SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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))
___ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
________________________________________________________________________________
THE TOPPS COMPANY, INC.
--------------------------------------------------------------------------------
(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.
(1) Title of each class of securities to which transaction applies:
____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
(3) 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):
____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
(5) Total fee paid:
____________________________________________________________________
___ 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.
(1) Amount Previously Paid:
___________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________
(3) Filing Party:
___________________________________________________________________
(4) Date Filed:
___________________________________________________________________
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number which is
located below to obtain your records and to create your electronic voting ins-
truction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instruction up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL -
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to the The Topps Company, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK IN AS FOLLOWS: TOPPS1 KEEP THIS PORTION FOR YOUR RECORDS
------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
__________________________________________________________________________________________________________________
THE TOPPS COMPANY, INC.
(Please read both sides before signing) 03 0000000000 218104039691
The Board of Directos recommends a vote FOR
all nominees for director and FOR Item 2. For Withhold For All To withhold authority to vote, mark
All All Except "For All Except" and write the
The undersigned authorizes and instructs nominee's number on the line below
said proxies to vote as follows: ___ ___ ___ __________________________________
ELECTION OF DIRECTORS
1. 01) Arthur T. Shorin, 02) Edward D. Miller
and 03) Stanley Tulchin
VOTE ON PROPOSAL For Against Abstain
2. To ratify the appointment of Deloitte
& Touche LLP as independent auditors for
The Topps Company, Inc. for the fiscal ___ ___ ___
year ending FEBRUARY 28, 2004 /__/ /__/ /__/
For comments, please check this box and write them ___
on the back where indicated /__/
Please sign exactly as your name appears above.
_______________________________________ ________________________________
/______________________________/_______/ /________________________/______/
Signature(PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
---------------------------------------------------------------------------------------------------------------
PROXY
THE TOPPS COMPANY, INC.
The undersigned hereby appoints Warren E. Friss and Scott A.Silverstein, and each of them, the attorneys
and proxies of the undersigned, with full power of substitution, to vote on behalf of the undersigned, all
the shares of stock of THE TOPPS COMPANY, INC., which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at J.P. Morgan Chase & Co., 270 Park Avenue, New York, NY
on June 26, 2003 at 10:30 a.m.(local time)and at any adjournments thereof, hereby revoking any proxy hereto-
fore given with respect to such stock.
This Proxy when properly executed, will be voted in the manner directed herein and, in the discretion
of the aforementioned proxies on all other matters which may properly come before the meeting. If no
instructions to the contrary is indicated, this Proxy will be voted FOR all nominees for director and FOR
Item 2.
Please return this proxy in the accompanying business reply envelope,
even if you expect to attend in person.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
COMMENTS: ___________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(If you noted comments above, please mark corresponding box on reverse side.)
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[TOPPS LOGO]
_______
THE TOPPS COMPANY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 2003
_______
To the Stockholders of
THE TOPPS COMPANY, INC.
I am pleased to invite you to attend the annual meeting of stockholders
(the "Annual Meeting") of The Topps Company, Inc., a Delaware corporation (the
"Company"), which will be held at J.P. Morgan Chase & Co., 270 Park Avenue, New
York, New York, on June 26, 2003 at 10:30 A.M., Eastern Standard time, for the
following purposes:
1. To elect three directors to serve for three-year terms until the
annual meeting of stockholders to be held in the year 2006;
2. To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the Company for the fiscal year
ending February 28, 2004; and
3. To transact such other business as may properly be brought before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on May 15, 2003 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the Annual Meeting and any adjournment or postponement
thereof.
By order of the Board of Directors,
Arthur T. Shorin
Chairman, President and
Chief Executive Officer
Dated: May 30, 2003
Whether or not you expect to be present at the Annual Meeting, please date and
sign the enclosed proxy and return it promptly in the enclosed envelope. In the
event you attend the Annual Meeting and vote in person, the proxy will not be
used.
THE TOPPS COMPANY, INC.
One Whitehall Street
New York, New York 10004
_________
PROXY STATEMENT
_________
GENERAL
The Board of Directors of The Topps Company, Inc. (the "Company") is
furnishing this proxy statement (the "Proxy Statement") to all stockholders of
record so that they will submit their proxies to be voted at the Annual Meeting
of stockholders of the Company (the "Annual Meeting") and at any adjournment or
postponement of the annual meeting. The Annual Meeting will be held at J.P.
Morgan Chase & Co., 270 Park Avenue, New York, New York, on June 26, 2003 at
10:30 A.M., Eastern Standard time. A copy of the Company's Annual Report to
Stockholders for the fiscal year ended March 1, 2003 is being mailed to all
stockholders with this Proxy Statement. The annual report is also available on
the internet at www.topps.com. The approximate mailing date of this Proxy
Statement is May 30, 2003.
Proxy Information
-----------------
Proxies in the form enclosed are being solicited by, or on behalf of, the
Company's Board of Directors (the "Board of Directors"). The persons named in
the accompanying form of proxy have been designated as proxies by the Board of
Directors.
All proxies received as a result of this request will be voted (except as
to matters where authority to vote is specifically withheld). Where the proxy
asks that a stockholder choose for or against a proposal, the proxy will be
voted in accordance with the stockholder's choice. If no choice is indicated on
the proposals, the Board of Directors will vote on behalf of the persons named
in the proxy: (i) for the nominees for election as directors of the Company
listed herein, and (ii) for the ratification of the appointment by the Board of
Directors of Deloitte & Touche LLP as auditors for the Company for the fiscal
year ending February 28, 2004. If any other matter should be presented at the
Annual Meeting upon which a vote may properly be taken, the shares represented
by the proxy will be voted at the discretion of the proxies.
Stockholders who submit proxies may revoke them at any time before they are
voted by written notice to the Company by either submitting a new proxy or by
personal ballot at the Annual Meeting.
Record Date and Voting
----------------------
As of May 15, 2003, the Company had outstanding 40,700,151 shares of common
stock, par value $.01 per share ("Common Stock"), entitled to be voted at the
Annual Meeting. Each share is entitled to one vote on each matter submitted to a
vote of stockholders. Only stockholders of record at the close of business on
May 15, 2003 will be entitled to vote at the Annual Meeting. If your shares are
registered directly in your name with the Company's transfer agent, American
Stock Transfer & Trust Company, you are considered with respect to those shares
the stockholder of record, and these proxy materials are being sent directly to
you. As the stockholder of record, you have the right to submit your voting
proxy directly to the Company using the enclosed proxy card or to vote in person
at the Annual Meeting.
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of shares held in "street
name". These proxy materials are being forwarded to you by your broker who is
considered, with respect to those shares, the stockholder of record. As the
beneficial owner, you have the right to direct your broker to vote your shares,
and your broker or nominee has enclosed a voting instruction card for you to
use. You are also invited to attend the Annual Meeting; however, since you are
not the stockholder of record, you may not vote these shares in person at the
meeting.
1
Under Delaware law and the Company's bylaws, the presence of a quorum is
required to transact business at the Annual Meeting. A quorum is defined as the
presence, either in person or by proxy, of a majority of the shares entitled to
vote. Proxies marked "abstain" will be included in determining a quorum. On
routine matters, brokers who hold customer shares in "street name" but have not
timely received voting instructions from their customers have discretion to vote
such shares. Since all of the matters to be voted upon at the Annual Meeting are
routine, the presence of such shares will be included in determining whether a
quorum is present.
Under Delaware law and the Company's bylaws, proposals must be approved by
the affirmative vote of a majority or, in the case of the election of directors,
a plurality, of the shares present, either in person or by proxy, at the Annual
Meeting and entitled to vote. Accordingly, abstentions will have the same effect
as votes "against" a proposal, whereas instructions to withhold voting on the
election of any nominee for director will have no effect on the outcome of the
vote.
Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information available to the Company as to
shares of Common Stock owned as of May 15, 2003 by (i) each person known to the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock, (ii) each director and nominee for election as a director, (iii)
each person designated in the section of this Proxy Statement captioned
"Executive Compensation" and (iv) all directors and executive officers as a
group. Except as otherwise indicated, each person named below has sole
investment and voting power with respect to the shares of Common Stock shown.
Name of Amount and Nature Percentage of
Beneficial Ownership of Beneficial Ownership(1) Shares Outstanding
-------------------- -------------------------- ------------------
Arthur T. Shorin(2)(3) 2,830,489 6.9%
Ronald L. Boyum(4) 84,500 *
Allan A. Feder(2)(5) 112,000 *
Ira Friedman(6) 87,500 *
Stephen D. Greenberg(7) 197,000 *
Ann Kirschner(8) 68,000 *
David M. Mauer(9) 165,000 *
Edward D. Miller(10) 34,000 *
Jack H. Nusbaum(11) 160,000 *
John Perillo(12) 131,000 *
Scott A. Silverstein(2)(13) 251,000 *
Richard Tarlow(14) 68,000 *
Stanley Tulchin(15) 170,175 *
Private Capital Management, Inc. (16) 10,227,774 25.1%
8889 Pelican Bay Blvd
Naples, Florida 34108
Royce & Associates, LLC (17) 4,507,300 11.1%
1414 Avenue of the Americas
New York, New York 10019
Merrill Lynch & Co., Inc. (18) 4,376,126 10.8%
Merrill Lynch Investment Mangers (MLIM)
World Financial Center
250 Vesey Street
New York, New York 10381
All directors and executive officers
as a group (19 persons) 5,414,490 12.6%
__________________
*less than 1.0%
2
(1) Pursuant to regulations of the Securities and Exchange Commission, shares
are deemed to be "beneficially owned" by a person if such person directly
or indirectly has or shares the power to vote or dispose of such shares, or
has the right to acquire the power to vote or dispose of such shares within
60 days, including any right to acquire through the exercise of any option,
warrant or right.
(2) Does not include 50,000, 1,378 and 20,702 shares of Common Stock owned by
immediate family members of each of Messrs. Shorin, Feder and Silverstein,
respectively. Messrs. Shorin, Feder and Silverstein disclaim beneficial
ownership of such shares.
(3) Includes 532,500 shares of Common Stock issuable upon exercise of options.
(4) Includes 74,500 shares of Common Stock issuable upon exercise of options.
(5) Includes 78,000 shares of Common Stock issuable upon exercise of options.
(6) Includes 70,500 shares of Common Stock issuable upon exercise of options.
(7) Includes 106,000 shares of Common Stock issuable upon exercise of options.
(8) All such shares of Common Stock issuable upon exercise of options.
(9) Includes 136,000 shares of Common Stock issuable upon exercise of options.
(10) All such shares of Common Stock issuable upon exercise of options.
(11) Includes 95,000 shares of Common Stock issuable upon exercise of options.
(12) Includes 116,000 shares of Common Stock issuable upon exercise of options.
(13) Includes 241,500 shares of Common Stock issuable upon exercise of options.
(14) All such shares of Common Stock issuable upon exercise of options.
(15) Includes 95,000 shares of Common Stock issuable upon exercise of options.
(16) Based upon a Schedule 13G filed on February 14, 2003 with the SEC by
Private Capital Management, Inc.
(17) Based upon a Schedule 13G filed on February 5, 2003 with the SEC by Royce &
Associates, LLC.
(18) Based upon a Schedule 13G filed on April 4, 2003 with the SEC by Merrill
Lynch and Co., Inc.
3
ELECTION OF DIRECTORS
There are currently nine members of the Board of Directors which is divided
into three classes (each with three members), with each class serving for a
period of three years. One class of directors is elected by the stockholders
annually. This year, Messrs. Arthur T. Shorin, Edward D. Miller and Stanley
Tulchin have been nominated to stand for re-election for a term that expires at
the annual meeting of stockholders to be held in the year 2006.
Should any one or more of these nominees become unable to serve for any
reason or, for good cause, will not serve, which is not anticipated, the Board
of Directors may designate substitute nominees, unless the Board of Directors by
resolution provides for a lesser number of directors. In this event, the proxy
holders will vote for the election of such substitute nominee or nominees.
The following table sets forth the name, age and principal business
experience during the past five years of each director of the Company.
Business Experience Director of the
During Past 5 Years, Company or its
Name Age and Other Information Predecessors Since
---- ------------------------- ------------------
Nominees to Serve
in Office Until 2006
Arthur T. Shorin Chairman of the Board and Chief Executive 1960
Officer of the Company and its predecessor
since 1980. Mr. Shorin was appointed the
President of the Company in November 1997.
Mr. Shorin is the father-in-law of Scott
A. Silverstein, an executive officer of the
Company. Mr. Shorin is 67 years of age.
Edward D. Miller Member of the Supervisory Board and Senior 2001
Advisor to the Chief Executive Officer of
AXA Group since July 2001. Mr. Miller
served as President and Chief Executive
Officer of AXA Financial, Inc. from August
1997 through June 2001. Mr. Miller was
Senior Vice Chairman of the Chase Manhattan
Corporation from 1996 through July 1997.
Mr. Miller is also a director of Keyspan
Corp and Chairman of the Board of Directors
of Phoenix House. Mr. Miller is 62 years of
age.
Stanley Tulchin Chairman of Stanley Tulchin Associates, Inc. 1987
(a commercial collection agency) since 1955.
Mr. Tulchin is also Chairman and Chief
Executive Officer of Reprise Capital
Corporation (a venture capital fund) for
more than the past five years. Mr. Tulchin
is 76 years of age.
4
Business Experience Director of the
During Past 5 Years, Company or its
Name Age and Other Information Predecessors Since
---- ------------------------- ------------------
Directors to Continue
in Office Until 2005
Stephen D. Greenberg Managing Director, Allen, LLC since January 1993
2002. Chairman of Fusient Media Ventures,
Inc. from January 2000 through December
2001. Private Investor from November 1998
December 1999. President of Classic Sports
Network, Inc. from November 1993 through
October 1998. Mr. Greenberg is 54 years of
age.
Ann Kirschner President, Comma International (management 1999
consulting company, specializing in educa-
tion, media and technology) since February
2003. Chief Executive Officer and President
of FATHOM (the first interactive knowledge
network) from 1999 through January 2003.
Dr. Kirschner was Vice President of
Programming and Media Development for the
National Football League from November 1994
through January 1999. Dr. Kirschner is also
on the Board of Directors of New York New
Media Association. Dr. Kirschner is 52
years of age.
Richard Tarlow Chairman of Carlson & Partners (an 1999
advertising agency) since 1988. Mr. Tarlow
was President of Tarlow Advertising, a
division of Revlon Inc., from 1987 to 2000
and Executive Vice President of Revlon Inc.
from 1988 to 2000. Mr. Tarlow is 61 years
of age.
5
Business Experience Director of the
During Past 5 Years, Company or its
Name Age and Other Information Predecessors Since
---- ------------------------- ------------------
Directors to Serve
in Office Until 2004
Allan A. Feder An independent business consultant for more 1992
than the past five years and Chief
Executive Officer of Vitarroz Corporation
(a proprietary brand food company)from 1988
to 2000. Mr. Feder is 71 years of age.
David M. Mauer Chief Executive Officer of E&B Giftware, 1996
LLC since January 2003. An independent
business consultant from July 2001 to
December 2002. Served as President and
Chief Executive Officer of Riddell Sports
Inc. from 1993 until June 2001. Mr. Mauer
is also a member of the CEO Council of the
National Center for Missing and Exploited
Children. Mr. Mauer is 54 years of age.
Jack H. Nusbaum Chairman of the New York law firm of 1992
Willkie Farr & Gallagher and a partner in
that firm for more than thirty years. Mr.
Nusbaum is also a director of W. R. Berkley
Corporation; Neuberger Berman, Inc.; Prime
Hospitality Corp.; and Strategic Distri-
bution, Inc. Mr. Nusbaum is 62 years of age.
The Board of Directors met four times during the fiscal year ended March 1,
2003. Each of the directors who served during such period attended at least 75%
of the aggregate number of meetings of the Board of Directors and any committee
of which they were members during such period.
6
Compensation Committee
----------------------
The Company has a Compensation Committee responsible for recommending
officers' remuneration and administering The Topps Company, Inc. 2001 Stock
Incentive Plan (the "Stock Incentive Plan"), the 1996 Stock Option Plan and the
1987 Stock Option Plan. The members of the Compensation Committee for the fiscal
year ended March 1, 2003 were Messrs. Richard Tarlow and Stanley Tulchin,
neither of whom is an employee of the Company. The Compensation Committee held
five meetings during the fiscal year ended March 1, 2003.
Audit Committee
---------------
The Audit Committee is responsible for overseeing the Company's accounting
functions and internal controls and for recommending to the Board of Directors,
subject to stockholder ratification, the selection of the Company's independent
accountants. The Audit Committee is composed of independent directors of the
Company, as defined by Rule 4200(a)(15) of the National Association of
Securities Dealers' listing standards, and acts pursuant to a written charter
adopted by the Board of Directors,a copy of which is attached to this Proxy
Statement as Appendix A. The members of such committee for the fiscal year ended
March 1, 2003 were Messrs. Allan A. Feder, Stephen D. Greenberg, Edward D.
Miller (effective June 27, 2002) and Stanley Tulchin. During the fiscal year
ended March 1, 2003, there were three meetings of the Audit Committee. Effective
April 15, 2002, Mr. Mauer resigned from the Audit Committee and accepted a
position as special consultant to the Company. None of the members of the Audit
Committee are employees of the Company.
The Company does not have a nominating committee.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
The Company's executive officers, directors and ten percent stockholders
are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to file reports of ownership and changes in ownership with the
SEC. Based solely upon its review of the copies of reports furnished to the
Company through the date hereof, or written representations that no reports were
required to be filed, the Company believes that all filing requirements
applicable to its executive officers, directors and ten percent stockholders
were complied with during the fiscal year ended March 1, 2003.
Compensation of Directors
-------------------------
For the fiscal year ended March 1, 2003, pursuant to the Amended Directors
Plan, each of Mr. Allan A. Feder, Mr. Stephen D. Greenberg, Dr. Ann Kirschner,
Mr. David M. Mauer, Mr. Edward D. Miller, Mr. Jack H. Nusbaum, Mr. Richard
Tarlow and Mr. Stanley Tulchin, none of whom is an employee of the Company,
received options to purchase 17,000 shares of Common Stock at a price of $10.10
per share. These options become exercisable on June 27, 2003 and have a term of
ten years from the date of grant.
Commencing June 26, 2003, directors who are not also officers of the
Company will receive directors' fees of $20,000 per year in addition to $20,000
in shares of the common stock of the Company which will be restricted for one
year from the date of issuance. Directors will no longer receive annual grants
of options under the Amended Directors Plan.
In addition, members of the Audit or Compensation Committees will receive
the following annual fees. The chairperson of the Audit Committee will receive
$6,000 while each member will receive $3,000 and the chairperson of the
Compensation Committee will receive $4,000 and each member will receive $2,000.
Directors who are also officers of the Company are not compensated for
their duties as a director.
7
EXECUTIVE COMPENSATION
The following table sets forth for each of the last three fiscal years
information regarding the compensation of (i) the Company's Chief Executive
Officer, (ii) the four other most highly compensated persons who were executive
officers at the end of the fiscal year ended March 1, 2003 and (iii) any other
person who would have been among the four other most highly compensated but was
not an executive officer at the end of the last fiscal year (each, a "Named
Executive Officer").
Summary Compensation Table (1)
------------------------------
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Fiscal
Year Salary(2) Bonus Securities Underlying
Name and Principal Position Ended ($) ($) Options/ SARs (#)
--------------------------- ------ --------- ------ ---------------------
Arthur T. Shorin............... 2003 985,000 450,145 --
Chairman, President and 2002 960,130 1,076,078(3) -- --
Chief Executive Officer 2001 838,082 502,849 --
Scott A. Silverstein(4)........ 2003 305,706 137,364 --
Executive Vice President 2002 260,442 156,265 --
2001 245,962 147,534 60,000
Ronald L. Boyum............... 2003 289,400 131,932 --
Vice President - Marketing and 2002 286,000 171,612 --
Sales and General Manager 2001 277,308 166,385 11,000
Confectionery
John Perillo.................. 2003 253,863 126,932 --
Vice President - Operations 2002 248,471 149,083 --
2001 238,931 143,388 12,000
Ira Friedman 2003 246,864 110,418 --
Vice President - Publishing 2002 236,028 141,617 --
and New Product Development 2001 225,316 135,190 12,000
-----------------
(1) Because none of the Named Executive Officers received (a) perquisites and
other personal benefits (including, for certain of the Named Executive
Officers, medical reimbursements, moving expenses and car use allowances)
in excess of the lesser of $50,000 or 10% of such officer's annual salary
and bonus, (b) any other compensation required to be reported or (c) any
restricted stock awards, the columns entitled "Other Annual Compensation,"
"Restricted Stock Awards," "LTIP Payouts" and "All Other Compensation" are
inapplicable and have therefore been omitted from the table.
(2) The Company's fiscal year ended March 3, 2001 consisted of 53 weeks, while
the two other fiscal years in the table contained 52 weeks. Therefore,
salary levels for the fiscal year ended March 3, 2001 reflect an additional
one week's salary.
(3) Includes payment of extension bonus of $500,000 under the agreement to
extend the terms of employment (Employment Agreement).
(4) Mr. Silverstein is the son-in-law of Mr. Shorin.
Option/SAR Grants in Last Fiscal Year
There were no stock options or stock appreciation rights granted in the
fiscal year ended March 1, 2003 to the Named Executive Officers.
8
Aggregate Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
The following table provides information regarding the exercise of
options/SARs during the fiscal year ended March 1, 2003 and the number and value
of unexercised options and SARs held at fiscal year end by each of the Named
Executive Officers.
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
______________________________ ____________________________
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
Arthur T. Shorin............. -- -- 932,500 -- 2,580,662 --
Scott A. Silverstein......... 15,000 21,985 241,000 -- 882,873 --
Ronald L. Boyum.............. 70,000 112,560 74,500 -- 178,070 --
John Perillo................. 15,000 61,013 139,500 -- 434,291 --
Ira Friedman................. 15,000 172,113 70,500 -- 244,487 --
Equity Compensation Plan Information
___________________________________________________________________________________________________________________
(a) Number of Securities (b) Weighted-average (c) Number of securities
to be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation plans
(excluding securities
Plan Category(1) reflected in column (a))
------------------------------- ---------------------------- ---------------------------- --------------------------
Equity compensation plans
approved by shareholders
- Directors Plan 595,000 $8.72 189,000
- 2001 Plan 3,162,977 $6.35 2,308,512
TOTAL 3,757,977 $6.73 2,497,512
____________________________________________________________________________________________________________________
(1) The Company does not have any equity compensation plans or arrangements
that were not approved by the Company's stockholders.
9
Pension Benefits
----------------
The Company maintains a tax qualified non-contributory defined benefit
pension plan for its eligible employees (the "Retirement Plan"). The Summary
Compensation Table contained in this Proxy Statement does not include the
benefit accruals in respect of the Named Executive Officers under the Retirement
Plan. The estimated annual pension benefits under the Retirement Plan, assuming
retirement at age 65, at various levels of compensation and years of credited
service are illustrated by the following table:
Annual Retirement Benefit for Specified
Years of Credited Service(1)(2)
Highest Average
Compensation(3) 15 20 25 30 35 40 50
-------- -------- -------- -------- -------- -------- --------
$ 160,000............ $ 34,865 $ 47,322 $ 60,278 $ 73,312 $ 75,010 $ 77,010 $81,010
$ 175,000............ $ 38,615 $ 52,323 $ 66,528 $ 80,812 $ 82,727 $ 84,885 $89,260
$ 200,000............ $ 44,865 $ 60,656 $ 76,945 $ 93,312 $ 95,540 $ 98,010 $103,010
$ 225,000............ $ 51,115 $ 68,990 $ 87,362 $105,812 $108,352 $111,135 $116,760
$ 250,000............ $ 57,365 $ 77,323 $ 97,779 $118,313 $121,165 $124,260 $130,510
$ 300,000............ $ 69,866 $ 93,990 $118,613 $143,313 $146,790 $150,510 $158,010
$ 400,000............ $ 94,866 $127,324 $160,280 $193,314 $198,040 $203,010 $213,010
$ 450,000............ $107,366 $143,991 $181,114 $218,315 $223,665 $229,260 $240,510
$ 500,000............ $119,867 $160,658 $201,948 $243,315 $249,290 $255,510 $268,010
$ 600,000............ $144,867 $193,992 $243,615 $293,316 $300,540 $308,010 $323,010
$ 800,000............ $194,868 $260,660 $326,950 $393,318 $403,040 $413,010 $433,010
$ 1,000,000............ $244,869 $327,328 $410,285 $493,320 $505,540 $518,010 $543,010
$ 1,500,000............ $365,040 $490,040 $615,040 $740,040 $758,790 $777,540 $815,040
_______________________
(1) These are hypothetical benefits based upon the Retirement Plan's normal
retirement benefit formula. The maximum annual benefit permitted under
Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"),
is generally limited to $160,000 at present and will be adjusted to reflect
cost-of-living increases in 2004 and succeeding plan years.
(2) The benefits shown corresponding to these compensation ranges are
hypothetical benefits based upon the Retirement Plan's normal retirement
benefit formula. Under Section 401(a)(17) of the Code, compensation in
excess of $200,000 (as adjusted to reflect cost-of-living increases) is
disregarded for purposes of determining highest average compensation of
participants in the Retirement Plan for 2003. Benefits accrued as of the
last day of the plan year beginning in 1993 on the basis of compensation in
excess of the applicable dollar limit are preserved. The $200,000 limit
will be adjusted for cost-of-living increases in 2004 and succeeding plan
years.
(3) This table includes supplemental pension benefits payable to Mr. Shorin in
excess of the limitations on compensation and benefits under the Code and
other applicable laws, pursuant to an amended and restated supplemental
pension agreement entered into as of June 1, 2001 (the "Supplemental
Pension Agreement"). These benefits are computed in accordance with the
same formula provided under the Retirement Plan without regard to the
aforementioned limitations. However, compensation attributable to stock
appreciation rights and stock options is not taken into account in
determining highest average compensation for purposes of the Supplemental
Pension Agreement.
10
The normal retirement benefit under the Retirement Plan is payable in the
form of a "straight life" annuity and is equal to the greater of (i) 1.667% of a
participant's highest average W-2 compensation multiplied by the participant's
years of credited service not in excess of 30 years, plus .25% of the
participant's highest average compensation multiplied by the participant's years
of credited service in excess of 30 years, reduced by 50% of the participant's
estimated primary Social Security benefit determined on the basis of the
participant's earnings from the Company, or (ii) $204 multiplied by the
participant's years of credited service not in excess of 20 years, plus $144
multiplied by the participant's credited service in excess of 20 years (but not
to exceed 10 additional years). The "highest average compensation" for purposes
of determining the normal retirement benefit is equal to 1/5 of the total
compensation that is paid to a participant by the Company for the 60
consecutive-month period in which the participant's compensation was greatest
during the 120-month period prior to the participant's retirement or termination
of employment. Subject to the $200,000 compensation limit in the case of an
executive officer other than Mr. Shorin, such compensation includes all
compensation reflected in the Summary Compensation Table to the extent included
in gross income for the applicable base years, except for income attributable to
reimbursement of moving expenses.
As of March 1, 2003, the persons named in the Summary Compensation Table
were credited with the following years of service: Mr. Shorin - 45, Mr.
Silverstein - 11, Mr. Boyum - 14, Mr. Perillo - 26, Mr. Friedman - 15.
Employment Agreement
--------------------
Effective June 1, 2003, the Compensation Committee agreed to extend the
term of Mr. Arthur T. Shorin's amended and restated employment agreement for an
additional two years in order to secure Mr. Shorin's services through May 31,
2005. As a result, the Company entered into an amended and restated employment
agreement (the "Agreement") with Mr. Shorin to reflect the term extension and
Mr. Shorin will be paid an extension bonus of $500,000. The Agreement provides
for an annual base salary of $985,000 subject to increase at the discretion of
the Compensation Committee. Mr. Shorin's agreement provides for an annual target
bonus opportunity which is not less favorable than that provided for other
executive officers of the Company.
If Mr. Shorin is terminated without "Cause" or resigns for "Good Reason"
(as defined in the Agreement), he will receive a full or prorated bonus for the
year of termination (based on the time within the fiscal year that the
termination occurs) and a lump sum severance payment will be made as liquidated
damages equal to three times Mr. Shorin's base salary plus his highest annual
bonus paid for the three fiscal years ended prior to the date of termination,
and he will continue to participate in all of the Company's benefit plans for a
period of three years following such termination. In addition, all of his
unvested stock options will vest and remain exercisable in accordance with their
terms.
The Agreement also requires that, in the event any payments made upon his
termination of employment are treated as "parachute payments" subject to excise
taxes under federal tax law, the Company will make an additional payment to the
applicable tax authorities on behalf of Mr. Shorin so that his after-tax
position is the same as if the payments were not subject to an excise tax.
Mr. Shorin's Agreement also requires the Company to make annual
contributions to an irrevocable Company trust account, in an amount such that
the assets of the trust account will be equal to the present value of the
supplemental pension benefits which accrue during each fiscal year for Mr.
Shorin under his Supplemental Pension Agreement. In the event of his termination
without Cause or Resignation for Good Reason, the Agreement counts severance
compensation paid to Mr. Shorin in determining highest average compensation and
credits Mr. Shorin with three additional years of service for pension purposes.
At the end of the two-year term, Mr. Shorin may request a two-year
extension on equivalent terms with a minimum base salary adjustment for
increases in the cost of living since June 1, 2003 and a $500,000 extension
bonus. If the Company determines not to extend the term, Mr. Shorin's employment
will terminate on May 30, 2005 and he will be entitled to the severance
compensation outlined above for a termination without cause for two years
instead of three. If Mr. Shorin elects to retire at the end of the two year term
rather than seek an extension of the term, Mr. Shorin will be entitled the
severance compensation outlined above for one year instead of three. In
addition, the Agreement provides that if the term of the Agreement is not
extended by the Company or if Mr. Shorin retires at the end of the term, the
Company will offer Mr. Shorin a three-year post-employment consulting agreement
providing for a $350,000 annual consulting fee in return for Mr. Shorin's
continued part-time services.
11
Report of the Compensation Committee on Executive Compensation
--------------------------------------------------------------
The Compensation Committee is responsible for setting the Company's
compensation objectives and policies. It regularly approves compensation plans
and sets specific compensation levels for all executive officers. In addition,
the Compensation Committee administers the stock option plans and determines the
degree and extent of awards granted thereunder.
Compensation Policy
-------------------
The Compensation Committee seeks to provide a total compensation package
that is competitive and intended to retain and motivate the Company's executive
officers. In structuring the compensation package for executive officers, the
Committee seeks to provide financial incentives tied to the achievement of the
Company's short-term and long-term business objectives and intended to enhance
stockholder value.
Base Salary
-----------
In setting base salary for the executive officers for fiscal 2003, the
Compensation Committee considered the base salary levels of executives with
similar responsibilities in companies of similar size, business and complexity.
The Committee also considered each executive officer's experience in his
position at the Company and his actual performance over the prior fiscal year.
Based on the above criteria, the Compensation Committee made subjective
determinations with respect to the compensation of all of the Company's
executive officers other than Mr. Shorin (whose compensation was governed by an
Employment Agreement).
Bonus Awards
------------
The Company's Bonus Plan for fiscal 2003 was structured to reward executive
officers for performance on the achievement of strategic goals in addition to
financial performance. Bonus levels for fiscal 2003 were set by the Compensation
Committee after consideration of bonus levels for executives with similar
responsibilities in companies of similar size, business and complexity. Bonus
payments for fiscal 2003 reflected attainment of seventy-six percent of the
maximum earnings objectives for executive officers.
Stock Option Awards
-------------------
Long-term incentive compensation opportunities are provided through grants
of stock options under the Stock Incentive Plan. All options granted under such
Plan have exercise prices which are at least equal to the fair market value of
the Common Stock on the date of grant so as to directly align such incentive
compensation with an increase in stockholder value. The Compensation Committee
elected to make no grants of stock options to any executive officers of the
Company during fiscal 2003.
12
Chief Executive Officer
-----------------------
Mr. Shorin's base salary is set under the terms of his Employment Agreement
and has remained unchanged since June 1, 2001. Mr. Shorin agreed to waive the
automatic increase in his base salary to which he was entitled upon the
extension of the terms of his Employment Agreement. Mr. Shorin's annual
performance bonus for fiscal 2003 was determined entirely by reference to
uniform, pre-established earnings targets that were developed for all senior
executives at the beginning of the fiscal year. The bonus paid on the
achievement of these targets reflected attainment of seventy-six percent of the
maximum.
Section 162(m)
--------------
Section 162(m) of the Code generally disallows a tax deduction to public
companies for annual compensation over $1 million paid to each of the Company's
Chief Executive Officer and four other most highly compensated executive
officers, except to the extent such compensation qualifies as
"performance-based." Only Mr. Shorin has received compensation in excess of the
Section 162(m) limits and all other compensation has been fully deductible by
the Company. While the Committee's policy has always been to pursue a strategy
of maximizing deductibility of compensation for the Named Executive Officers, it
also believes it is important to maintain the flexibility to take actions it
considers in the best interests of the Company and its stockholders, which are
necessarily based on considerations in addition to Section 162(m). In light of
the competitive market for highly qualified executives, the Company has
exercised that flexibility with respect to Mr. Shorin.
The Compensation Committee:
Richard Tarlow
Stanley Tulchin
13
CERTAIN RELATIONSHIPS
Jack H. Nusbaum, a director, is a partner in the law firm of Willkie Farr &
Gallagher, outside counsel to the Company. David M. Mauer, a director, was a
member of the Audit Committee until April 15, 2002. Mr. Mauer was retained as a
special consultant to the Company from April through December 2002 and as such
was paid $208,000 during the fiscal year ended March 1, 2003. The Compensation
Committee on April 24, 2002 granted Mr. Mauer options to purchase 30,000 shares
of common stock at a price of $10.20 per share. Richard Tarlow, a director, is
Chairman of Carlson & Partners, which from time to time performs advertising
services for the Company. Carlson & Partners was paid $349,000 for services
during the fiscal year ended March 1, 2003.
Performance Graph
-----------------
The graph set forth below shows the yearly percentage change in the
Company's cumulative total stockholder return against each of the S&P MidCap 400
and a composite index (the "Composite Index"), in each case assuming an
investment of $100 on February 28, 1998 and the accumulation and reinvestment of
dividends paid thereafter through March 1, 2003.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
1998 1999 2000 2001 2002 2003
Topps Co Inc Return % 59.09 71.43 30.00 -1.64 -15.85
Cum $ $100.00 $159.09 $272.73 $354.55 $348.73 $293.45
S&P Midcap 400 Return % 2.12 30.99 8.93 2.70 -18.67
Cum $ $100.00 $102.12 $133.76 $145.70 $149.64 $121.71
Composite Index Return % 11.23 -20.41 27.78 10.27 -11.72
Cum $ $100.00 $111.23 $88.52 $113.12 $124.73 $110.12
The Composite Index is comprised of four industry groups reported in the
"Directory of Companies required to file Annual Reports with the Securities and
Exchange Commission," for the period ended September 30, 1993, and based upon
the Standard Industrial Classification ("SIC") codes developed by the Office of
Management and Budget, Executive Office of the President. The four industry
groups are Miscellaneous Publishing (SIC Code 2741), Sugar and Confectionery
Products (SIC Code 2060), Periodicals: Publishing or Publishing and Printing
(SIC Code 2721) and Wholesale - Miscellaneous Durable Goods (SIC Code 5090).
14
Report of The Audit Committee of The Board of Directors
-------------------------------------------------------
The Audit Committee is responsible for overseeing the Company's accounting
functions and internal controls and for recommending to the Board of Directors,
subject to stockholder ratification, the selection of the Company's independent
accountants. The Audit Committee is composed of independent directors of the
Company, as defined by Rule 4200(a)(15) of the National Association of
Securities Dealers' listing standards, and acts pursuant to a written charter
adopted by the Board of Directors,a copy of which is attached to this Proxy
Statement as Appendix A .
The Audit Committee has reviewed and discussed with management and the
independent accountants the audited financial statements for the fiscal year
ended March 1, 2003. In addition, the Audit Committee has discussed with the
independent accountants the matters required to be discussed by the Statement on
Auditing Standards No. 61, Communications with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public
Accountants.
The independent accountants provided to the Audit Committee the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as amended. The Audit Committee has reviewed and discussed with the
independent accountants the firm's independence and has considered the
compatibility of any non-audit services with the auditors' independence.
Based on its review of the audited financial statements and the various
discussions referred to above, the Audit Committee has recommended to the Board
of Directors that the audited financial statements be included in the Company's
annual report on Form 10-K for the fiscal year ended March 1, 2003.
Audit Fees
----------
Audit fees billed to the Company by Deloitte & Touche LLP during the
Company's fiscal year ended March 1, 2003 for review of the Company's annual
financial statements and those financial statements included in the Company's
quarterly reports on Form 10-Q totaled $296,450.
Financial Information Systems Design and Implementation Fees
------------------------------------------------------------
The Company did not engage Deloitte & Touche LLP to provide advice to the
Company regarding financial information systems design or implementation during
the Company's fiscal year ended March 1, 2003.
All Other Fees
--------------
Fees billed to the Company by Deloitte & Touche LLP during the Company's
fiscal year ended March 1, 2003 for all other services rendered to the Company
totaled $15,700. Included in this number were consulting projects totaling
$3,500 and a tax planning project totaling $12,200.
April 30, 2003
Allan A. Feder
Stephen D. Greenberg
Stanley Tulchin
Edward D. Miller
15
APPOINTMENT OF AUDITORS
The Board of Directors has retained Deloitte & Touche LLP as independent
certified public accountants to report on the consolidated financial statements
of the Company for the fiscal year ending February 28, 2004 and to perform such
other services as may be required of them. The Board of Directors has directed
that management submit the appointment of auditors for ratification by the
stockholders at the Annual Meeting. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting, will have the opportunity to make
a statement if they desire to do so and will be available to respond to
appropriate stockholder questions.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS THE TOPPS COMPANY, INC. AUDITORS
STOCKHOLDER PROPOSALS -- 2004 ANNUAL MEETING
Any proposals of stockholders of the Company intended to be included in the
Company's proxy statement and form of proxy relating to the Company's next
annual meeting of stockholders must be in writing and received by the Assistant
Treasurer of the Company at the Company's office at One Whitehall Street, New
York, New York 10004-2109 no later than January 24, 2004. In the event that the
next annual meeting of stockholders is called for a date that is not within 30
days before or after June 29, 2004, in order to be timely, notice by the
stockholder must be received no later than the close of business on the tenth
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
Any stockholder interested in making a proposal is referred to Article II,
Section 4 of the Company's Restated By-Laws.
OTHER MATTERS
Management does not know of any matters other than the foregoing that will
be presented for consideration at the Annual Meeting. However, if other matters
properly come before the Annual Meeting, the proxy holders should vote upon them
in accordance with their best judgment.
SOLICITATION OF PROXIES
The entire cost of soliciting management proxies will be borne by the
Company. In addition to the use of the mails, proxies may be solicited
personally by directors, officers or regular employees of the Company, who will
not be compensated for their services. Management of the Company intends to
request banks, brokerage houses, custodians, nominees and fiduciaries to forward
soliciting material to the beneficial owners of the Common Stock held of record
by such persons and entities.
The Company's Annual Report on Form 10-K for the fiscal year ended March 1,
2003 and the Proxy Statement are available to all investors on the internet at
www.topps.com and will be provided without charge to any stockholder of record
at the close of business on May 15, 2003 upon written request to Investor
Relations at One Whitehall Street, New York, New York 10004-2109.
By order of the Board of Directors,
Arthur T. Shorin
Chairman, President and
Chief Executive Officer
16
THE TOPPS COMPANY, INC.
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
April 4, 2003
Board of Directors
The Board of Directors (the "Board") of The Topps Company, Inc. (the
"Company") hereby amends and restates the charter of the Board's Audit Committee
(the "Committee"), providing the Committee with authority, responsibility, and
specific powers as described below.
Purpose
The purpose of the Committee is to oversee the broad range of issues
surrounding the accounting and financial reporting processes of the Company and
its subsidiaries and audits of the financial statements of the Company and its
subsidiaries. The Committee's primary focus will be to (1) assist the Board in
monitoring (a) the integrity of the financial statements of the Company and its
subsidiaries, (b) the compliance by the Company and its subsidiaries with legal
and regulatory requirements, (c) the independent auditor's qualifications and
independence, and (d) the performance of the Company's independent auditors, (2)
to ensure proper internal financial and accounting controls.
Organization
The Company's By-Laws (the "By-Laws") and this charter (the "Charter")
govern the operation of the Committee; in the event of a conflict, the terms of
the By-Laws shall govern. The Committee shall provide a medium within the
Company for consideration of matters relating to any audit issues. At its sole
discretion, the Committee has the power to retain and determine funding for
outside legal, accounting and financial consultants or other advisors or to
delegate to subcommittees to assist it in its activities to the extent permitted
by the United States Securities and Exchange Commission (the "SEC") and NASDAQ.
The outside accounting firm shall report directly to the Committee. The fees and
expenses of such consultants and advisors shall be borne by the Company.
Membership
The members of the Committee shall be appointed by the Board and shall
consist of three (3) or more independent directors, as the Board may determine
from time to time, of the Company's Board and shall serve until their successors
are duly elected and qualified. Each Committee member may be removed by the
Board at its discretion. Committee members will receive his or her director fee
in cash, paid annually after the June Board meeting. Committee members shall not
be affiliated with the Company or receive any fees paid directly or indirectly
for services as a consultant or financial advisor regardless of amount. This
includes payments to any firm of which a Committee member is an executive
officer, partner, member, principal or designee. Each Committee member shall
meet the independence requirements of the SEC and NASDAQ.
The Board recognizes that director independence is an issue that is
actively being reviewed by multiple constituencies, and may amend its criteria
for determining what constitutes an "independent director" to reflect changing
standards.
Composition
All members of the Committee must be able to read and understand
fundamental financial statements, including the Company's balance sheet, income
statement, and cash flow statement at the time they join the Committee, and each
member shall have a working knowledge of skills and competencies that the Board
will need for the Company to be successful in the future. Committee members, if
they or the Board deem it appropriate, may enhance their understanding of their
duties by participating in educational programs conducted by the Company or an
outside consultant or firm.
Further, at least one member of the Committee shall currently have past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
A-1
Effective for fiscal years ending after July 15, 2003, the Company will
disclose whether at least one member of the Committee is a "financial expert",
defined as a person who has the following attributes: (1) an understanding of
generally accepted accounting principles and financial statements; (2) the
ability to assess the general application of such principles in connection with
the accounting for estimates, accruals and reserves; (3) experience preparing,
auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to
the breadth and complexity of issues that can reasonably be expected to be
raised by the registrant's financial statements, or experience actively
supervising one or more persons engaged in such activities; (4) an understanding
of internal controls and procedures for financial reporting; and (5) an
understanding of audit committee functions. A person must have acquired such
attributes through one of more of the following: (a) education and experience as
a principal financial officer, principal accounting officer, controller, public
accountant or auditor or experience in one or more positions that involve the
performance of similar functions; (b) experience actively supervising a
principal financial officer, principal accounting officer, controller, public
accountant, auditor or person performing similar functions; (c) experience
overseeing or assessing the performance of companies or public accountants with
respect to the preparation, auditing or evaluation of financial statements; or
(d) other relevant experience.
Minutes
The Committee shall maintain and submit to the Board copies of minutes of
each meeting of the Committee, and each written consent to action taken without
a meeting, reflecting the actions so authorized or taken by the Committee since
the preceding meeting of the Board. A copy of the minutes of each meeting shall
be placed in the Corporation's minute book.
Charter Amendment
Any member of the Committee may submit proposed Charter amendments to the
Board. The Board shall circulate any proposed charter amendment(s) to members of
the Committee immediately upon receipt. By a majority vote, the Board may
approve the amendments to the Charter.
Meetings
The Committee shall hold such regular meetings as may be necessary or
advisable, but no less frequently than quarterly, and special meetings as may be
called by the Committee's chairperson. The presence in person or by telephone of
a majority of the Committee's members shall constitute a quorum for any meeting
of the Committee. All actions of the Committee will require the vote of a
majority of its members present at a meeting of the Committee at which a quorum
is present.
Duties and Responsibilities
The Committee's policies and procedures shall remain flexible in order to
best react to changing conditions and to help ensure that the Company's
accounting and reporting practices are consistent with applicable legal
requirements and are of the highest quality. The Committee shall:
(1) Appoint, terminate when appropriate, determine funding for, and
directly oversee the Company's independent auditors (including resolving
disagreements between the independent accountants and management regarding
financial reporting). The independent accountants shall report directly to the
Audit Committee;
(2) Pre-approve any audit or legally permitted non-audit services to be
performed by the Company's independent auditors;
(3) Pre-approve appropriate funding for payment of compensation to the
Company's independent auditors for the purpose of rendering audit and non-audit
services. The Committee may delegate the duty to pre-approve any such payment to
any member of the Committee provided that the decisions of such member to grant
pre-approvals shall be presented to the full Committee for ratification;
A-2
(4) Approve all related party transactions entered into by the Company with
any of the Company's directors or executive officers;
(5) Prohibit an auditing firm from auditing the Company if members of
management had been employed by that firm and participated in the audit of the
Company within the one-year period preceding the commencement of audit
procedures. Ensure audit partner rotation if the lead (or coordinating) audit
partner (having primary responsibility for the audit), or the audit partner
responsible for reviewing the audit, has performed audit services for the
Company in any of the Company's five previous fiscal years;
(6) Review and reassess the adequacy of the Charter annually and recommend
any proposed changes to the Board for approval;
(7) Review the Company's annual audited financial statements and quarterly
unaudited financial statements with the Company's management and independent
auditors;
(8) Review and discuss with the Company's management and independent
auditors the Company's quarterly earnings press releases (paying particular
attention to any use of "Pro Forma," or "Adjusted" non-GAAP, information) prior
to the release thereof;
(9) Review any major changes to the Company's auditing and accounting
principles and practices as suggested by the Company's management or independent
auditors;
(10) Obtain and review, at least annually, a report by the Company's
independent auditors describing:
(a) the auditors' internal quality-control procedures;
(b) any material issues raised by the most recent internal
quality-control review of the firm, or by any inquiry or investigation by
governmental or professional authorities, and any steps taken to deal with
any such issues; and
(c) all relationships between the independent auditor and the Company
(to assess the auditor's independence);
(11) Review and actively engage the Company's independent auditors
regarding the auditor's qualifications, performance, independence and their
registration with the SEC;
(12) Review with the Company's management legal matters that may have a
material impact on the financial statements, the Company's compliance policies
and any material reports or inquiries received from regulators or governmental
agencies;
(13) Review with the Company's independent auditors any problems or
difficulties the auditor may have encountered and any management letter provided
by the auditor and the Company's response to that letter, including:
(a) any difficulties encountered in the course of the audit work,
including any restrictions on the scope of the activities or access to
required information;
(b) any changes required in the planned scope of the external audit;
(c) any disagreements with management; and
(d) any material written communications between the independent
auditors and the Company's management, such as any management letter or
schedule of unadjusted differences;
(14) Review annually with the Company's management and independent
auditors:
(a) analyses prepared by the Company's management and/or independent
auditors setting forth significant financial reporting issues and judgments
made in connection with the preparation of the financial statements; and
(b) the effect of regulatory and accounting initiatives, as well as
review and approve any off-balance sheet structures on the Company's
financial statements;
A-3
(15) Review annually major issues regarding accounting principles and
financial statement presentations, including any significant changes in the
Company's selection or application of accounting principles, and major issues as
to the adequacy of the Company's internal controls, and any special audit steps
adopted in light of control deficiencies;
(16) Review and discuss major issues as to the adequacy of the Company's
disclosure and internal controls;
(17) Review and discuss any special audit steps adopted in light of
disclosure and control deficiencies;
(18) Obtain and review the audit report provided by the Company's
independent auditors, which should include:
(a) all critical accounting policies and practices used; and
(b) all alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management officials of the issuer, ramifications of the use of such
alternative disclosures and treatments, and the treatment preferred by the
independent auditors;
(19) Review any accounting adjustments that were proposed by the Company's
independent auditors but were "passed" (as immaterial or otherwise), any
material communications between the audit team and the independent auditors'
national office respecting auditing or accounting issues presented by the
engagement;
(20) Review any failures of the Company's financial reporting controls;
(21) Discuss with the Company's management and independent auditors the
Company's policies with respect to major risk exposures and the steps management
has taken to monitor and control such exposures;
(22) Meet periodically with the Company's management and independent
auditors in separate sessions to encourage entirely frank discussions with the
Committee, including without limitation discussions regarding the Company's
financial reporting control procedures, the quality of the Company's financial
reporting and the adequacy and competency of the Company's financial management;
(23) Meet and discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61 relating to the conduct
of the audit of the Company's annual financial statements and the matters
required to be discussed relating to the review of the Company's quarterly
financial statements;
(24) Supervise and administer any code of ethics adopted by the Company
that addresses conflicts of interest and compliance with applicable laws and
implement appropriate mechanisms for such compliance and disclosure of
officer/director waivers;
(25) Establish procedures for:
(a) the receipt, retention, and treatment of complaints received by
the Company regarding accounting, internal accounting controls, or auditing
matters; and
(b) the confidential, anonymous submission by employees of the Company
of concerns regarding questionable accounting or auditing matters.
(26) Obtain assurance from the Company's independent auditor that it has
notified the Committee of any failure of which the independent auditor is aware
of the Company to comply with applicable legal requirements;
(27) Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with any code of
business conduct adopted by the Committee from time to time;
(28) Ensure compliance with rules and regulations set forth by the SEC and
NASDAQ regarding the hiring of employees or former employees of the independent
auditors;
(29) Do every other act incidental to, arising out of or in connection
with, or otherwise related to, the authority granted to the Committee hereby or
the carrying out of the Committee's duties and responsibilities hereunder as the
Committee or the Board deems necessary and appropriate.
Limitation of Committee's Role
While the Committee has the authority, powers, and responsibilities set
forth in this Charter, it is not the duty of the Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with GAAP and applicable legal,
accounting, and other requirements. These are the responsibilities of the
Company's management and the independent auditor.
A-4