(2), (3), (4) and (5) under the
Securities Exchange Act of 1934 concerning responsibilities relating to: (i)
registered public accounting firms, (ii) complaints relating to accounting,
internal controls or auditing matters, (iii) authority to engage advisors, and
(iv) funding as determined by the Audit Committee.
Responsibilities and Processes
The primary responsibility of the Committee is to oversee the Company's
accounting and financial reporting processes and audits of the Company's
financial statements on behalf of the Board and to report the results of its
activities to the Board. While the Committee has the responsibilities and powers
set forth in this Charter, it
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recognizes that the Company's management is responsible for preparing the
Company's financial statements and that the independent auditors are responsible
for auditing those financial statements and determining that disclosures in such
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles and applicable rules and regulations.
Additionally, the Committee recognizes that financial management, as well as the
independent auditors, have more time, knowledge and detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the independent auditors' work.
The Committee, through meetings with the independent auditors and the principal
accounting officers of the Company, shall be satisfied that reasonable
procedures and controls are followed to safeguard the Company's assets and that
adequate examinations are made to ensure the reasonableness of the results and
disclosures reported in the annual and quarterly financial statements of the
Company. The Committee should take the appropriate actions to set the overall
corporate "tone" for quality financial reporting, sound business risk practices
and ethical behavior.
The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
1. Committee Oversight of Auditors. The Committee shall have a clear
-----------------------------------
understanding with management and the independent auditors that the
independent auditors report directly to the Committee, as representatives
of the Company's stockholders. The independent auditors are ultimately
accountable to the Committee and the Board. The Committee, as the
representative of the Board and the stockholders, shall have the sole
authority regarding the appointment, compensation, oversight, termination
and replacement of the independent auditors for the purpose of preparing or
issuing an audit report or related work, or any non-audit work, subject, if
applicable, to stockholder ratification. The Committee shall establish
clear hiring policies for employees or former employees of the independent
auditors, after consultation with management.
2. Pre-Approval of Auditors' Fees. The Committee shall pre-approve all
----------------------------------
auditing services and non-auditing services provided to the Company by the
independent auditors. Any permitted non-audit services not included in the
pre-approved category shall be approved prior to the commencement of any
such services.
3. Committee Meetings with Independent Auditors. The Committee shall meet with
---------------------------------------------
the independent auditors at least four times during each year and at such
other times that the Chairman may deem necessary or appropriate for any
reason, including a request of the independent auditors. On an annual
basis, the scope of the auditors' examination and the planning in
connection with the upcoming audit shall be presented to the Committee by
the independent auditors. The Committee shall also review with the
independent auditors the scope of each audit, any problems with management
and any other matters required to be communicated to the Committee under
generally accepted auditing standards or applicable rules of the AMEX, the
SEC the Act or other regulatory authority rules, regulations or laws. The
independent auditors shall also report on newly promulgated generally
accepted accounting principles, the Company's compliance therewith, as well
as the effect of unusual or extraordinary transactions. The independent
auditors must discuss their judgments about the quality of the Company's
accounting principles and the Company's application thereof with the
Committee.
4. Qualifications of Auditors. On an annual basis, the Committee shall review
---------------------------
and discuss with the independent auditors their report describing (i) the
independent auditors' internal quality-control procedures, and (ii) any
material issues raised by the most recent internal quality-control review,
or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by such firm, and
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any steps taken to deal with any such issues.
5. Statement of Auditors' Independence. The Committee shall request from the
-------------------------------------
independent auditors, annually, a formal written statement delineating all
relationships between the auditors and the Company, including fees paid by
the Company to the auditors; actively engage in a dialogue with the
independent auditors regarding all relationships between the auditors and
management of the Company that in the Committee's judgment (or the
auditors' judgment) may reasonably be thought to bear on the independence
of the independent auditors; and take appropriate action in response to the
independent auditor's report to satisfy itself of the auditors'
independence.
6. Rotation of Auditors. The Committee shall annually (i) assess the
-----------------------
qualifications, performance and independence of the auditors and the lead
audit partner and the reviewing audit partner, (ii) take any actions
necessary to ensure the rotations at least once every five (5) years of
each audit partner, and (iii) consider whether, in order to ensure
continuing auditor independence, the independent accounting firm should be
rotated on a regular basis.
7. Committee Role in SEC Filings. The Committee shall review with management
------------------------------
(including the principal accounting officers of the Company) and the
independent auditors, prior to filing, the filings required to be made by
the Company with the SEC on an annual and quarterly basis, including their
judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the clarity of
the disclosures in the financial statements. The Committee shall cause the
independent auditors to conduct a SAS 100 Interim Financial Review prior to
each filing of the Company's Form 10-Q. The Committee shall review and
discuss with management (including the principal accounting officers of the
Company) and the independent auditors the results of the annual audit of
the Company's consolidated financial statements prior to the filing or
distribution thereof, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," any appropriate matters regarding accounting principles,
practices and judgments and the independent auditors' opinion as to the
quality thereof, and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards.
8. Committee Role in Financial Statement Content. The Committee shall review
-----------------------------------------------
disclosures made by the Company's principal executive officer(s) and
principal financial officer(s) regarding compliance with their
certification obligations under the Act, including the Company's disclosure
controls and procedures and internal controls for financial reporting. The
Committee shall review significant findings by management, the independent
auditors or the internal auditors with respect to financial reporting
issues and judgments made in connection with the preparation of the
financial statements. The Committee shall also review with the independent
auditors any audit problems or difficulties and management's response.
After completion of such review, the Committee shall make its
recommendation to the Board.
9. Related Party Transactions. The Company's management shall report all
-----------------------------
proposed transactions between the Company and any stockholder, director or
officer, or an affiliate of the Company to the Committee. The Committee
shall review all such transactions and the Committee's approval shall be
required prior to the consummation of any such transaction that is material
to the Company.
10. Legal Compliance. On at least an annual basis, the Committee shall review,
-----------------
with the Company's counsel, any legal matters that could have a significant
impact on the Company's financial statements, compliance with applicable
laws and regulations, and inquiries received from regulators or
governmental agencies, including corporate securities trading policies.
11. Committee Oversight of Accounting Personnel. The Committee shall meet from
-------------------------------------------
time to time with the principal accounting officers of the Company to
review accounting policies followed, changes therein,
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accounting controls, and any issues that may be raised by the independent
auditors. The Committee shall develop practices for management to follow,
including protocols for retaining independent auditors to perform permitted
non-audit services. At the discretion of the Chairman, the principal
accounting officers of the Company may be invited to attend the meetings of
the Committee with the independent auditors. The Committee should meet
privately in executive session at least annually with management, the
independent auditors, and as a committee to discuss any matters that the
Committee or each of these groups believe should be discussed privately. In
conformity with the Company's continuing policy, the accounting officers
shall report to the Board at the time of submitting the annual and
quarterly financial statements of the Company.
12. Complaint Procedures. The Committee shall establish procedures for the
----------------------
process of handling complaints regarding the Company's accounting, internal
accounting controls and auditing matters and for the confidential,
anonymous submissions by employees of the Company of concerns relating to
questionable accounting or auditing matters.
13. Other Committee Activities. The Committee shall (i) prepare reports to
-----------------------------
stockholders as required by the SEC to be included in SEC filings; (ii)
meet at least four times annually, or more frequently as circumstances
dictate, either in person or by telephone conference call; and (iii)
maintain minutes of meetings and report to the Board on significant results
of the foregoing activities. The Committee may authorize investigations,
and hire independent counsel and auditors to assist in investigations. The
Committee shall make itself available to meet with management of the
Company to discuss any matters which it or management deems appropriate.
The Committee shall have the power and authority to perform any other
activities consistent with this Charter, the Company's by-laws, and
governing law, as the Committee or the Board deems necessary or
appropriate.
Limitation
Nothing in this Charter is intended to alter in any way the standard of conduct
that applies to any of the directors of the Company under the Delaware General
Corporation Law, as amended, and this Charter does not impose, nor shall it be
interpreted to impose, any duty on any director greater than, or in addition to,
the duties or standard established by the Delaware General Corporation Law.
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