Document:

Exhibit 10.37

Exhibit 10.37

CORPORATE GOVERNANCE GUIDELINES 

I.    Introduction 

 

          The Board of Directors has adopted the following corporate governance guidelines to assist the Board in the exercise of its responsibilities. These Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management level, with a view to enhancing shareholder value over the long term. 

 

        The Corporate Governance and Nominating Committee will review these Guidelines at least annually. Such review shall include the evaluation by the Committee of Board practices at other well-managed companies and emerging corporate governance issues. These Guidelines are subject to modification from time to time by the Board. 

 

II.    The Board 

 

1.    Primary Functions of the Board of Directors 

 

The principal responsibility of the Board is to oversee the management of the Company in the interest and for the benefit of the Company’s shareholders. The Board’s primary functions include: 

 

a.    Selection and evaluation of the performance of the Chief Executive Officer ("CEO") and reviewing management succession planning; 

 

b.    Reviewing and, where appropriate, approving and monitoring implementation of strategic plans and annual operating plans and budgets; 

 

c.    Advising management on significant issues; 

 

d.    Reviewing and, where appropriate, approving significant Company actions; 

 

e.    Assessing the Company’s policies and procedures and monitoring management’s efforts to promote high standards of ethical conduct and legal compliance in the conduct of Company business; and 

 

f.    Reviewing actions taken by Board Committees on major issues delegated to them. 

	 
	 	 	 
	

	 

2.    Size of the Board 

 

Under the Company’s Bylaws, the Board consists of nine (9) Directors. The Board is divided into three (3) classes elected for three (3) year terms which are to be as equal in size as possible, with the term of one (1) class expiring each year. The number of Directors may be changed by a vote of a majority of Directors. The Board believes that the current size of the Board permits diversity of experience without hindering effective discussion or diminishing individual accountability. 

 

3.    Independence of the Board 

The Board believes that as a matter of policy a majority of the members of the Board should be "independent" under the NASDAQ listing standards. The Board will review annually the relationship that each Director and each Director’s family members have with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) to determine whether each Director is independent within the meaning of the NASDAQ listing requirements. Following such annual review, only those Directors whom the Board affirmatively determines meet the requirements for independence will be considered independent. 

 

Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as "independent." This obligation includes the obligation to disclose all business relationships between Directors and the Company and its affiliates, whether or not such business relationships are subject to the approval requirements set forth in Section II.11. below. 

 

4.    Board Membership Criteria and Selection of New Director Candidates 

The ultimate responsibility for the nomination of Directors resides with the Board. The identification, screening and recommendation process has been delegated to the Corporate Governance and Nominating Committee, which reviews candidates for election as Directors and annually recommends a slate of Directors for approval by the independent Directors on the Board and election by the shareholders. 

 

5.    Term Limits 

 

The Board does not currently favor the concept of mandatory term limits. Directors who have served on the Board for an extended period of time are able to provide valuable insight into the operations and opportunities of the Company based on their experience with and understanding of the Company’s history, policies and objectives. The Board believes that, as an alternative to term limits, it can ensure that the Board continues to evolve and adopt new viewpoints through the process of evaluation and nomination of candidates to fill vacancies on the Board and in making re-nomination recommendations. 

 

6.    Retirement Age 

 

It is the general policy of the Board that Directors, other than those Directors who were Directors on May 24, 2003, shall not stand for re-election after reaching age 72. 

7.    Board Compensation 

 

Compensation for non-employee Directors should be competitive and should consist of both cash and stock-based compensation. Senior management of the Company shall report annually to the Corporate Governance and Nominating Committee on the status of the Company’s Director compensation practices in relation to other companies of comparable size, industry and complexity. Changes in Director compensation should come upon the recommendation of the Corporate Governance and Nominating Committee but with discussion and concurrence by the full Board of Directors. 

 

8.    Board Relationship to Senior Management 

 

a.    Board Access to Senior Management and Outside Advisors 

 

The Directors have complete access to the Company’s senior management, including executive officers. As a courtesy, Directors should use judgment to ensure this contact would not be disruptive to the business operations of the Company and any written requests for information should be copied to the CEO. The Board expects that from time to time executives and/or managers will be present at Board meetings to provide additional insight into the items being discussed and to provide the Board the opportunity to evaluate their management skills. The Board shall also have access to the Company’s outside counsel, auditors and other advisors and may retain outside advisors of its choice with respect to any issue relating to any of its activities. 

 

b.    Attendance of Non-Directors at Board Meetings 

 

Unless there is a specific reason for them to be excluded, the Corporate Secretary shall attend all Board and Committee meetings, the Chief Financial Officer ("CFO") shall attend all Audit Committee meetings and the most senior Human Resources executive shall attend all Compensation Committee meetings. In addition, the CEO may invite one or more members of management to be in regular attendance at Board meetings and may include other officers or employees from time to time as appropriate to the circumstances. 

	 
	 	 	 
	

	 

9.    Board Interaction with Shareholders, Analysts, Press and Customers 

 

The Board believes that management generally should speak for the Company and that it is inappropriate for individual Directors to communicate separately with shareholders, analysts, the press or customers except with the full knowledge and at the request of management or the full Board of Directors. Directors should refer all inquiries from shareholders, analysts, the press or customers to the CEO or the CFO. 

 

10.    Evaluation of the Board 

 

The Corporate Governance and Nominating Committee will conduct an annual self-assessment of the Board’s performance as well as the performance of each Committee of the Board, the results of which will be discussed with the full Board. The assessment will include a review of any areas in which the Board or management believes the Board can make a better contribution to the Company. The Corporate Governance and Nominating Committee will also utilize the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various Committees. 

 

11.    Related Party Transactions 

 

All conflicts of interest will be handled in accordance with the Company’s Code of Conduct. The Company’s Audit Committee will be responsible for reviewing all "related party transactions" involving the Company or one of its subsidiaries. For purposes of this paragraph, a "related party transaction" is any transaction in which a Director or officer of the Company has a direct or indirect financial interest. 

 

12.    Director Orientation 

 

The Company’s General Counsel and CEO shall be responsible for providing an orientation program for new Directors that includes background information about the Company’s business, general information about the Board and Committees and a review of a Director’s duties and responsibilities under Delaware law. Orientation may be conducted through the delivery of written materials and may include meetings with key executives, preceding or promptly following the election of a new Director to the Board. 

 

III.    Board Meetings 

 

1.    Frequency 

 

The Board has four (4) regularly scheduled meetings per year and special meetings are called as necessary. 

	 
	 	 	 
	

	 

2.    Attendance at Board and Committee Meetings 

 

Each Director is expected to attend all meetings of the Board and all meetings of Committees on which the Director is a member. The Board recognizes, however, that occasionally meetings may need to be scheduled on short notice when participation of a Director is not possible and that conflicts may arise from time to time to prevent a Director from attending a regularly scheduled meeting. However, the Board expects that Directors will make every possible effort to keep such absences to a minimum. 

 

3.    Selection of Agenda 

 

The CEO shall establish the agenda for each Board meeting. Any Director may suggest the inclusion of items on the agenda. It is anticipated that the agenda will be distributed to each Director in advance of the Board meeting. 

 

4.    Distribution of Board Materials 

In addition to the Board agenda, information that is important to the Board’s understanding of the business of the Company shall be distributed to Directors prior to each Board meeting. Directors also routinely receive certain press releases, analyst reports and other information designed to keep them informed of the material aspects of the Company’s business performance and prospects. 

5.    Executive Sessions of Independent Directors 

 

As part of each regularly scheduled meeting of the Board, the independent Directors will meet in executive session. Additional executive sessions may be held from time to time as determined by a majority of the independent Directors. The executive session discussions may include such topics as the independent Directors determine, but actions of the Board shall be taken separately at a full Board or Committee meeting. The lead Director for purposes of chairing executive sessions of the independent Directors shall alternate among the chairpersons of the Audit, the Compensation and the Corporate Governance and Nominating Committees. 

 

IV.    Committee Matters 

 

1.    Nomination and Structure of Committees 

 

A substantial amount of the analysis and work of the Board is done by standing Board Committees. The Board currently has three (3) standing Committees: Audit, Compensation and Corporate Governance and Nominating Committee. The size, purpose and responsibilities of these Committees is outlined in the Company’s By-Laws, supplemented in the case of the Audit and Corporate Governance and Nominating Committees, by Committee charters adopted by the Board. The Board may, from time to time, form a new Committee or disband a current Committee depending on circumstances. In addition, the Board may determine to form ad hoc Committees from time to time and determine the composition and areas of competence of such Committees. 

 

2.    Composition of Committees 

 

It is the policy of the Board that only independent Directors serve on the Audit, Compensation and Corporate Governance and Nominating Committees. In addition, the composition of the Committees will be reviewed annually to ensure that each of its members meets the criteria set forth in applicable SEC, listing exchange and IRS rules and regulations. 

 

3.    Assignment of Committee Members 

 

The Corporate Governance and Nominating Committee, with direct input from the CEO, recommends to the Board the membership of the various Committees. In making its recommendations to the Board, the Committee takes into consideration the continuity, subject matter expertise, tenure and experience of the individual Board members. 

 

4.    Frequency and Length of Committee Meetings 

 

The Chairperson of each Committee, in consultation with its members and appropriate officers, determines the frequency and length of the meetings of the Committee. In addition, the Chairperson of a Committee or the CEO may call a special meeting of a Committee at any time. 

 

5.    Executive Sessions 

 

Committee members shall meet in executive session whenever the Chairperson of the Committee or a majority of the members of the Committee deems it appropriate for them to do so. 

 

6.    Committee Agendas/Reports to the Board 

 

Appropriate members of management and staff will prepare draft agendas and related background information for each Committee meeting which, to the extent desired by the relevant Committee Chairperson, will be reviewed and approved by such Chairperson in advance of distribution to the other Committee members. It is anticipated that any background materials, together with such agendas, will be distributed to Committee members in advance of the meeting. In addition, each Committee member is free to suggest items for inclusion on the agenda. 

 

The Chairperson of the Committee or a designee selected by the Chairperson will give a report on the items considered at each Committee meeting to the full Board at its next meeting. 

 

V.    Evaluation of CEO 

 

The Corporate Governance and Nominating Committee is responsible for conducting an assessment of the performance of the CEO at least on an annual basis. The results of the evaluation should be communicated to the CEO and the Chairperson of the Compensation Committee. The evaluation should be based on a combination of subjective and objective criteria which should include the performance of the Company and its accomplishment of strategic objectives. The evaluation will be considered by the Compensation Committee when establishing the CEO’s compensation.Exhibit 10.38

Exhibit 10.38 

MATRIA HEALTHCARE, INC. 

CHARTER OF THE AUDIT COMMITTEE 

OF THE BOARD OF DIRECTORS 

ADOPTED FEBRUARY 19, 2004 

ARTICLE I 

Purpose 

The Audit Committee is appointed by the Board of Directors to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company. In connection with its performance of such oversight responsibilities, the Audit Committee shall perform the following duties and responsibilities: 

Monitor the integrity of the Company’s financial reporting process and system of internal controls regarding finance and accounting compliance. 

Monitor the qualifications and independence of the Company’s independent auditors. 

Monitor the performance of the Company’s independent auditors. 

Provide an avenue of communication among the independent auditors, management and the Board of Directors. 

ARTICLE II 

Audit Committee Composition and Meetings 

The Audit Committee shall be comprised of at least three directors as determined by the Board. The members of the Audit Committee shall meet the independence and experience requirements of NASDAQ, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the Securities and Exchange Commission (the "Commission"). Each member of the Audit Committee shall be independent and free from any relationship which, in the opinion of the Board, would interfere with the exercise of his or her independent judgment in carrying out the responsibilities of a director and an Audit Committee member. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Committee shall 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. 

The Audit Committee members shall be appointed by the Board. If an Audit Committee Chair is not designated or present, the members of the Committee may designate a Chair by majority vote of the Committee membership. 

The Committee shall meet at least four times annually or more frequently as circumstances dictate. The Audit Committee Chair shall prepare and/or approve an agenda in advance of each meeting. 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. 

ARTICLE III 

Audit Committee Authority and Responsibilities 

The Audit Committee shall have the sole authority to appoint or replace the independent auditor (subject, if applicable, to shareholder ratification). The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee. 

The Audit Committee shall preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting. 

The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee. 

 

The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. 

The Audit Committee, to the extent it deems necessary or appropriate, shall: 

 

Financial Statement and Disclosure Matters 

 

1.    Review and discuss with management and the independent auditor the annual audited financial statements and recommend to the Board whether the audited financial statements should be included in the Company’s Form 10-K. 

2.    Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditor’s review of the quarterly financial statements. 

3.    Review disclosures made to the Committee by the Company’s Chief Executive Officer and Chief Financial Officer regarding: (i) any significant deficiencies in the design or operation of internal controls of the Company which could adversely affect the Company’s ability to record, process, summarize and report financial data; and (ii) any fraud, material or otherwise, that involves management or other employees. 

4.    Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s audited financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls (including issues disclosed to the Committee by the Company’s Chief Executive Officer or Chief Financial Officer) and any special steps adopted in light of material control deficiencies. 

5.    Review and discuss reports from the independent auditors on:

(a)     All critical accounting policies and practices to be used. 

(b)    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 auditor.

(c)    Other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences. 

6.    Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management. 

 

Oversight of the Company’s Relationship with the Independent Auditor 

 

7.    Obtain and review a formal written statement from the independent auditor delineating all relationships between the independent auditors and the Company, consistent with Independence Standards Board Standard 1, and review and discuss with the independent auditor, on a periodic basis, any disclosed relationships or services that may impact the objectivity and independence of the auditor. Evaluate the independence of the independent auditor, including whether the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management. 

 

8.    Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit. 

 

Compliance Oversight Responsibilities 

 

9.    Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act has not been implicated. 

 

10.   Review reports and disclosures of insider and affiliated party transactions, and review and approve or disapprove all proposed related-party transactions required to be disclosed under the rules of the Commission. Advise the Board with respect to the Company’s policies and procedures regarding conflicts of interest and the Company’s Code of Conduct. 

 

11.    Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. 

 

Investigations 

 

The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. 

 

Other Audit Committee Responsibilities 

 

Annually prepare a report to shareholders as required by the Securities and Exchange Commission. The report should be included in the Company’s annual proxy statement. 

Perform any other activities consistent with this Charter, the Company’s by-laws and governing law, as the Committee or the Board deems necessary or appropriate. 

Periodically report to the Board of Directors on significant results of the foregoing activities. 

 

ARTICLE IV 

 

Limitation of Audit Committee’s Role 

 

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.

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