SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.)
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Check the appropriate box:
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[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Somanetics Corporation
________________________________________________
(Name of Registrant as Specified in its Charter)
________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[x] No fee required.
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0-11.
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applies:
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(2) Aggregate number of securities to which transaction applies:
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computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
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was paid previously. Identify the previous filing by the registration
statement number, or the Form or Schedule and the date of its filing.
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[SOMANETICS LOGO]
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 31, 2004
To the Shareholders of Somanetics Corporation:
THIS IS OUR NOTICE TO YOU that the annual meeting of shareholders of
Somanetics Corporation will be held at the Troy Marriott, 200 W. Big Beaver
Road, Troy, Michigan 48084, at 10:00 a.m. eastern standard time on Wednesday,
March 31, 2004 for the following purposes:
1. To select one director, to serve until the 2007 annual meeting of
shareholders and until his successor is elected and qualified.
2. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Only shareholders of record on February 2, 2004 will be entitled to
notice of the meeting or any adjournment of the meeting and to vote at the
meeting or any adjournment of the meeting.
All shareholders are cordially invited to attend the meeting. Whether
or not you expect to attend the meeting, please complete, date and sign the
enclosed proxy and return it as promptly as possible to ensure your
representation at the meeting. A return postage-prepaid envelope is enclosed for
that purpose. If you return the proxy, you may withdraw your proxy and vote your
shares in person if you attend the meeting.
Your attention is called to the attached proxy statement and the
accompanying proxy. A copy of our annual report for the fiscal year ended
November 30, 2003 accompanies this notice.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
February 13, 2004
SOMANETICS CORPORATION
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 31, 2004
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Somanetics Corporation. The proxies are
being solicited for use at the 2004 annual meeting of shareholders to be held at
the Troy Marriott, 200 W. Big Beaver Road, Troy, Michigan 48084, at 10:00 a.m.
eastern standard time on Wednesday, March 31, 2004, and at any adjournment of
that meeting. The 2004 annual meeting of shareholders is being held for the
purposes described in the notice of annual meeting of shareholders on the prior
page. We expect that this proxy statement and accompanying proxy will be first
sent or given to shareholders on or about February 13, 2004.
Solicitation
We will bear the entire cost of soliciting proxies in the enclosed
form, including the costs of preparing, assembling, printing and mailing this
proxy statement, the accompanying proxy and any additional information we
furnish to shareholders. We may supplement our solicitation of proxies by mail
with telephone, telegraph, facsimile, e-mail or personal solicitation by our
directors, officers or other regular employees. We will not pay any additional
compensation to our directors, officers or other regular employees for these
services. We will request that brokers, nominees and other similar record
holders forward soliciting material, and we will reimburse them upon request for
their out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Voting Rights and Outstanding Shares
Only shareholders of record at the close of business on February 2,
2004 will be entitled to notice of the annual meeting or any adjournment of the
meeting and to vote at the annual meeting or any adjournment of the meeting. As
of the close of business on February 2, 2004, we had 9,312,680 outstanding
common shares, $0.01 par value, the only class of our stock outstanding and
entitled to vote.
Each common share is entitled to one vote on each matter submitted for
a vote at the meeting. The presence, in person or by proxy, of the holders of
record of a majority of the outstanding common shares entitled to vote, or
4,656,341 shares, is necessary to constitute a quorum for the transaction of
business at the meeting or any adjournment of the meeting.
1
Revocability of Proxies
A shareholder giving a proxy may revoke it at any time before it is
voted by giving written notice of revocation to our Secretary or by executing
and delivering to our Secretary a later dated proxy. A shareholder's attendance
at the meeting will not have the effect of revoking any proxy given by that
shareholder unless the shareholder gives written notice of revocation to our
Secretary before the proxy is voted. Any written notice revoking a proxy, and
any later dated proxy, should be sent to Somanetics Corporation, 1653 East Maple
Road, Troy, Michigan 48083-4208, Attention: Investor Relations Department.
Valid proxies in the enclosed form that are returned in time for the
meeting and executed and dated in accordance with the instructions on the proxy
will be voted as specified in the proxy. If no specification is made, the
proxies will be voted FOR the election as director of the nominee listed below.
Principal Holders of Our Voting Securities
The following table contains information with respect to the beneficial
ownership of our common shares as of February 2, 2004 by each person known to us
to beneficially own more than 5% of our common shares, our only outstanding
class of voting shares:
PERCENTAGE OF
AMOUNT AND NATURE OF COMMON SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNED (1)
------------------------------------------------------------ -------------------- -------------
Bruce J. Barrett............................................ 937,025 (2) 9.3%
1653 East Maple Road
Troy, Michigan 48083-4208
BMI Capital Corporation..................................... 865,890 (3) 9.3%
570 Lexington Ave.
New York, NY 10022
----------------------------
(1) Based on 9,312,680 common shares outstanding as of February 2, 2004.
(2) Includes 749,533 common shares that Mr. Barrett has the right to
acquire within 60 days of February 2, 2004 and 187,492 common shares owned
jointly with his wife.
(3) BMI Capital Corporation is an investment advisor having sole power to
dispose of the shares shown above as beneficially owned by it, but no voting
power over these shares. The information concerning BMI Capital Corporation is
based solely on a Schedule 13G, dated January 21, 2004, filed by it with the
Securities and Exchange Commission on January 21, 2004. A. Brean Murray, one of
our directors until his death on December 25, 2003, was the Chairman of BMI
Capital Corporation, and he disclaimed ownership of the shares beneficially
owned by it.
I. ELECTION OF DIRECTOR
Our Board of Directors proposes that the person named below as "nominee
for election as one of our directors for a three-year term" be elected as one of
our directors, to hold office until the annual meeting of shareholders to be
held in 2007 and until his successor is elected and qualified. Mr. Barrett was
last elected as a director at the 2001 annual meeting of shareholders
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on February 22, 2001. Effective January 28, 2004, the size of the Board of
Directors was reduced to five members. If a quorum is present, the nominee
receiving the greatest number of votes cast at the meeting or its adjournment
will be elected. Withheld votes and broker non-votes will not be deemed votes
cast in determining which nominee receives the greatest number of votes cast,
but will be counted for purposes of determining whether a quorum is present. The
persons named in the accompanying proxy intend to vote all valid proxies
received by them FOR the election of the nominee listed below unless the person
giving the proxy withholds authority to vote for this nominee. The nominee
listed below has consented to serve if elected. If the nominee is unable or
declines to serve, which we do not expect to happen, the proxy holders intend to
vote the proxies in accordance with their best judgment for another qualified
person.
The following information is furnished as of February 2, 2004 with
respect to our nominee for election as one or our directors, with respect to
each person whose term of office as one of our directors will continue after the
meeting, with respect to each of our executive officers who is named in the
Summary Compensation Table below, and with respect to all of our directors and
executive officers as a group:
AMOUNT AND PERCENTAGE
NATURE OF OF
POSITION AND OFFICES COMMON SHARES COMMON TERM
DIRECTOR WITH US AND OTHER BENEFICIALLY SHARES TO
NAME SINCE AGE PRINCIPAL OCCUPATION OWNED OWNED(1) EXPIRE
---- ----- --- -------------------- ----- -------- ------
NOMINEE FOR ELECTION AS ONE OF OUR DIRECTORS FOR A THREE-YEAR TERM
Bruce J. Barrett........ 6/94 44 President, Chief Executive 937,025 (2) 9.3% 2007
Officer and a Director
DIRECTORS CONTINUING IN OFFICE
Dr. James I. Ausman..... 6/94 66 Director and Professor 35,285 (3) * 2005
of Neurosurgery, University
of Illinois at Chicago, Consultant
for The Tiber Group, Editor
of Surgical Neurology and
Neurosurgeon Consultant
Joe B. Wolfe............ 11/01 61 Director, Capital Markets of 20,000 (4) * 2005
Westminster Securities Corporation
Daniel S. Follis........ 4/89 66 Director, President of 40,700 (5) * 2006
Verschuren & Follis, Inc. and
President of Follis Corporation
Robert R. Henry......... 12/98 63 Director and President of 329,700 (6) 3.5% 2006
Robert R. Henry & Co., Inc.
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AMOUNT AND PERCENTAGE
NATURE OF OF
COMMON SHARES COMMON
BENEFICIALLY SHARES
NAME OWNED OWNED(1)
---- ----- --------
OTHER EXECUTIVE OFFICERS
Richard S. Scheuing.................................................... 139,508 (7) 1.5%
Dominic J. Spadafore................................................... 35,383 (8) *
Mary Ann Victor........................................................ 122,500 (9) 1.3%
Pamela A. Winters...................................................... 155,950 (10) 1.6%
All directors and executive officers as a group (11 persons)........... 2,035,781 (11) 18.9%
----------
* Less than 1%
(1) Based on 9,312,680 common shares outstanding as of February 2, 2004.
(2) Includes 749,533 common shares that Mr. Barrett has the right to
acquire within 60 days of February 2, 2004 and 187,492 common shares
owned jointly with his wife.
(3) Includes 22,511 common shares that Dr. Ausman has the right to acquire
within 60 days of February 2, 2004, 9,744 common shares owned jointly
with his wife, and 3,030 shares held in an individual retirement
account over which Dr. Ausman exercises sole voting and investment
control.
(4) Includes 20,000 common shares that Mr. Wolfe has the right to acquire
within 60 days of February 2, 2004.
(5) Includes 22,500 common shares that Mr. Follis has the right to acquire
within 60 days of February 2, 2004. The 40,700 common shares shown
above as beneficially owned by Mr. Follis include 8,820 common shares
owned by The Infinity Fund, a limited partnership in which Mr. Follis
is a 6.068% limited partner and a 50% general partner and which is
administered by Verschuren & Follis, Inc., a corporation in which Mr.
Follis is a 50% shareholder, a director and the President.
(6) Includes 13,000 common shares that Mr. Henry has the right to acquire
within 60 days of February 2, 2004.
(7) Includes 139,508 common shares that Mr. Scheuing has the right to
acquire within 60 days of February 2, 2004.
(8) Includes 33,333 common shares that Mr. Spadafore has the right to
acquire within 60 days of February 2, 2004 and 2,500 common shares that
Mr. Spadafore owns jointly with his spouse.
(9) Includes 117,400 common shares that Ms. Victor has the right to acquire
within 60 days of February 2, 2004, 2,000 common shares held by Ms.
Victor's husband and 3,100 common shares held by Ms. Victor's husband
jointly with his mother.
(10) Includes 155,950 common shares that Ms. Winters has the right to
acquire within 60 days of February 2, 2004.
(11) Includes 1,486,015 common shares that all executive officers and
directors as a group have the right to acquire within 60 days of
February 2, 2004.
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BIOGRAPHICAL INFORMATION
The following is a brief account of the business experience during the
past five years of the nominee for our Board of Directors and of each of our
directors whose term of office will continue after the meeting:
Bruce J. Barrett. Mr. Barrett has served as our President and Chief
Executive Officer and as one of our directors since June 1994. Mr. Barrett
previously served, from June 1993 until May 1994, as the Director, Hospital
Products Division for Abbott Laboratories, Ltd., a health care equipment
manufacturer and distributor, and from September 1989 until May 1993, as the
Director, Sales and Marketing for Abbott Critical Care Systems, a division of
Abbott Laboratories, Inc., a health care equipment manufacturer and distributor.
While at Abbott Critical Care Systems, Mr. Barrett managed Abbott's invasive
oximetry products for approximately four years. From September 1981 until June
1987, he served as the group product manager of hemodynamic monitoring products
of Baxter Edwards Critical Care, an affiliate of Baxter International, Inc.,
another health care equipment manufacturer and distributor. Mr. Barrett received
a B.S. degree in marketing from Indiana State University and an M.B.A. degree
from Arizona State University. Mr. Barrett is a party to an employment agreement
with us that requires us to elect him to the offices he currently holds.
James I. Ausman, M.D., Ph.D. Dr. Ausman has served as one of our
directors since June 1994. Since July 2002, he has served as a consultant for
The Tiber Group, a healthcare strategic planning and market research company,
and since March 2001 has been a neurosurgeon consultant. He has been Professor
of the Department of Neurosurgery at the University of Illinois at Chicago since
1991 and served as its head from 1991 until September 2001. From September 1978
until July 1991, he was Chairman of the Department of Neurosurgery at Henry Ford
Hospital in Detroit. From December 1987 until July 1991, he served as Director
of the Henry Ford Neurosurgical Institute, also at Henry Ford Hospital. In
addition, he was Clinical Professor of Surgery, Section of Neurosurgery at the
University of Michigan in Ann Arbor from 1980 until 1991. Dr. Ausman received a
B.S. degree in chemistry and biology from Tufts University, a Doctorate of
Medicine from Johns Hopkins University School of Medicine, a Masters of Arts in
Physiology from the State University of New York at Buffalo, and a Ph.D. in
Pharmacology from George Washington University. He has also received graduate
training in neurosurgery at the University of Minnesota and has obtained board
certification from the American Board of Neurological Surgery. He is now a
Visiting Professor of Neurosurgery at the University of California at Los
Angeles and editor of Surgical Neurology. He serves as the medical expert for
KMIR 6 TV in Palm Desert California and is now attending law school.
Joe B. Wolfe. Mr. Wolfe has served as one of our directors since
November 2001. Pursuant to our License Agreement with CorRestore LLC, we agreed
to increase the size of our Board of Directors and add CorRestore LLC's designee
as a director. Joe B. Wolfe is CorRestore LLC's designee. Since March 2003 he
has served as Director, Capital Markets of Westminster Securities Corporation,
an investment banking firm. From March 1998 until March 2003, he served as
President and sole proprietor of Wolfe & Company, a financial advisory company.
From 1992 to 1998, he was Chief Executive Officer of Frontline Capital, Inc., an
NASD-registered broker-dealer. Before 1992, Mr. Wolfe was in the financial
services
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and investment banking industry for 25 years. Mr. Wolfe received a B.S. degree
in industrial management from Georgia Institute of Technology.
Daniel S. Follis. Mr. Follis has served as one of our directors since
April 1989. Since 1981, he has served as President of Verschuren & Follis, Inc.,
which advises and administers The Infinity Fund, a limited partnership that
invests in emerging growth companies. Since 1995 he has also served as President
of Follis Corporation, a sales and marketing company engaged in media sales,
television production, serving as a manufacturer's representative and investment
management. Mr. Follis received a B.A. degree in business from Michigan State
University.
Robert R. Henry. Mr. Henry has served as one of our directors since
December 1998. He has been President of Robert R. Henry & Co., Inc., a financial
consulting and investment firm, since 1989. Mr. Henry has been an advisory
director of Morgan Stanley since 1989, and from 1977 through 1989 was a managing
director of Morgan Stanley. He is also a director of Middleby Corporation. He
received an M.B.A. from Harvard Business School and a B.A. from Williams
College.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended November 30, 2003, our Board of Directors
held three meetings. Our Board of Directors has determined that each of Messrs.
Follis and Henry and Dr. Ausman are independent as independence is defined in
the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented.
Audit Committee
Our Board of Directors has established a separately-designated,
standing Audit Committee that consists of three directors and is established for
the purpose of overseeing our accounting and financial reporting processes and
audits of our financial statements. Robert R. Henry (Chairman), James I. Ausman,
M.D., Ph.D., and Daniel S. Follis are the current members of this committee.
Each of the members of our Audit Committee is independent as independence for
audit committee members is defined in the National Association of Securities
Dealers' listing standards, as those standards have been modified or
supplemented. The Audit Committee:
- is directly responsible for the appointment, compensation,
retention and oversight of the work of any registered public
accounting firm engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services
for us, including responsibility for the resolution of
disagreements between management and the auditor regarding
financial reporting; each such registered public accounting firm
must report directly to the Audit Committee;
- ensures that before the independent accountant is engaged by us to
render audit or non-audit services, the engagement is approved by
the Audit Committee or the engagement to render the service is
entered into pursuant to pre-approval policies and procedures
established by the Audit Committee; this pre-approval authority
may be delegated to one or more members of the Audit Committee;
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- takes, or recommends that the full board takes, appropriate action
to oversee the independence of our independent accountants;
- oversees our independent accountants' relationship by discussing
with our independent accountants the nature, scope and rigor of
the audit process, receiving and reviewing audit and other reports
from the independent accountants and providing our independent
accountants with full access to the committee and the board to
report on any and all appropriate matters;
- reviews and discusses the audited financial statements and the
matters required to be discussed by SAS 61 with management and the
independent accountants, including discussions concerning the
independent accountant's judgments about the quality of our
accounting principles, applications and practices as applied in
our financial reporting;
- recommends to the board whether the audited financial statements
should be included in our Annual Report on Form 10-K;
- reviews with management and the independent accountants the
quarterly financial information before we file our Form 10-Qs;
this review is performed by the committee or its chairperson;
- discusses with management and the independent accountants the
quality and adequacy of our internal controls;
- establishes procedures for (1) the receipt, retention, and
treatment of complaints received by us regarding accounting,
internal accounting controls, or auditing matters, and (2)
confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters;
- reviews related party transactions required to be disclosed in our
proxy statement for potential conflict of interest situations and
approves all such transactions;
- discusses with management the status of pending litigation as it
pertains to the financial statements and disclosure and other
areas of oversight as the committee deems appropriate; and
- reports committee activities to the full board.
During the fiscal year ended November 30, 2003, our Audit Committee held six
meetings. Our Board of Directors has adopted a written charter for the Audit
Committee, a copy of which is attached as an appendix to this proxy statement.
Audit Committee Financial Expert
Our Board of Directors has determined that we have an Audit Committee
financial expert, as defined by the Securities and Exchange Commission, serving
on our Audit Committee. Robert R. Henry is our Audit Committee financial expert,
and he is independent as independence for audit committee members is defined in
the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented. Mr. Henry's experience that
qualifies him as our Audit Committee financial expert includes investment
banking experience serving as managing director of Morgan Stanley from 1977 to
1989, corporate securities underwriting experience with Morgan Stanley from 1965
to 1977 and an M.B.A. from Harvard Business School in 1964. See "Biographical
Information."
7
Audit Committee Report
Our Audit Committee has:
- reviewed and discussed our audited financial statements for the
fiscal year ended November 30, 2003 with our management;
- discussed with our independent auditors the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU 380), as it has been modified or supplemented;
- received the written disclosures and the letter from our
independent accountants required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), as it has been
modified or supplemented; and
- discussed with our independent accountants our independent
accountants' independence.
Based on the review and discussions described above in this paragraph, our Audit
Committee recommended to our Board of Directors that the audited financial
statements for the fiscal year ended November 30, 2003 be included in our Annual
Report on Form 10-K for the fiscal year ended November 30, 2003 for filing with
the Securities and Exchange Commission.
Management is responsible for the Company's financial reporting process
including its system of internal control, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's independent auditors are responsible for
auditing those financial statements. Our responsibility is to monitor and review
these processes. It is not our duty or our responsibility to conduct auditing or
accounting reviews or procedures. We are not employees of the Company and we may
not be, and we may not represent ourselves to be or to serve as, accountants or
auditors by profession or experts in the field of accounting or auditing.
Therefore, we have relied, without independent verification, on management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with accounting principles generally accepted
in the United States of America and on the representations of the independent
auditors included in their report on the Company's financial statements. Our
oversight does not provide us with an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or policies, or appropriate internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, our considerations and discussions with management and
the independent auditors do not assure that the Company's financial statements
are presented in accordance with generally accepted accounting principles, that
the audit of our Company's financial statements has been carried out in
accordance with generally accepted auditing standards or that our Company's
independent accountants are in fact "independent."
By the Audit Committee
Robert R. Henry, Chairman
James I. Ausman, M.D., Ph.D.
Daniel S. Follis
8
Compensation Committee
Our Board of Directors has a standing Compensation Committee which
consists of three directors. Daniel S. Follis (Chairman), James I. Ausman, M.D.,
Ph.D. and Robert R. Henry are the current members of this committee. Each of the
members of our Compensation Committee is independent as independence is defined
in the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented. The Compensation Committee makes
recommendations to the Board of Directors with respect to compensation
arrangements and plans for senior management, officers and directors of the
Company and administers the Company's 1991 Incentive Stock Option Plan and 1997
Stock Option Plan. During the fiscal year ended November 30, 2003, the
Compensation Committee held five meetings.
Nominating Committee
Our Board of Directors has a standing Nominating Committee which
consists of three directors. James I. Ausman, M.D., Ph.D. (Chairman), Robert R.
Henry and Daniel S. Follis are the current members of this committee. The
Nominating Committee identifies individuals to become board members and selects,
or recommends for the board's selection, director nominees to be presented for
shareholder approval at the annual meeting of shareholders or to fill any
vacancies. During the fiscal year ended November 30, 2003, the Nominating
Committee held no meetings, because it was not formed until December 12, 2003,
although on December 12, 2003, it met and recommended Bruce J. Barrett for
re-election as a director at this meeting.
Our Board of Directors has adopted a written charter for the Nominating
Committee, a copy of which is attached as an appendix to this proxy statement
and is also available to shareholders on our website, at
http://www.somanetics.com. Each of the members of our Nominating Committee is
independent as independence is defined in the National Association of Securities
Dealers' listing standards, as those standards have been modified or
supplemented.
The Nominating Committee's policy is to consider any director
candidates recommended by shareholders. Such recommendations must be made
pursuant to timely notice in writing to our Secretary, at Somanetics
Corporation, 1653 East Maple Road, Troy, Michigan 48083-4208. To be timely, the
notice must be received at our offices at least 120 days before the anniversary
of the mailing of our proxy statement relating to the previous annual meeting of
shareholders. The notice must set forth:
- with respect to the director candidate,
- the candidate's name, age, business address and residence
address,
- the candidate's principal occupation or employment,
- the number of our common shares beneficially owned by the
candidate,
- information with respect to the candidate's independence,
as defined under Nasdaq's listing standards for
independent directors in general and with respect to
Audit Committee members,
- information with respect to other boards on which the
candidate serves,
9
- information with respect to direct or indirect
transactions, relationships, arrangements and
understandings between the candidate and us and between
the candidate and the shareholder giving the notice, and
- any other information relating to the candidate that we
would be required to disclose in our proxy statement if
we were to solicit proxies for the election of the
candidate as one of our directors or that is otherwise
required under Securities and Exchange Commission rules,
including the candidate's written consent to being named
in the proxy statement as a nominee and to serving as a
director if elected, and
- with respect to the shareholder giving the notice,
- the name and address of the shareholder as they appear on
our stock transfer records, and
- the number of our common shares beneficially owned by the
shareholder (and the period they have been held).
The Nominating Committee has not established specific, minimum qualifications
for recommended nominees or specific qualities or skills for one or more of our
directors to possess. The Nominating Committee uses a subjective process for
identifying and evaluating nominees for director, based on the information
available to, and the subjective judgments of, the members of the Nominating
Committee and our then current needs, although the committee does not believe
there would be any difference in the manner in which it evaluates nominees based
on whether the nominee is recommended by a shareholder. Historically, nominees
have been existing directors or business associates of our directors or
officers.
CODE OF BUSINESS CONDUCT AND ETHICS
We adopted a Code of Business Conduct and Ethics on December 12, 2003
that applies to all of our employees, officers and directors, including our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. Our Code of
Business Conduct and Ethics contains written standards that we believe are
reasonably designed to deter wrongdoing and to promote:
- Honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
- Full, fair, accurate, timely, and understandable disclosure in
reports and documents that we file with, or submit to, the
Securities and Exchange Commissions and in other public
communications we make;
- Compliance with applicable governmental laws, rules and
regulations;
- The prompt internal reporting of violations of the code to an
appropriate person or persons named in the code; and
- Accountability for adherence to the code.
This Code of Business Conduct and Ethics is attached to our Annual
Report on Form 10-K for the fiscal year ended November 30, 2003 as Exhibit 14.1.
We have also posted it on our Web site at http://www.somanetics.com. We will
provide to any person without charge, upon request, a copy of our Code of
Business Conduct and Ethics. Requests for a copy of our
10
Code of Business Conduct and Ethics should be made to our Secretary at
Somanetics Corporation, 1653 East Maple Road, Troy, Michigan 48083-4208. We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding
an amendment to, or a waiver from, a provision of our Code of Business Conduct
and Ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller or persons performing
similar functions and that relates to any element of the code definition
enumerated in Securities and Exchange Commission, Regulation S-K, Item 406(b) by
posting such information on our Web site at http://www.somanetics.com within
five business days following the date of the amendment or waiver.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
Our Board of Directors has a process for shareholders to send
communications to the Board of Directors, its Nominating Committee or its Audit
Committee, including complaints regarding accounting, internal accounting
controls, or auditing matters. Communications can be sent to the Board of
Directors, its Nominating Committee or its Audit Committee or specific directors
either by regular mail to the attention of the Board of Directors, its
Nominating Committee, its Audit Committee or specific directors, at our
principal executive offices at 1653 East Maple Road, Troy, Michigan 48083-4208,
or by e-mail to directors01@somanetics.com. All of these communications will be
reviewed by our Secretary (1) to filter out communications that our Secretary
deems are not appropriate for our directors, such as spam and communications
offering to buy or sell products or services, and (2) to sort and relay the
remainder (unedited) to the appropriate directors.
We encourage all of our directors to attend the annual meeting of
shareholders, if possible. All five of our continuing directors attended the
2003 annual meeting of shareholders.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 2003, 2002 and 2001 concerning compensation of (1) all
individuals serving as our Chief Executive Officer during the fiscal year ended
November 30, 2003, and (2) our four most highly-compensated other executive
officers in fiscal 2003 who were serving as executive officers as of November
30, 2003 and whose total annual salary and bonus exceeded $100,000:
11
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($) (2)
--------------------------- ---- --------- -------- ------------ ------------
Bruce J. Barrett, President.... 2003 225,500 103,253 132,000 3,174
and Chief Executive Officer 2002 164,750 0 100,000 -0-
2001 177,339 0 218,000 -0-
Richard S. Scheuing, Vice...... 2003 111,100 19,002 56,000 -0-
President, Research and 2002 110,000 0 10,000 -0-
Development 2001 110,000 0 34,000 -0-
Dominic J. Spadafore, Vice..... 2003 130,866 64,553 36,000 1,578
President of Sales and 2002 43,333 23,333 100,000 -0-
Marketing (1)
Mary Ann Victor, Vice President 2003 106,400 29,005 56,000 897
of Communications and 2002 95,875 0 60,000 -0-
Administration and Secretary 2001 80,892 0 41,400 -0-
Pamela A. Winters, Vice........ 2003 111,100 26,562 50,000 948
President of Operations 2002 100,625 0 60,000 -0-
2001 85,000 0 42,000 -0-
-----------------
(1) Mr. Spadafore became one of our executive officers on August 1, 2002.
The Compensation shown in the table for fiscal 2002 is compensation paid to him
in all capacities in fiscal 2002.
(2) Amounts for 2003 include $3,174, $1,578, $897 and $948 in premiums paid
for additional disability insurance for Messrs. Barrett and Spadafore, Ms.
Victor and Ms. Winters.
Option Grants Table
The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended November 30, 2003 to each of
our executive officers named in the Summary Compensation Table above:
12
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------------------- POTENTIAL
% OF REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ----------- -------- ---------- ------- -------
Bruce J. Barrett........... 132,000 (1) 29.1 $ 3.89 8/12/13 322,925 818,355
Richard S. Scheuing........ 56,000 (1) 12.3 $ 3.89 8/12/13 136,998 347,181
Dominic J. Spadafore....... 36,000 (1) 7.9 $ 3.89 8/12/13 88,070 223,188
Mary Ann Victor............ 56,000 (1) 12.3 $ 3.89 8/12/13 136,998 347,181
Pamela A. Winters.......... 50,000 (1) 11.0 $ 3.89 8/12/13 122,320 309,983
-------------------
(1) The options listed in the table were incentive stock options granted to
Messrs. Barrett, Scheuing and Spadafore, Ms. Victor and Ms. Winters in
fiscal 2003 under our 1997 Stock Option Plan (except for 54,880
nonqualified stock options granted to Mr. Barrett), exercisable at the
then current fair market value of the underlying common shares. Each of
these options is exercisable in one-third cumulative annual increments
beginning August 13, 2004. Each option also becomes 100% exercisable
immediately 10 days before or upon specified changes in control of the
Company. For the nonqualified stock options granted to Mr. Barrett, the
portion of these options that is exercisable at the date of termination
of employment remains exercisable until the expiration date of the
option, unless termination is for cause.
If, upon exercise of any of the options described above, we must pay
any amount for income tax withholding, in the Compensation Committee's or the
Board of Directors' sole discretion, either the optionee will pay such amount to
us or we will appropriately reduce the number of common shares we deliver to the
optionee to reimburse us for such payment. The Compensation Committee or the
Board may also permit the optionee to choose to have these shares withheld or to
tender common shares the optionee already owns. The Compensation Committee or
the Board may also make such other arrangements with respect to income tax
withholding as it shall determine.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended November 30, 2003 by each of the
executive officers named in the Summary Compensation Table above and the value
of unexercised options held by them as of November 30, 2003:
13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Bruce J. Barrett...... 0 0 732,866 215,334 2,610,413 940,930
Richard S. Scheuing... 0 0 136,175 66,000 509,307 272,046
Dominic J. Spadafore.. 0 0 33,333 102,667 183,998 509,482
Mary Ann Victor....... 0 0 112,400 101,000 503,668 444,130
Pamela A. Winters..... 0 0 149,950 96,000 592,065 426,400
"Value Realized" represents the fair value of the underlying securities on the
exercise date minus the aggregate exercise price of the options.
Compensation of Directors
We refer to our directors who are not our officers or employees as
Outside Directors. Our Outside Directors receive $1,000 for each Board meeting
attended in person, $250 for each telephonic Board meeting attended, and $250
for each Board committee meeting attended on a date other than the date of a
Board meeting. We also reimburse Outside Directors for their reasonable expenses
of attending Board and Board committee meetings. In addition, our Board of
Directors has determined to grant Outside Directors who continue to serve as our
directors after each annual meeting of shareholders, 10-year options to purchase
3,500 common shares each year on the date of the annual meeting of shareholders,
exercisable at the fair market value of the common shares on the date of grant.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Bruce J. Barrett. As of May 13, 1994, we entered into an employment
agreement with Bruce J. Barrett, pursuant to which, as amended, he is employed
as President and Chief Executive Officer, or in such other position as the Board
of Directors determines, for a period ending April 30, 2006. Mr. Barrett's
annual salary is currently $234,507, which may be increased by the Board of
Directors. Mr. Barrett is also entitled to participate in any bonus plan
established by the Compensation Committee of the Board of Directors. We adopted
a bonus plan for fiscal 2003 and for fiscal 2004 that covers officers. Mr.
Barrett is entitled to various fringe benefits under the agreement, including 12
months of compensation and six months of benefits if his employment under the
agreement is terminated without cause or if the agreement expires without being
renewed. Mr. Barrett has agreed not to compete with us during specified periods
following the termination of his employment.
Richard S. Scheuing. As of January 11, 2002, we entered into a
three-year agreement with Richard S. Scheuing, pursuant to which he is entitled
to a bonus equal to six months of salary if he stays employed with our successor
after a change in control for at least three months or if, during that period,
the successor terminates his employment without cause or he quits for good
reason. Mr. Scheuing's current annual salary is $113,300, which may be increased
by the Board of Directors. Mr. Scheuing has agreed not to compete with us and
not to solicit our
14
employees during specified periods following the termination of his employment,
and he has agreed to various confidentiality obligations.
Dominic J. Spadafore. As of August 1, 2002, we entered into an
employment agreement with Dominic J. Spadafore, pursuant to which he is employed
as Vice President of Sales and Marketing, or in such other position as the Board
of Directors determines, for a period ending upon his death, termination by us
upon his disability or with or without cause or termination by Mr. Spadafore.
Mr. Spadafore's annual salary is currently $132,600, which may be increased by
the Board of Directors. Mr. Spadafore is also entitled to participate in
incentive plans, and during the first year of his employment, he was entitled to
receive minimum incentive compensation of $70,000 payable monthly in arrears.
Mr. Spadafore also received an option to purchase 100,000 common shares as an
inducement essential to his entering into the employment agreement.
Mr. Spadafore is entitled to various fringe benefits under the
agreement. If, during the first two years of his employment, we terminate Mr.
Spadafore's employment under the agreement without cause (as defined in the
agreement), he is entitled to 12 months of his salary, unless the termination is
in connection with a change in control (as defined in the agreement) and (1) the
successor is bound by and performs the employment agreement, (2) the successor
offers Mr. Spadafore employment on the same terms and conditions without any
substantial decrease in salary without his consent, or (3) Mr. Spadafore accepts
employment with the successor. If, after the first two years of his employment,
we terminate (or our successor terminates) Mr. Spadafore's employment under the
agreement without cause within 90 days before, or one year after, a change in
control, he is entitled to 12 months of his salary, unless (1) the successor is
bound by and performs the employment agreement, (2) the successor offers Mr.
Spadafore employment on the same terms and conditions without any substantial
decrease in salary without his consent, or (3) Mr. Spadafore accepts employment
with the successor. Mr. Spadafore has agreed not to compete with us and not to
solicit our employees during specified periods following the termination of his
employment, and he has agreed to various confidentiality obligations.
Stock Option Terms. All options granted under our stock option plans
through February 2, 2004, that are not already 100% exercisable immediately,
including options granted to Messrs. Barrett, Scheuing and Spadafore, Ms. Victor
and Ms. Winters, become 100% exercisable immediately ten days before or upon
specified changes in control of the Company.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended November 30, 2003, James I. Ausman, M.D.,
Ph.D., H. Raymond Wallace (until April 10, 2003), and, beginning April 10, 2003,
Daniel S. Follis (Chairman) and Robert R. Henry, served as the members of our
Compensation Committee. None of the members of our Compensation Committee was,
during the fiscal year ended November 30, 2003, one of our officers or
employees, or one of our former officers, except that Mr. Wallace became our
non-salaried Chairman of the Board on January 27, 1995 and became a non-officer
Chairman of the Board effective April 6, 1995. None of the committee members had
15
any relationship with us requiring disclosure by us pursuant to Securities and
Exchange Commission rules regarding disclosure of related-party transactions.
EQUITY COMPENSATION PLAN INFORMATION
The following information is provided as of November 30, 2003 with
respect to compensation plans, including individual compensation arrangements,
under which our equity securities are authorized for issuance:
(c)
Number of securities
(a) (b) remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
------------------ ----------------------- -------------------- -------------------------
Equity compensation
plans approved by
security holders (1).... 4,972,508 $ 3.39 117,541
Equity compensation
plans not approved by
security holders (2).... 336,311 $ 5.71 0
--------- -------
Total...................... 5,308,819 117,541
========= =======
--------------------
(1) These plans consist of: (a) the 1991 Incentive Stock Option Plan, which
terminated in 2001 except for the options granted before that date, (b) the 1993
Director Stock Option Plan, terminated in 1998, except for the options granted
before that date, (c) the Somanetics Corporation 1997 Stock Option Plan, (d) the
remaining warrants held by Kingsbridge Capital Limited to purchase an aggregate
of 105,097 common shares at $4.25 a share, after 100,000 warrants were exercised
in fiscal 2003; such warrants were originally granted in connection with the
March 6, 2000 Private Equity Line Agreement, and (e) the Warrants granted to
CorRestore LLC and its agent Wolfe & Company to purchase an aggregate of
2,500,000 common shares at $3.00 a share in connection with the June 2, 2000
CorRestore License Agreement.
(2) These plans consist of: (a) non-qualified options to purchase 236,311
common shares granted to 16 of our directors, officers, employees and advisors,
including five current executive officers, two former executive officers and one
current director, granted independent of our stock option plans (including one
option granted in fiscal 2002 to purchase 100,000 common shares as an inducement
essential to an new executive officer entering into an employment agreement with
us), and (b) warrants to purchase an aggregate of 100,000 common shares at $5.10
a share through January 11, 2007 granted to Brean Murray & Co., Inc. in
connection with our public offering of common shares that closed in January
2002. The options and warrants are subject to
16
anti-dilution adjustments. Brean Murray & Co., Inc. has demand and piggyback
registration rights with respect to its warrants to purchase 100,000 common
shares.
The options granted independent of our stock option plans were granted
on May 16, 1994, July 21, 1994, December 22, 1995, January 5, 1996, April 24,
1997 and August 1, 2002. All of the options have vested, except for an option to
purchase 100,000 common shares granted on August 1, 2002, which vests in
one-third cumulative annual installments beginning August 1, 2003, and also 100%
immediately 10 business days before or upon specified changes in control of us.
Options granted to four current and former officers and vested at the time of
termination of employment, continue to be exercisable until the original
termination date notwithstanding such termination, unless such termination is
for cause, in which case such options expire at the date of such termination.
Other options expire at the date of termination of employment, unless extended
in the discretion of the Compensation Committee of our Board of Directors.
The non-plan options expire 10 years after they were granted, except
for two options to purchase 21,500 common shares granted on December 22, 1995,
which expire March 13, 2005. The exercise prices of these options, which were at
least the fair market value of the underlying common shares on the date of
grant, range from $2.30 to $13.125. At the time these options are exercised, the
optionee must pay the full option price for all shares purchased:
- in cash, or
- with the consent of the Compensation Committee or the Board of
Directors, in its discretion, and to the extent permitted by
applicable law,
- in common shares,
- by a promissory note payable to the order of us that is
acceptable to the Compensation Committee or the Board of
Directors,
- by a cash down payment and a promissory note for the
unpaid balance,
- subject to any conditions established by the Compensation
Committee or the Board of Directors, by having us retain
from the shares to be delivered upon exercise of the
stock option that number of shares having a fair market
value on the date of exercise equal to the option price,
- by delivery to us of written notice of the exercise, in
such form as the Compensation Committee or the Board of
Directors may prescribe, accompanied by irrevocable
instructions to a stock broker to promptly deliver to us
full payment for the shares with respect to which the
option is exercised from the proceeds of the stock
broker's sale of the shares or loan against them,
- in such other manner as the Compensation Committee or the
Board of Directors determines is appropriate, in its
discretion.
Specified consolidations, mergers, transfers of substantially all of
our properties and assets, dissolutions, liquidations, reorganizations or
reclassifications in such a way that holders of common shares are entitled to
receive stock, securities, cash or other assets with respect to, or in exchange
for, their common shares, are each referred to as a "Transaction." If we engage
in a Transaction, then each holder of a non-plan option after consummation of
the Transaction will be entitled to receive (for the same aggregate exercise
price) the stock and other securities, cash and
17
assets the holder would have received in the Transaction if he or she had
exercised the option in full immediately before consummation of the Transaction.
In addition, in connection with a Transaction, the Compensation
Committee or the Board of Directors, acting in its discretion without the
consent of any holder of any non-plan option and regardless of any other
provision of the option, may:
- permit such options to be exercised in full for a limited period
of time, after which all unexercised options and all rights of
holders of such options would terminate,
- permit such options to be exercised in full for their then
remaining terms, or
- require all such options to be surrendered to us for cancellation
and payment to each holder in cash of the excess of the fair
market value of the underlying common shares as of the date the
Transaction is effective over the exercise price, less any
applicable withholding taxes.
The Compensation Committee or the Board of Directors may not select an
alternative for a holder that would result in his or her liability under Section
16(b) of the Exchange Act, without the holder's consent. If all of the
alternatives have such a result, the Compensation Committee or Board of
Directors will take action to put the holder in as close to the same position as
he or she would have been in if one of the alternatives described above had been
selected, but without resulting in any payment by the holder under Section 16(b)
of the Exchange Act. With the consent of each holder, the Compensation Committee
or Board of Directors may make such provision with respect to any Transaction as
it deems appropriate.
The options may not be transferred other than by will or by the laws of
descent and distribution, and during the optionee's lifetime, the option is
exercisable only by the optionee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by Securities
and Exchange Commission regulation to furnish us with copies of all Section
16(a) reports they file. Based solely on review of the copies of such reports
furnished to us during or with respect to fiscal 2003, or written
representations that no Forms 5 were required, we believe that during the fiscal
year ended November 30, 2003 all Section 16(a) filing requirements applicable to
our officers, directors and greater than ten-percent beneficial owners were
complied with, except that each of our outside directors in 2003, James I.
Ausman, M.D., Ph.D., Daniel S. Follis, Robert R. Henry, A. Brean Murray and Joe
B. Wolfe, inadvertently filed one Form 4, reporting one option grant, two or
three days late.
18
II. OTHER MATTERS
ANNUAL REPORT
A COPY OF OUR ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 2003 ACCOMPANIES THIS PROXY STATEMENT. WE FILE AN ANNUAL REPORT ON
FORM 10-K WITH THE SECURITIES AND EXCHANGE COMMISSION. WE WILL PROVIDE, WITHOUT
CHARGE, TO EACH PERSON BEING SOLICITED BY THIS PROXY STATEMENT, UPON THE WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 2003 (AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, EXCLUDING EXHIBITS FOR WHICH A REASONABLE CHARGE SHALL BE IMPOSED).
ALL SUCH REQUESTS SHOULD BE DIRECTED TO SOMANETICS CORPORATION, 1653 EAST MAPLE
ROAD, TROY, MICHIGAN 48083-4208, ATTENTION: INVESTOR RELATIONS DEPARTMENT.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP are our independent accountants and have reported
on the financial statements in our 2003 Annual Report to Shareholders, which
accompanies this proxy statement. Our independent accountants are appointed by
the Audit Committee of our Board of Directors. We will not select our
independent accountants for the fiscal year ending November 30, 2004 until later
in our fiscal year.
A representative of Deloitte & Touche LLP is expected to be present at
the Annual Meeting of Shareholders and will have the opportunity to make a
statement at the meeting if she desires to do so. The representative will also
be available to respond to appropriate questions.
The following table presents aggregate fees billed for each of the
years ended November 30, 2003 and 2002 for professional services rendered by
Deloitte & Touche LLP in the following categories:
Fiscal Year Ended
November 30,
---------------------
2003 2002
-------- --------
Audit Fees (1)................................................ $ 57,000 $ 94,550
Audit-Related Fees............................................ $ 0 $ 0
Tax Fees (2).................................................. $ 45,000 $ 43,550
All Other Fees................................................ $ 0 $ 0
-----------------
(1) Consists of fees for the audit of our annual financial statements,
review of financial statements included in our Form 10-Qs, services provided in
connection with our Registration Statements on Form S-8 in connection with
increases in authorized shares under the 1997 Plan in fiscal 2002 and fiscal
2003, and, in fiscal 2002, services provided in connection with our Registration
Statement on Form S-1 in connection with our January 2002 public offering of
common shares.
(2) Consists of tax return preparation fees.
19
In accordance with Section 10A(i) of the Exchange Act, before Deloitte
& Touche LLP is engaged by us to render audit or non-audit services, the
engagement is approved by our Audit Committee. None of the audit-related, tax
and other services described in the table above were approved by the Audit
Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at our 2005
Annual Meeting of Shareholders must be received by our Secretary at our offices,
1653 East Maple Road, Troy, Michigan 48083-4208, no later than October 16, 2004
to be considered for inclusion in the proxy statement and proxy relating to that
meeting. Such proposals should be sent by certified mail, return receipt
requested.
We must receive notice of any proposals of shareholders that are
intended to be presented at our 2005 Annual Meeting of Shareholders, but that
are not intended to be considered for inclusion in our proxy statement and proxy
related to that meeting, no later than December 30, 2004 to be considered
timely. Such proposals should be sent by certified mail, return receipt
requested and addressed to Somanetics Corporation, 1653 East Maple Road, Troy,
Michigan 48083-4208, Attention: Investor Relations Department. If we do not have
notice of the matter by that date, our form of proxy in connection with that
meeting may confer discretionary authority to vote on that matter, and the
persons named in our form of proxy will vote the shares represented by such
proxies in accordance with their best judgment.
OTHER BUSINESS
Neither we nor the members of our Board of Directors intend to bring
before the annual meeting any matters other than those set forth in the Notice
of Annual Meeting of Shareholders, and none of us has any present knowledge that
other matters will be presented for action at the annual meeting by others.
However, if other matters are properly presented to the meeting, the persons
named in the enclosed proxy intend to vote the shares represented by the proxy
in accordance with their best judgment.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
February 13, 2004
20
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APPENDIX
AUDIT COMMITTEE CHARTER
The Audit Committee of Somanetics Corporation shall review and reassess
the adequacy of this Charter annually, and the Board of Directors shall adopt
this Charter and any changes to it.
ROLE AND MEMBERSHIP
The purpose of the Audit Committee of the Board of Directors is to
oversee the accounting and financial reporting processes of the corporation and
the audits of the financial statements of the corporation and to perform such
other duties as directed by the Board.
The membership of the Committee shall consist of at least three
directors, each of whom is able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement. At least one member must 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.
Each member (1) shall be free of any relationship, which, in the
opinion of the board, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director, (2) shall meet the
definition of "Independent Director" as set forth in the Marketplace Rules of
The Nasdaq Stock Market, (3) shall meet the criteria for independence set forth
in Rule 10A-3(b)(1) under the Exchange Act (subject to the exceptions provided
in Rule 10A-3(c)), and (4) shall not have participated in the preparation of the
financial statements of the corporation or any current subsidiary of the
corporation at any time during the past three years.
The Committee is expected to maintain free and open communication
(including private executive sessions at least annually) with the independent
accountants and the management of the corporation. In discharging this oversight
role, the Committee is empowered to investigate any matter brought to its
attention. Subject to the exemptions provided in Rule 10A-3(c), the Audit
Committee has the authority to engage independent counsel and other advisers, as
it deems necessary to carry out its duties. Subject to the exemptions provided
in Rule 10A-3(c), the corporation will provide for appropriate funding, as
determined by the Audit Committee, in its capacity as a committee of the Board
of Directors, for payment of (1) compensation to any registered public
accounting firm engaged for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the listed issuer, (2)
compensation to any advisers employed by the Audit Committee under the previous
sentence, and (3) ordinary administrative expenses of the audit Committee that
are necessary or appropriate in carrying out its duties.
Committee members shall be appointed by the Board and shall serve at
the pleasure of the Board. The Board of Directors shall appoint one member of
the Audit Committee as chairperson. He or she shall be responsible for presiding
over the meetings and reporting to the
1
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Board of Directors. The chairperson will also maintain regular liaison with the
Chief Executive Officer, the Vice President of Finance and the lead independent
audit partner.
RESPONSIBILITIES
The Audit Committee's primary responsibilities include:
- In its capacity as a committee of the Board of Directors, being
directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm
engaged (including resolution of disagreements between management
and the auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or performing other audit,
review or attest services for the corporation, and each such
registered public accounting firm must report directly to the
Audit Committee (all subject to the exemptions provided in Rule
10A-3(c)).
- Ensuring that (pursuant to, and subject to the exceptions
contained in, Section 10A(i) of the Exchange Act) before the
independent accountant is engaged by the corporation to render
audit or non-audit services, the engagement is approved by the
Audit Committee or the engagement to render the service is entered
into pursuant to pre-approval policies and procedures established
by the Audit Committee pursuant to Regulation S-X, Item
2-01(c)(7)(i). The Audit Committee may delegate to one or more
designated members of the Audit Committee who are independent
directors of the Board of Directors, the authority to grant
pre-approvals required by this paragraph. The decisions of any
member to whom authority is delegated under this paragraph to
pre-approve any activity under this paragraph shall be presented
to the full Audit Committee at each of its scheduled meetings.
- Ensuring that the Audit Committee receives from the independent
accountants a formal written statement (including the written
disclosures and the letter) delineating all relationships between
the independent accountants and the corporation, consistent with
Independence Standards Board Standard No. 1, actively engaging in
dialogue with the independent accountants with respect to the
independent accountants' independence and any disclosed
relationships or services that may impact the objectivity and
independence of the independent accountants, and taking, or
recommending that the full board take, appropriate action to
oversee the independence of the independent accountants.
- Overseeing the independent accountants relationship by discussing
with the independent accountants the nature, scope and rigor of
the audit process, receiving and reviewing audit and other reports
from the independent accountants, and providing the independent
accountants full access to the committee (and the board) to report
on any and all appropriate matters.
2
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Such reports shall include any reports from the independent
accountants concerning (1) all critical accounting policies and
practices to be used, (2) all significant or material 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 accountant, and (3) other material
written communications between the independent accountant and the
management of the issuer, such as any management letter or
schedule of unadjusted differences.
- Reviewing and discussing the audited financial statements with
management and the independent accountants.
- Discussing with the independent accountants and management the
matters required to be discussed by SAS 61, as it may be modified
or supplemented. These discussions should include the independent
accountant's judgments about the quality of the corporation's
accounting principles, applications and practices as applied in
its financial reporting, including such matters as the consistency
of application of the corporation's accounting policies, the
clarity, consistency and completeness of the corporation's
accounting information contained in the financial statements and
related disclosures, and items that have a significant impact on
the representational faithfulness, verifiability, neutrality and
consistency of the accounting information included in the
financial statements. Examples of items that may have such an
impact are (1) selection of new, or changes to, accounting
policies, (2) estimates, judgments and uncertainties, (3) unusual
transactions, (4) accounting policies relating to significant
financial statement items, including the timing of transactions
and the period in which they are recorded, (5) significant
adjustments, and (6) disagreements with management.
- Based on the review and discussions described above, recommending
to the Board whether the audited financial statements should be
included in the corporation's Annual Report on Form 10-K for the
last fiscal year for filing with the SEC.
- Reviewing with management and the independent accountants the
quarterly financial information prior to the corporation's filing
of Form 10-Q. This review may be performed by the committee or its
chairperson.
- Discussing with management and the independent accountants the
quality and adequacy of the corporation's internal controls.
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[SOMANETICS LOGO]
- Establishing procedures for (1) the receipt, retention, and
treatment of complaints received by the corporation regarding
accounting, internal accounting controls, or auditing matters, and
(2) the confidential, anonymous submission by employees of the
corporation of concerns regarding questionable accounting or
auditing matters (subject to the exemptions provided in Rule
10A-3(c)).
- Conducting an appropriate review of all related party transactions
required to be disclosed pursuant to SEC Regulation S-K, Item 404
for potential conflict of interest situations on an ongoing basis
and approving all such transactions.
- Discussing with management the status of pending litigation as it
pertains to the financial statements and disclosure, and other
areas of oversight as the Committee deems appropriate.
- Reporting Audit Committee activities to the full Board and issuing
annually a report to be included in the proxy statement.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to prepare financial
statements, to plan or conduct audits or to determine that the corporation's
financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of management and the registered
public accountants.
Revised: January 13, 2004
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APPENDIX
SOMANETICS CORPORATION
NOMINATING COMMITTEE CHARTER
PURPOSE
The Nominating Committee is appointed by the Board of Directors to:
- Identify individuals to become Board members.
- Select, or recommend that the Board select, the director nominees for
the next annual meeting of shareholders.
COMMITTEE MEMBERSHIP
The Committee will be composed entirely of directors who satisfy the definition
of "independent director" under the listing standards of The Nasdaq Stock
Market. The Committee members will be appointed by the Board and may be removed
by the Board in its discretion. The Committee shall have the authority to
delegate any of its responsibilities to subcommittees as the Committee may deem
appropriate, provided the subcommittees are composed entirely of independent
directors.
MEETINGS
The Committee shall meet as often as its members deem necessary to perform the
Committee's responsibilities.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Committee, to the extent it deems necessary or appropriate will (1) identify
individuals to become Board members, and (2) select or recommend for the Board's
selection, director nominations to be presented for shareholder approval at the
annual meeting and to fill any vacancies.
The Committee will have the authority, to the extent it deems necessary or
appropriate, to retain advisors. The Company will provide for appropriate
funding, as determined by the Committee, for payment of compensation to any
advisors employed by the Committee.
The Committee will make regular reports to the Board and will propose any
necessary action to the Board. The Committee will review and reassess the
adequacy of this charter annually and recommend any proposed changes to the
Board for approval.
SOMANETICS CORPORATION
PROXY
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING MARCH 31, 2004. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SOMANETICS CORPORATION
The undersigned hereby appoints Bruce J. Barrett and Mary Ann Victor,
and each of them, attorneys and proxies with full power of substitution in each
of them, in the name, place and stead of the undersigned to vote as proxy all
the common shares, par value $0.01 per share, of the undersigned in Somanetics
Corporation (the "Company") which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on March 31, 2004, and
at any and all adjournments thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of Director
NOMINEE
[ ] FOR THE NOMINEE Bruce J. Barrett
[ ] WITHHOLD AUTHORITY
FOR THE NOMINEE
To change the address on your account, please check the box at right [ ]
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be
submitted via this method.
Signature of Shareholder: _______________________ Date: _____________________
2. In their discretion with respect to any other matters that may properly
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE HEREIN. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTOR NAMED IN PROPOSAL 1 IF NO INSTRUCTIONS TO THE
CONTRARY ARE INDICATED OR IF NO INSTRUCTION IS GIVEN.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
Signature of Shareholder: _______________________ Date: _____________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.