BOARD OF COMMITTIES
AUDIT COMMITTEE CHARTER
I. Purpose of the Audit Committee
The purpose of the Audit Committee of A.D.A.M., Inc. (the “Company”) is to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.
II. Composition of the Audit Committee
The Audit Committee shall be comprised of at least three directors each of whom is (i) “independent” under the rules of the Nasdaq Stock Market, Inc., except as permitted by Nasdaq Rule 4350(d), and the Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder, (ii) does not accept any consulting, advisory or other compensatory fee from the Company other than in his or her capacity as a member of the Board or any committee of the Board, (iii) is not an “affiliate” of the Company or any subsidiary of the Company, as such term is defined in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and (iv) has not participated in the preparation of the financial statements of the Company or any subsidiary at any time during the past three years. Members shall be appointed either by a majority of independent directors or by a nominations committee composed solely of independent directors.
All members of the Committee must be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, and the Committee shall have at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background which results in the member’s financial sophistication.
III. Meetings of the Audit Committee
The Audit Committee shall meet at least once every fiscal quarter, or more frequently if circumstances dictate, to discuss with management the annual audited financial statements and quarterly financial statements, as applicable. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other.
IV. Responsibilities of the Audit Committee
To carry out its purpose, the Audit Committee shall have the following responsibilities:
1. with respect to the independent auditors,
(i) to directly appoint, compensate, retain, oversee, evaluate, and terminate the independent auditors, who must report directly to the Audit Committee;
(ii) to pre-approve all audit and non-audit services to be provided by the independent auditors; in this regard, the Audit Committee may, in its discretion, (A) delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided that any such approvals are presented to the Audit Committee at its next scheduled meeting, and (B) pre-approve services using pre-approval policies and procedures, provided that (1) such policies and procedures are detailed as to the particular services to be provided, (2) the Audit Committee is informed about each such particular service, and (3) such policies and procedures do not result in the delegation of the Audit Committee’s authority to management;
(iii) to ensure that the independent auditors shall submit to the Audit Committee annually a formal written statement (the “Auditors’ Statement”) describing all relationships between the independent auditors and the Company, consistent with Independence Standards Board No. 1.;
(iv) to discuss with the independent auditors any relationships or services disclosed in the Auditors’ Statement that may impact the quality of audit services or the objectivity and independence of the Company’s independent auditors;
(v) to actively engage in dialogue with the independent auditors with respect to any disclosed relationship or services that may impact the independence of the auditors;
(vi) to obtain from the independent auditors in connection with any audit a timely report relating to the Company’s annual audited financial statements describing all critical accounting policies and practices used, all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors, and any material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences;
(vii) to obtain from the independent auditors annually a formal written statement of the fees billed in each of the last two fiscal years for each of the following categories of services rendered by the independent auditors: (i) the audit of the Company’s annual financial statements and the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-QSB or services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements; (ii) assurance and related services not included in clause (i) that are reasonably related to the performance of the audit or review of the Company’s financial statements, in the aggregate and by each service; (iii) tax compliance, tax advice and tax planning services, in the aggregate and by each service; and (iv) all other products and services rendered by the independent auditors, in the aggregate and by each service;
(viii) to discuss with management the timing and process for implementing the rotation of the lead audit partner, the concurring partner and any other active audit engagement team partner; and
(ix) to review and approve all related party transactions of the Company;
2. with respect to financial reporting principles and policies and internal audit controls and procedures,
(i) to discuss with the independent auditors the matters required to be disclosed by SAS 61 (Codification of Statements on Auditing Standards, AU § 380), as it may be modified or supplemented;
(ii) to meet with management, the independent auditors and, if appropriate, the director of the internal audit department:
- to discuss the scope and results of the annual audit;
- to discuss the annual audited financial statements and quarterly financial statements;
- to discuss any significant matters arising from any audit, including any audit problems or difficulties, whether raised by management, the internal auditing department or the independent auditors, relating to the Company’s financial statements;
- to discuss any difficulties the independent auditors encountered in the course of the audit, including any restrictions on their activities or access to requested information and any significant disagreements with management; and
- to discuss any management or internal control letter issued, or proposed to be issued, by the independent auditors to the Company;
(iii) to inquire of the Company’s chief executive officer and chief financial officer as to the existence of any significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize and report financial data, any material weakness in internal controls, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls;
(iv) to establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters; and
(v) to establish hiring policies for employees or former employees of the independent auditors;
3. with respect to reporting and recommendations,
(i) to prepare any report or other disclosures or any recommendation of the Audit Committee, required by the rules of the SEC to be included in the Company’s annual report;
(ii) to review and reassess the adequacy of this Charter at least annually and recommend any changes to the full Board of Directors; and
(iii) to report its activities to the full Board of Directors on a regular basis and to make such recommendations with respect to the above and other matters as the Audit Committee may deem necessary or appropriate.
V. Resources and Authority of the Audit Committee
The Audit Committee shall have the authority appropriate to discharge its duties and responsibilities, including the authority to select, engage, retain, terminate, and approve the fees and other retention terms of special or independent counsel and other advisors, as it deems necessary or appropriate to carry out its duties.
The Audit Committee shall have the appropriate funding, as determined by the Audit Committee for payment of (i) compensation to the independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services; (ii) compensation to any independent counsel or advisers employed by the Audit Committee as it deems necessary; and (iii) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
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COMPENSATION COMMITTEE CHARTER
Purpose
The Compensation Committee (the “Committee”), appointed by and acting on behalf of the Board of Directors (the “Board”), as more fully set forth in this Charter, shall be responsible for formulating, evaluating and approving compensation of the Company’s Board of Directors, executive officers and key employees, overseeing all compensation programs involving the use of the Company’s stock, and producing an annual report on executive compensation for inclusion in the Company’s proxy statement for its annual meeting of stockholders, in accordance with applicable rules and regulations.
Committee Membership
The Committee shall be comprised of two or more directors as determined by the Board, each of whom shall be independent directors, 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. Committee members shall meet the independence requirements of the NASD.
Committee members shall be elected, and may be replaced, by the Board. Unless a Chair of the Committee is elected by the Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
Committee Authority and Responsibilities
The Committee shall annually review and approve corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluate the Chief Executive Officer’s performance in light of those goals and objectives, and recommend to the Board the overall compensation levels for the Chief Executive Officer based on this evaluation. In evaluating the Chief Executive Officer, the Committee shall consider the Company’s performance and relative stockholder return, the value of similar incentive awards to Chief Executive Officer’s at comparable companies, and the awards given to the Chief Executive Officer in past years.
The Committee shall annually review and approve the annual base salaries and annual incentive opportunities of the members of the Board of Directors, Chief Executive Officer and all other executive officers. In addition, periodically and as and when appropriate, the Committee shall review and approve the following as they affect the Chief Executive Officer and all other executive officers: (a) all other incentive awards and opportunities, including both cash-based and equity-based awards and opportunities; (b) any employment agreements and severance arrangements; (c) any change-in-control agreements and change-in-control provisions affecting any elements of compensation and benefits. The Committee shall review and approve any special or supplemental compensation and benefits for the members of the Board of Directors, Chief Executive Officer and other executive officers and persons who formerly served as the Chief Executive Officer and/or as executive officers, including supplemental retirement benefits and the perquisites provided to them during and after employment.
The Committee shall have sole authority to retain and terminate any external compensation consultant to be used to assist it in the evaluation of the members of the Board of Directors, Chief Executive Officer or other executive officer compensation and shall have sole authority to approve the consultant’s fees and the other terms and conditions of the consultant’s retention. The Committee shall also have authority to obtain advice and assistance from internal or external legal, accounting or other advisors.
The Committee shall be responsible for overseeing production of an annual report on executive compensation for inclusion in the Company’s proxy statement for its Annual Meeting of Shareholders.
The Committee shall approve and administer cash incentives and similar such compensation plans for executives (including any modification to such plans) and oversight of performance objectives and funding for executive incentive plans.
The Committee shall approve and oversee all compensation programs involving the use of the Company’s stock.
The Committee shall monitor the Company’s compliance with the requirements under the Sarbanes-Oxley Act of 2002 relating to 401(k) plans and loans to directors and officers and with all other applicable laws affecting employee compensation and benefits.
As appropriate, the Committee may form and delegate authority to subcommittees.
Following each Committee meeting, the Committee shall make a report to the Board, including all items which require Board approval.
The Committee shall annually review and reassess the adequacy of this Charter and shall recommend any proposed changes to the Board for approval. The Committee shall annually review its own performance.
The Committee shall fulfill such other duties and responsibilities as may be assigned to the Committee, from time to time, by the Board.
Committee Meetings
The Committee shall meet at least once per year, and at such other times as it deems necessary to carry out its responsibilities. The Chair of the Committee and/or Chair of the Board may call such Committee meetings. The Chair of the Committee shall preside at each Committee meeting and set the agenda for each such meeting. The Chair will ensure that the agenda for each Committee meeting is circulated to Committee members in advance of the applicable meeting.
Committee Charter
The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
This Charter shall either be made publicly available on the Company’s website or included as an appendix to the Company’s proxy statement no less than once every three years.
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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
Purpose
The Nominating and Corporate Governance Committee ("Committee") is appointed by the Board of Directors (the "Board") to:
- Set qualification standards for director nominees;
- Identify, consider and nominate candidates for membership on the Board;
- Develop, recommend and evaluate corporate governance standards and a code of business conduct and ethics applicable to the Company;
- Implement and oversee a process for evaluating the Board, Board committees (including the Committee) and oversee the Board’s evaluation of the Chairman and Chief Executive Officer of the Company;
- Make recommendations regarding the structure and composition of the Board and Board committees;
- Advise the Board on corporate governance matters.
- Assist the Board in identifying individuals qualified to become Board members; recommend to the Board the director nominees for the next annual meeting of shareholders; and recommend to the Board director nominees to fill vacancies on the Board.
Committee Membership
The Committee shall consist of no fewer than three members. The members of the Committee shall meet the independence requirements of NASD Rule 4200(a)(15). The members of the Committee shall be appointed and replaced by the Board. The Board shall designate one of the members of the Committee as Chair.
Committee Authority and Responsibilities
The Committee shall annually review potential nominees and recommend to the Board persons to be nominated for election to the Board at the Annual Meeting of Shareholders.
When vacancies occur on the Board of Directors, the Committee shall actively seek individuals qualified to become board members for recommendation to the Board, and shall recommend persons based on business experience, professional expertise, industry experience and geographic representation.
The Committee shall have the sole authority to retain and terminate any search firm to be used to identify director candidates and shall have sole authority to approve the search firm's fees and other retention terms. The Committee shall also have authority to obtain advice and assistance from internal or external legal, accounting or other advisors.
The Committee shall have full access to the Company's executives as necessary to carry out the Committee's responsibilities.
The Committee shall perform any other activities consistent with this Charter, the Company's By-laws and governing laws as the Committee or the Board deems necessary or appropriate.
Committee Meetings
The Committee shall meet at least annually and the Chair shall report to the Board on the major items covered at each Committee meeting.
Nominee Qualifications
Nominees should be highly qualified by business, professional or comparable experience, affirmatively desirous of serving on the Board of Directors, and able to represent the interests of all shareholders and not merely those of any special interest group.
The Committee shall periodically review the appropriate skills and characteristics required of director nominees in the context of the current make-up of the Board, including such factors as business experience, diversity, and personal skills in technology, finance, marketing, business, financial reporting and other areas that are expected to contribute to an effective Board, and shall adopt and revise qualification standards for director nominees as the Committee determines necessary to ensure qualified persons elected to the Board.
Candidates Recommended by Security Holders
The Committee will consider director candidates recommended by security holders.
Any candidate suggested by a security holder must meet the qualification standards as adopted and revised by the Committee, and such candidate must state in advance his or her willingness and interest in serving on the Board.
Shareholders wishing to suggest candidates for consideration at the Company's Annual Meeting of Shareholders should submit their proposals in accordance with the timeframe and procedures contained in the Company's most recent proxy statement.
Committee Charter
The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
This Charter shall either be made publicly available on the Company's website or included as an appendix to the Company's proxy statement no less than once every three years.
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