UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
THE STEPHAN CO.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THE STEPHAN CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
1850 West McNab Road
Fort Lauderdale, FL 33309
To Be Held November 9, 2006
To our Stockholders:
You are cordially invited to attend our 2006 Annual Meeting of the
Stockholders (the "Meeting") of The Stephan Co. (the "Company") which will be
held on November 9, 2006, at 10:00 A.M., local time, at the Courtyard Marriott
Hotel, 2440 W. Cypress Creek Rd., Ft. Lauderdale, FL 33309, for the following
purposes:
1. To elect the one (1) Class III member of the Company's Board of
Directors;
2. Ratify appointment of Company's independent public accounting firm,
Goldstein Lewin & Co.; and
3. To transact such other business as may properly come before the
Meeting or any adjournment(s) thereof.
The Company's Board of Directors has fixed the close of business on October 11,
2006 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Meeting. Only stockholders of record at the close of
business on this date will be entitled to notice of, and to vote at, the Meeting
and any adjournment(s) thereof.
By Order of the Board of Directors
/s/ Curtis Carlson
-------------------------
Curtis Carlson
Secretary
October 23, 2006
TO ENSURE A QUORUM AT THE MEETING, YOU ARE URGED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE POSTAGE PREPAID
ENVELOPE WHICH HAS BEEN PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO EXERCISE, AND IF
YOU ARE PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT
TIME AND EXERCISE YOUR RIGHT TO VOTE YOUR SHARES PERSONALLY.
-1-
PROXY STATEMENT
of
THE STEPHAN CO.
Annual Meeting of Stockholders
To Be Held on November 9, 2006
GENERAL INFORMATION
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of The Stephan Co. (the
"Company"), a Florida corporation, for use at its Annual Meeting of Stockholders
to be held on November 9, 2006 and at any adjournment(s) thereof (the
"Meeting"), for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. The Meeting is to be held at the Courtyard Marriott
Hotel, 2440 W. Cypress Creek Rd., Ft. Lauderdale, FL 33309 at 10:00 A.M., local
time.
The principal executive offices of the Company are located at 1850 West
McNab Road, Fort Lauderdale, Florida 33309 (telephone no. 954-971-0600). The
enclosed proxy card and this proxy statement are being first sent to
stock-holders of the Company on or about October 23, 2006. You should review
this information in conjunction with our Annual Report to shareholders which
accompanies this proxy statement.
Quorum; Required Votes; Solicitation and Revocation.
Proxies in the form enclosed are being solicited by, and on behalf of, the
Company's Board of Directors. The persons named in the accompanying proxy have
been designated as proxies by the Board of Directors. If a quorum, consisting of
the presence (in person or by proxy) of holders of a majority of the outstanding
shares of common stock, $.01 par value, of the Company (the "Common Stock"),
exists at the Meeting, (i) the one (1) Class III director shall be elected by
the plurality vote of the shares of Common Stock cast at the Meeting; (ii)
ratify appointment of Company's independent public accounting firm, Goldstein
Lewin & Co.; and (iii) approval of any other matters that may properly come
before the Meeting shall, subject to applicable Florida law, be approved if the
number of votes cast in favor of the matter at the Meeting exceeds the number of
votes cast opposing such matter at the Meeting. With regard to the election of
the Class III director, votes may be cast in favor of, or withheld from, any or
all nominees. Votes that are withheld with respect to this matter will be
excluded entirely from, and will have no effect on the outcome of, the vote.
If less than a majority of outstanding shares entitled to vote are
represented at the meeting, a majority of the shares present at the meeting may
adjourn the meeting to another date, time or place, and notice need not be given
of the new date, time or place if the new date, time or place is announced at
the meeting before an adjournment is taken.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
-2-
Shares represented by properly executed proxies received by the Company
will be voted at the Meeting in the manner specified thereon or, if no
specification is so made, will be voted "FOR" the election of the one (1) Class
III nominee for director named herein. Proxies solicited by the Board of
Directors will be voted for the election of the one (1) Class III nominee named
herein, to serve until the expiration of his term, or until his successor has
been duly elected and qualified. Abstentions and Broker Shares that are voted on
any matter will be included in determining the existence of a quorum. Neither
abstentions nor non-voted Broker Shares will have any effect on the election of
nominees for director.
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendations of our board of directors. The recommendation of the board of
directors is set forth with the description of each proposal in this proxy
statement. In summary, the board of directors recommends a vote for the election
of the nominated slate of directors. In the event that any other matters are
properly presented for action at the Meeting, the persons named in the enclosed
proxy will vote the proxies (which confer authority upon them to vote on any
such matters) in accordance with the recommendations of our Board of Directors.
Any proxy given pursuant to this solicitation may be revoked by the record
stockholder at any time before it is exercised by written notification delivered
to the Secretary of the Company, by voting in person at the Meeting, or by duly
executing and delivering another proxy bearing a later date. Attendance by a
stockholder at the Meeting does not alone serve to revoke his or her proxy.
The solicitation of proxies will be made primarily by mail but, in
addition, may be made by directors, officers and employees of the Company
personally or by telephone or telegraph, without extra compensation therefore.
Brokers, nominees and fiduciaries will be reimbursed for their out-of-pocket and
clerical expenses in transmitting proxies and any related material to beneficial
owners. The costs of soliciting proxies will be borne by the Company. It is
estimated that these costs will be nominal.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2005, which contains audited financial statements, is being mailed
with this proxy statement to all stockholders of record as of the close of
business on October 11, 2006. Additional copies of the Annual Report will be
provided, free of charge, upon written request to the Company, at 1850 West
McNab Road, Fort Lauderdale, Florida 33309, Attn.: Secretary.
Record Date; Voting
The Company's Board of Directors has fixed the close of business on
October 11, 2006 as the record date (the "Record Date") for the determination of
stockholders of the Company who are entitled to receive notice of, and to vote
at, the Meeting. At the Record Date, 4,389,805 shares of Common Stock were
issued and outstanding, each share of which is entitled to one vote on each
matter to be voted upon at the Meeting. The Company's stockholders do not have
cumulative voting rights. The Company has no other class of voting securities
entitled to vote at the Meeting.
-3-
STOCK OWNERSHIP
Stock Ownership by Certain Beneficial Owners
The following table sets forth, as of the Record Date, certain information
as to the stockholders (other than directors and executive officers of the
Company) known by the Company to own beneficially more than 5% of the Common
Stock (based solely upon filings by said holders with the Securities and
Exchange Commission (the "Commission") on Schedule 13D, pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act")).
Number of Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned* of Class
------------------- ------ --------
Merlin Partners, L.P., et al. 327,721 7.5
2000 Auburn Drive, Suite 420
Cleveland, OH 44122
Yorktown Avenue Capital, et al. 714,295 16.3
124 E. 4th Street
Tulsa, OK 74103
David M. Knott, et al. 382,800 8.7
485 Underhill Blvd., Suite 205
Syosset, NY 11791
Richard L. Scott 443,600 10.1
Boult Cummings Conners & Berry,PLC
414 Union Street, Suite 1600
Nashville, TN 37219
* Beneficial ownership, as reported in the above table, has been determined
in accordance with Rule 13d-3 Under the Exchange Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole
dispositive power.
Stock Ownership by Management and Directors
The following table sets forth, as of the Record Date, certain information
concerning the beneficial ownership of Common Stock by the nominee for election
as a director of the Company (currently a director of the Company), each other
director, the executive officers, and all current directors and executive
officers of the Company as a group (based solely upon information furnished by
such persons):
-4-
Number of
Shares
Name of Beneficially Percent
Beneficial Owner(1) Owned(2) of Class
------------------- -------- --------
Curtis Carlson............................... 15,186 *
William M. Gross............................. 5,062 *
Frank F. Ferola.............................. 939,201(3) 21.40%
Shouky Shaheen............................... 342,492 7.80%
David Spiegel................................ 700 *
Richard Barone............................... 332,783 7.58%
Elliot Ross.................................. 5,062 *
All executive officers and directors
as a group................................... 1,640,486 36.78%
(1) Beneficial ownership, as reported in the above table, has been determined
in accordance with Rule 13d-3 under the Exchange Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole
dispositive power. Unless otherwise indicated, the address of each person
listed is c/o The Stephan Co., 1850 W. McNab Rd., Ft. Lauderdale, FL
33309.
(2) Includes the following shares that may be acquired upon the exercise of
options held by the specified person within 60 days of the Record Date:
Mr. Frank Ferola - 250,000; Mr. Curtis Carlson - 15,186; Mr. Shouky
Shaheen - 5,062; Mr. Elliot Ross - 5,062; Mr. William Gross - 5,062; Mr.
Richard Barone - 5,062 and all executive officers and directors as a group
- 290,496.
(3) Includes 43,173 shares owned by Mr. Frank Ferola's personal Charitable
Foundation, of which Mr. Ferola is a co-trustee.
* Represents less than 1%.
GOVERNANCE OF THE COMPANY
The following does not constitute soliciting material and should not be
deemed filed or incorporated by reference in any other filing by us under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
Board of Directors; Corporate Governance
Our business and affairs are managed under the direction of our board of
directors, except with respect to those matters reserved for our stockholders.
Our board of directors establishes our overall corporate policies, reviews the
performance of our senior management in executing our business strategy and
managing our day-to-day operations, acts as an advisor to our senior management
and reviews our long-term strategic plans. Our board's mission is to further the
long-term interests of our stockholders. Members of the board of directors are
kept informed of our business through discussions with our management, primarily
at meetings of the board of directors and its committees, and through reports
and analyses presented to them. The board and each of its committees also have
the authority to retain, at the Company's expense, outside counsel, consultants
or other advisors in the performance of their duties.
The Chairman of the Board of Directors is Frank F. Ferola. Mr. Ferola
organizes the work of the board and ensures that the board has access to
sufficient information to enable them to carry out their functions, including
monitoring the company's performance and the performance of its management.
-5-
The Board of Directors met four (4) times during fiscal year 2005. During
fiscal year 2005, no director attended fewer than 75% of the total number of
meetings of the Board and of the committee(s) of the Board on which he served.
Code of Ethics
The Company has adopted a Code of Ethics that applies to all officers,
employees and directors. This Code requires continued observance of high ethical
standards such as honesty, integrity and compliance with the law in the conduct
of the business. The Code is posted on the Company website,
(www.thestephanco.com).
Communications with the Directors
Stockholders may communicate directly with our board of directors as a
whole or individually by writing to: The Stephan Co., 1850 W. McNab Rd., Ft.
Lauderdale, FL 33309, Attention: Secretary. Our corporate secretary reviews all
correspondence to our directors and forwards to the board a summary and/or
copies of any such correspondence that, in the opinion of the secretary, deals
with the functions of the board or committees thereof or that he otherwise
determines requires their attention.
PROPOSAL I: ELECTION OF DIRECTOR
Directors are elected on a staggered basis, with each class generally
standing for election for a three-year term. As a result of the Company's
failure to hold an annual meeting of stockholders for an extended period of
time, Class I, Class II and Class III directors were all elected at the Meeting
held on September 29, 2005. The Class I director elected at the Meeting had a
term that expires in 2006, Class II directors elected at the Meeting will have
terms that expire in 2007 and the Class III directors elected at the Meeting
will have terms that expire in 2008. The Company's By-Laws provide that the
number of directors shall be set from time to time by resolution of the Board of
Directors and must be a minimum of one. The Board of Directors has set the size
of the Board at six members.
The nominee listed below has consented to being named in this proxy
statement and to serving as a director if elected. In the event that the nominee
becomes unable to or will not serve, it is intended that proxies will be voted
for a substitute Class III nominee designated by the current Board of Directors.
The Company has no reason to believe that the named nominee will be unable or
unwilling to stand for election. Messrs. Frank Ferola, Shouky Shaheen, William
Gross, Elliott Ross, Curtis Carlson and Richard Barone were elected at the
Company's 2005 annual meeting.
At the Meeting, shares of Common Stock represented by proxies will, unless
otherwise specified thereon, be voted FOR the election of the Class III nominee
listed herein. Proxies may not be voted for a greater number of persons than the
one (1) Class III nominee named herein. Directors will be elected by a plurality
of the votes cast, in person or by proxy, by the holders of shares of Common
Stock at the Meeting (assuming a quorum exists).
-6-
Set forth below is certain information with respect to the Class III
nominee for election, as well as the other current directors of the Company
(based solely on information furnished by such persons):
Year first
Age elected as Principal Occupation(s)
(as of a Company During Past Five Years;
6/30/06) Director Other Directorships
-------- -------- -------------------
Class III Nominee
-----------------
William M. Gross 82 2005 Certified Public Accountant and Attorney. For more than
the previous five years, he has served as Authorized
House Counsel for the Company on a part time basis.
Other Directors
---------------
Class II Directors
------------------
Shouky A. Shaheen 75 1998 For more than the previous five years, President of
Shaheen and Co. Mr. Shouky Shaheen is also the former
Owner of Morris Flamingo, L.P., which was acquired by the
Company in March 1998.
Curtis Carlson 52 1996 For more than the previous five years, partner in various
law firms. Currently a partner in the Miami-based law
firm of Carlson & Lewittes, PA.
Elliot Ross(1)(2)(3) 60 2005 Since 2000 co-founder of the MFL Group, a corporate
consulting firm. Prior to 2000, President and a Director
of State Industrial Products.
Class III Directors
-------------------
Richard Barone(1)(2)(3) 64 2005 Chairman, CEO and Portfolio Manager for Ancora Advisors,
an investment advisor based in Cleveland, OH.
Additionally, Chairman of Ancora Capital and Ancora
Securities, a holding company and broker/dealer based in
Cleveland. Prior to founding Ancora Advisors, from
2001-2003 portfolio manager for Fifth Third Bank Invest
Advisors. Prior to that, President and CEO for Maxus
Investment Group.
Frank F. Ferola 62 1981 For more than the previous five years, Chairman of the
Board, President and Chief Executive Officer of the
Company.
(1) Member of the Compensation Committee.
(2) Member of the Nominating Committee.
(3) Member of the Audit Committee.
-7-
The Board of Directors unanimously recommends a vote "FOR" the election of
the Class III nominee named above as a director of the Company.
Nomination of Directors
The Company's Nominating Committee Charter governs the Nominating
Committee. The Charter is on the Company's website (www.thestephanco.com). The
Charter sets forth the policies regarding the minimum standards and the
processes used to identify board candidates. During 2005, the members of the
Nominating Committee were Elliot Ross and Richard Barone. The Committee is
responsible for: (1) establishing procedures for the selection of members of the
Board of Directors, (2) evaluating current Board members and nominees and (3)
recommending new nominees.
In evaluating candidates for nomination to the Board of Directors, the
Nominating Committee takes into account the applicable requirements under the
AMEX rules. The Nominating Committee may also consider such other factors and
criteria as they deem appropriate, including a candidate's judgment, skill,
integrity, diversity, and business or other experience. The Nominating Committee
may (but is not required to) consider candidates suggested by management or
other members of the Board of Directors.
Generally, the Nominating Committee considers candidates who have
experience as a board member or senior officer of a company or who are
recognized in a relevant field as a well-regarded practitioner, faculty member
or senior government officer. The Nominating Committee will also evaluate
whether the candidates' skills and experience complement the existing Board of
Directors' skills and experience and/or meet a need for operational, management,
financial, international, technological or other expertise. Stockholders may
nominate directors, provided such nominations comply with timing and information
requirements set forth in our bylaws.
Committees of the Board
The Board has established three standing committees: (1) an Audit
Committee (2) a Compensation Committee and (3) a Nominating Committee. The next
table shows current members, chairman and functions of each committee:
--------------------- ----------------------------------------------------------
Committee Functions
--------------------- ----------------------------------------------------------
Audit - Selects independent certified public accountants
- Reviews reports of independent C.P.A. firm
Members: - Reviews & approves scope and cost of all independent
Richard Barone* C.P.A. services, including non-audit services
Elliot Ross - Monitors the effectiveness of the audit process
- Reviews adequacy of financial and operating controls
- Monitors corporate compliance program
--------------------- ----------------------------------------------------------
Compensation - Reviews and approves salaries and other compensation
matters for executive officers
Members: - Administers stock compensation programs, including
Elliot Ross* option grants
Richard Barone
--------------------- ----------------------------------------------------------
Nominating - Establishes procedures for selection of members of
the Board of Directors
Members: - Evaluates current Board members and nominees
Elliot Ross* - Recommends new nominees
Richard Barone
*Chairman
--------------------- ----------------------------------------------------------
-8-
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference in any
other filing by us under the Securities Act of 1933 or the Securities Exchange
Act of 1934.
The Audit Committee, which held seven (7) meetings during 2005, reviews
the internal and external audit functions of the Company and makes
recommendations to the Board of Directors with respect thereto. It also has
primary responsibility for the formulation and development of the auditing
policies and procedures of the Company, and for selecting the Company's
independent auditing firm. The Audit Committee is governed by the Company's
Audit Committee Charter. The Board of Directors of the Company has determined
that the current composition of the Audit Committee satisfies the American Stock
Exchange's requirements regarding the independence, financial literacy and
experience. The Chairman and financial expert of the Audit Committee is Richard
Barone. The other member of the Audit Committee is Elliot Ross.
Management is responsible for the Company's internal controls and the
financial reporting process. Goldstein Lewin & Co, the Company's independent
auditor, is responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards. The Audit Committee's responsibility is to monitor and oversee these
processes.
The Audit Committee reviewed and discussed the audited financial statement
with both Company management and Goldstein Lewin & Co. Specifically, the Audit
Committee has discussed with Goldstein Lewin & Co matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380)
The Audit Committee received from Goldstein Lewin & Co. the written
disclosures and the letter required by Independent Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and has discussed with
Goldstein Lewin & Co. the issue of its independence from the Company. A
representative of Goldstein Lewin & Co. will be present at the Meeting. The
representative will have the opportunity to make a statement and answer
questions if he/she desires to do so.
Based on the Audit Committee's review of the audited financial statements
and its discussions with both management and Goldstein Lewin & Co. noted above,
the Audit Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2005.
AUDIT COMMITTEE:
Richard Barone, Chairman
Elliot Ross
-9-
Principal Accountant Fees and Services
The following table sets forth the fees billed to us by Goldstein Lewin &
Co. and Deloitte & Touche, LLP, our independent registered public accounting
firms, as of and for the years ended December 31, 2005 and 2004.
For the Years Ended
December 31,
2005 2004
---- ----
Audit fees(1)................................ $222,000 $194,480
Audit - related fees(2)...................... $110,500 $ -
Tax fees(3).................................. $ - $ 1,062
All other fees............................... $ - $ -
$332,500 $195,542
======== ========
(1) Audit fees billed by Goldstein Lewin & Co. in 2005 related to the review
of our interim consolidated financial statements included in our Quarterly
Reports on Form 10-Q for the periods ended March 31, June 30 and September
30, 2005 and initial audit fees related to the audit of our annual
consolidated financial statements for the year ended December 31, 2005,
amounting to $67,500. Audit fees billed by Deloitte & Touche, LLP in 2005
related to the audit of our annual consolidated financial statements for
the year ended December 31, 2004, amounting to $154,500. Audit fees billed
by Deloitte & Touche, LLP in 2004 related to the audit of our annual
consolidated financial statements; the review of our interim consolidated
financial statements included in our Quarterly Reports on Form 10-Q for
the periods ended March 31, June 30 and September 30, 2004.
(2) Audit related fees billed by Deloitte & Touche, LLP in 2005 were in
connection with responses to SEC comment letters.
(3) Tax fees billed by Deloitte & Touche, LLP related to tax advice in
connection with real estate and personal property tax statements.
Pre-Approval Policy for Services of Independent Auditor
The Sarbanes-Oxley Act of 2002 and the Audit Committee's charter require
that all services provided to us by our independent registered public accounting
firm be subject to pre-approval by the audit committee. The audit committee has
established policies and procedures contemplated by these rules. In accordance
with its charter, the Audit Committee has established pre-approval policies with
respect to audit and permitted non-audit services to be provided by our
independent registered accounting firm. The following sets forth the primary
principles of the Audit Committee's pre-approval policies:
o The independent registered public accounting firm is not permitted
to perform consulting, legal, book-keeping, valuation, internal
audit, management functions, or other prohibited services, under any
circumstances;
o The engagement of our independent registered public accounting firm,
including related fees, with respect to the annual audits and
quarterly reviews of our consolidated financial statements is
specifically approved by the Audit Committee on an annual basis;
o The Audit Committee reviews and pre-approves a detailed list of
other audit and audit-related services annually or more frequently,
if required. Such services generally include services performed
under the audit and attestation standards established by regulatory
authorities or standard setting bodies and include services related
to SEC filings, employee benefit plan audits and subsidiary audits;
-10-
o The Audit Committee reviews and pre-approves a detailed list of
permitted non-audit services annually or more frequently, if
required; and
o The Audit Committee pre-approves each proposed engagement to provide
services not previously included in the approved list of audit and
non-audit services and for fees in excess of amounts previously
pre-approved.
The Audit Committee has delegated to the Chairman of the Audit Committee the
authority to approve permitted services by the independent registered public
accounting firm so long as he reports decisions to the Audit Committee at its
next meeting.
PROPOSAL II: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
In accordance with its charter, the Audit Committee has selected the firm
of Goldstein Lewin & Co., an independent registered public accounting firm, to
be the Company's auditors for the year 2006 and with the endorsement of the
Board of Directors, recommends to stockholders that they ratify that
appointment. Goldstein Lewin & Co. served in this capacity for the year 2005.
Its representative will be present at the Annual Meeting and will have an
opportunity to make a statement and be available to respond to appropriate
questions.
The Audit Committee reviews and approves in advance the audit scope, the
types of non-audit services, if any, and the estimated fees for each category
for the coming year. For each category of proposed service, Goldstein Lewin &
Co. is required to confirm that the provision of such services does not impair
their independence. Before selecting Goldstein Lewin & Co. the Audit Committee
carefully considered that firm's qualifications as an independent registered
public accounting firm for the Company. This included a review of its
performance in the prior year, as well as its reputation for integrity and
competence in the fields of accounting and auditing. The committee has expressed
its satisfaction with Goldstein Lewin & Co. in all of these respects. The
Committee's review included inquiry concerning any litigation involving
Goldstein Lewin & Co. and any proceedings by the Securities and Exchange
Commission against the firm. In this respect, the Committee has concluded that
the ability of Goldstein Lewin & Co. to perform services for the Company is in
no way adversely affected by any such investigation or litigation.
The Board of Directors unanimously recommends a vote "FOR" the
ratification of Goldstein Lewin & Co. as the Independent Registered Public
Accounting firm for the Company.
-11-
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers
The three executive officers of the Company consist of Frank F. Ferola,
President, Chairman of the Board and Chief Executive Officer; David A. Spiegel,
Chief Financial Officer, Vice President and Treasurer; and Tyler Kiester,
Assistant Secretary.
The following sets forth certain information with respect to the executive
officers of the Company who are not also directors (based solely on information
furnished by such persons):
Mr. David A. Spiegel, 58, was appointed as Chief Financial Officer in
January 1994. For more than the five years prior to 1994, Mr. Spiegel was the
independent public accountant for the Company.
Mr. Tyler Kiester, 35, was appointed Assistant Secretary in January 2003.
For more than the previous five years, Mr. Kiester has been employed by the
Company in various capacities.
The following table sets forth information for the fiscal years ended
December 31, 2005, December 31, 2004 and December 31, 2003 as to the
compensation earned by the Company's Chief Executive Officer and the other most
highly compensated executive officers and/or other employees of the Company
whose total annual salary and bonus exceeded $100,000 for services rendered by
them in all capacities to the Company and its subsidiaries during fiscal year
2005.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Other Securities
Principal Annual Underlying All Other
Position(s) Year Salary Bonus Compensation Options Compensation
----------- ---- ------ ----- ------------ ------- ------------
Frank F. Ferola 2005 $695,475(1) $ 0 $ 0 50,000(2) $ 0
Pres., CEO & 2004 $828,139 $ 0 $ 0 50,000(2) $ 0
Board Chair 2003 $752,853 $630,000(3) $ 0 50,000(2) $ 0
David A. Spiegel, 2005 $180,437 $ 0 $ 0 0 $ 0
CFO 2004 $188,781 $ 0 $ 0 0 $ 0
2003 $165,816 $ 0 $ 0 0 $ 0
Jeff Lovelace, 2005 $103,133 $ 0 $ 0 0 $ 0
Director of Sales 2004 $104,500 $ 0 $ 0 0 $ 0
2003 $ 83,326 $ 0 $ 0 0 $ 0
(1) By letter dated July 6, 2005, to the Company, Mr. Ferola unilaterally
reduced his salary from $910,953 per annum to $540,000 per annum.
(2) Reflects stock options granted pursuant to employment agreements.
(3) Bonus earned in 2003 and paid in 2004.
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Stock Option Grants in Fiscal Year 2005
The following table sets forth certain information concerning stock
options granted to those individuals named in the Summary Compensation Table who
were granted stock options in fiscal year 2005:
Number of % of Total
Securities Options Exercise Potential Realizable
Underlying Granted to Price Value At Assumed Annual
Options Employees Per Exp. Rates of Stock Price
Name Granted in Year Share Date Appreciation(2)
---- ------- ------- ----- ---- ---------------
5% 10%
---- ----
Frank F. Ferola 50,000(1) 100% $4.26 1/1/2010 $271,848 $343,039
(1) Reflects Stock Options granted pursuant to employment agreements.
(2) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rates shown (compounded annually) from the
date of grant until the expiration of the option term. These numbers are
calculated based on the requirements promulgated by the Commission and do
not reflect any estimate or prediction by the Company of future Common
Stock trading prices.
Option Exercises and Year-End Option Values
The following table sets forth information with respect to the number of
shares acquired upon exercise of stock options and the value realized upon
exercise of such stock options by the individuals named in the Summary
Compensation Table during 2005. The table also contains information regarding
the number of shares covered by both exercisable and unexercisable stock options
held by the same individuals as of December 31, 2005. Also reported are the
values for "in-the-money" stock options that represent the positive spread
between the respective exercise prices of outstanding stock options and the fair
market value of our common stock as of December 31, 2005 ($3.42 per share).
Number of
Securities Underlying Value of
Unexercised Options Unexercised In-the-
Shares Held at Money Options at
Acquired December 31,2005 December 31, 2005*
On $ Value ---------------- ------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Frank F. Ferola -- -- 200,000 50,000 -- --
* Based on the closing price of the Common Stock on December 31, 2005 ($3.42).
Compensation of Directors
All directors of the Company are compensated for their services by payment
of $300 for each Board meeting attended.
During fiscal year 2005, options to purchase an aggregate of 15,186 shares
of Common Stock, at an exercise price of $3.99 per share, were granted by the
Company to the three directors of the Company who were not employees or
regularly retained consultants of the Company (each, an "Outside Director")
pursuant to the Company's 1990 Outside Directors' Stock Option Plan (the
"Plan").
Under the Plan, each Outside Director is automatically granted, upon such
person's election or re-election to serve as a director of the Company, an
option exercisable over five years, to purchase shares of Common Stock.
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Upon initial election to the Board of Directors, an Outside Director is
granted an option to purchase 5,062 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant. An
option to purchase an additional 5,062 shares of Common Stock (at an exercise
price equal to the fair market value of the Common Stock on the date of such
grant) is granted to each incumbent Outside Director during each fiscal year of
the Company thereafter on the earlier of (i) June 30 or (ii) the date on which
the stockholders of the Company elect directors at an annual meeting of such
stockholders or any adjournment thereof. The aggregate number of shares of
Common Stock reserved for grant under the Outside Directors' Stock Option Plan
is 202,500, of which options covering 91,116 shares are outstanding.
Employment and Termination Arrangements
Frank F. Ferola
On January 1, 1997, the Company entered into an employment agreement with
Mr. Frank F. Ferola. The agreement provides for a three year term, which may be
renewed for successive terms of three years if, at least thirty days prior to
the end of each term, Mr. Ferola gives notice of his election to renew. Mr.
Ferola renewed the agreement at the end of 1999, 2002, and, most recently on
March 7, 2005, terminating December 31, 2008.
Under the agreement, Mr. Ferola receives an annual base salary which is
increased annually by an amount equal to 10% of the previous year's base salary.
By letter dated July 6, 2005, to the Company, Mr. Ferola unilaterally reduced
his salary to $540,000 from $910,953; all other terms and provisions of his
contract remain in effect. (See discussion under Certain Relationships and
Related Transactions.) For the year ending December 31, 2005, Mr. Ferola's
annual base salary was $695,475.
In addition, Mr. Ferola is entitled to receive an annual performance bonus
based on increases of at least 10% in the Company's earnings per share,
calculated by comparison to a base year (currently, 2005) and pursuant to a
formula set forth in his employment agreement. In the year ended December 31,
2004, Mr. Ferola was paid a bonus in the amount of $630,000.
Further, Mr. Ferola's employment agreement provides that he will receive
stock options with ten year terms, under the 1990 Key Employee Stock Incentive
Plan or under a substitute plan, on each anniversary date of the agreement of
not less than 50,000 shares based on the closing price of the stock on the last
business day before the anniversary date.
Moreover, in the event of a "change in control" (as defined in the
employment agreement) of the Company, Mr. Ferola is entitled to receive an
amount equal to his base salary for the remaining term of his employment
agreement plus an additional 24 months' salary, plus a lump-sum payment in an
amount equal to the most recent annual bonus paid multiplied by the sum of the
number of years (including any fraction thereof) remaining in the term of his
agreement, plus two.
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David A. Spiegel
Mr. Spiegel has an arrangement with the Company where the Company pays him
a severance payment upon a "change in control" (as defined in a letter agreement
dated April 29, 2004, by and between Mr. Spiegel and the Company) in an amount
equal to his then-current monthly base salary, multiplied by twelve, plus a
lump-sum payment equal to his most recent annual bonus.
Tyler Kiester
Mr. Kiester has an arrangement whereby the Company pays him a severance
payment upon a "change in control" (as defined in a letter agreement dated May
19, 2003, by and between Mr. Kiester and the Company) in an amount equal to his
then-current monthly base salary multiplied by twelve.
Indemnification of Officers and Directors
Our articles of incorporation and bylaws, each as amended, designate the
relative duties and responsibilities of our officers, establish procedures for
actions by directors and stockholders and also contain indemnification
provisions that permit us to indemnify our officers and directors to the maximum
extent provided by Florida law.
Directors and Officers Liability Insurance
We have obtained directors' and officers' liability insurance with an
aggregate liability for the policy year, inclusive of costs of defense, in the
amount of $3.0 million. This policy expires August 26, 2007.
Equity Compensation Plans
As of December 31, 2005, an aggregate of 512,700 options had been granted
to executive officers under the 1990 Key Employee Stock Incentive Plan and an
aggregate of 546,330 options had been granted to all employees under the Plan.
Included in the above totals are options that have been granted and subsequently
cancelled and/or expired.
Non-employee directors of the Company are not granted options under the 1990 Key
Employee Stock Incentive Plan, but are granted options under the 1990 Outside
Directors' Stock Option Plan, discussed above under "Compensation of Directors."
Compensation Committee Interlocks and Insider Participation
Shouky Shaheen served on the Compensation Committee in 2005. In fiscal
year 2005 the Company paid $286,000 in rent to Shaheen & Co., Inc., a
corporation in which Shouky A. Shaheen is a majority owner, for a building the
Company leases in Danville, Illinois. On May 4, 2005, the Company entered into a
Second Amendment of Lease Agreement for the Danville, IL facility which, among
other things, increased the annual rental to $302,780.
-15-
Report of the Compensation Committee on Executive Compensation
The following Report on Executive Compensation does not constitute
soliciting material and should not be deemed filed or incorporated by reference
in any other filing by us under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate this
report or the performance graph by reference therein.
The Compensation Committee is composed entirely of independent directors.
The Compensation Committee reviews the base salaries of our employees (as well
as our executive officers) on an annual basis, considering factors such as
corporate progress toward achieving objectives (without reference to any
specific performance-related targets) and individual performance experience and
expertise. The Compensation Committee has primary responsibility for the
administration of the Company's 1990 Key Employee Stock Incentive Plan (the
"Incentive Plan"), including principal responsibility for the granting of
options thereunder. The Compensation Committee is also responsible for
establishing the overall philosophy of the Company's executive compensation
program and overseeing the executive compensation plan developed to execute the
Company's compensation strategy.
Compensation Strategy
The Company's executive compensation program has been designed to (i)
align executive compensation with stockholder interests, (ii) attract, retain
and motivate a highly competent executive team, (iii) link compensation to
individual and Company performance and (iv) achieve a balance between incentives
for short-term and long-term performance and results. The Company's executive
compensation package consists of the payment of base salary, potential annual
bonus and stock options awarded through partici-pation in the Incentive Plan.
The Compensation Committee reviews annually the compensation to be paid to the
Company's executive officers. In making such review, the Compensation Committee
evaluates information supplied by management. The Compensation Committee also
participates in the negotiation of employment contracts, including provisions
for salary and bonuses, with the Company's executive officers. Currently,
pursuant to the Company's employment agreement with its Chief Executive Officer,
Mr. Ferola receives a fixed annual base salary.
Base Salary
The Compensation Committee's policy is to negotiate salaries in relation to
industry norms, the principal job duties and responsibilities undertaken by such
executives, individual performance and other relevant criteria. A base salary
comparison for the Company's Chief Executive Officer was made to a group of
public companies that the Compensation Committee believes provides a meaningful
comparison to the Company. Several of these companies are included in the custom
composite of companies in the Standard & Poor's Midcap Consumer Products Index.
The base salary paid to the Company's Chief Executive Officer for fiscal year
2005 was in the middle of the range of base salary paid by such companies.
-16-
Annual Bonus
Annual bonuses for the Chief Executive Officer is determined by a specific
bonus formulae set forth in his written employment agreement. Other executives
may be paid bonuses at the discretion of the Compensation Committee.
Stock Options
Long-term incentive compensation of executives is granted through
participation in the Incentive Plan. The Incentive Plan permits the Company to
grant stock options to executive officers at a price not less than 100% of the
fair market value of the Common Stock on the date of the grant. In addition to
any obligations pursuant to the Chief executive officers employment agreement,
stock options may be granted, in the Compensation Committee's discretion, to
executive officers based upon its appraisal of the ability of such executive
officers to influence the long-term growth and profitability of the Company. The
Compensation Committee believes that providing a portion of the executive's
annual incentive compensation in the form of stock options encourages the
officers to share with the Company's stockholders the goals of increasing the
value of the Company's stock and contributing to the success of the Company.
Compensation Committee's Actions for Fiscal Year 2005
After various informal meetings during 2005, the Compensation Committee
did not award any discretionary stock options to any key employees and did not
grant any discretionary salary increases or award any bonuses. Options and bonus
were granted only pursuant to Mr. Ferola's employment agreement.
The Chief Executive Officer Compensation
As set forth in more detail herein, the Compensation Committee approved an
employment agreement on January 1, 1997 for Mr. Frank F. Ferola that was renewed
for successive terms until December 31, 2008. Based on the earnings formula
described therein, Mr. Ferola received annual bonus(es) and stock options as
shown in the EXECUTIVE COMPENSATION section of this Proxy Statement.
Section 162(m) Compliance
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
generally disallows a tax deduction to a public company for compensation over $1
million annually paid to its chief executive officer and four other most highly
compensated executive officers. Qualifying performance-based compensation will
not be subject to the deduction limitation if certain requirements are met. The
Compensation Committee's current policy is to structure the performance-based
portion of the compensation of the Company's executive officers (currently
consisting of stock option grants and cash bonuses) in a manner that complies
with Section 162(m) of the Code whenever practicable and appropriate in the
judgment of the Compensation Committee.
COMPENSATION COMMITTEE:
Elliot Ross, Chairman
Richard Barone
-17-
Certain Relationships and Related Transactions
In fiscal year 2005, the Company paid $191,384 to Carlson & Associates,
P.A. and to Carlson & Lewittes, P.A., law firms of which Curtis Carlson is a
partner, for legal services rendered by such firms to the Company. Further,
commencing April 8, 2005, the Company began to pay Mr. Carlson $2,000. per month
for his services as Vice-President and Secretary.
In fiscal year 2005, the Company paid $286,000 in rent to Shaheen & Co.,
Inc., a corporation in which Shouky A. Shaheen is a majority owner, for a
building the Company leases in Danville, Illinois. On May 4, 2005, the Company
entered into a Second Amendment of Lease Agreement for the Danville, IL facility
which, among other things, increased the annual rental to $302,780.
By way of letter dated July 6, 2005, Frank F. Ferola, President, CEO and
Chairman of the Board, unilaterally reduced, on a temporary basis, his salary
from $910,953 per annum to $540,000 per annum. In the event of a "change of
control" in the Company (as defined in the July 6, 2005 letter) Mr. Ferola's
salary, as set forth in his employment contract, shall automatically resume.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons owning more than 10% of the
Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish copies of all such
reports to the Company. The Company believes, based on the Company's stock
transfer records and written representations from certain reporting persons,
that, except as set forth below, all reports required under section 16(a) were
timely filed during 2005.
Name # of Late Reports # of Late Transactions
---- ----------------- ----------------------
Richard Barone 1 Form 3
Curtis Carlson
Frank F. Ferola
William Gross 1 Form 3
Elliot Ross 1 Form 3; 1 Form 4 1
David Pawl 1 Form 3
Shouky Shaheen
OTHER MATTERS
At the date of this proxy statement, the Board of Directors has no
knowledge of any business that will be presented for consideration at the
Meeting, other than as described above. If any other matters are properly
brought before the Meeting or any adjournment(s) thereof, it is the intention of
the persons named in the accompanying form of proxy to vote all proxies on such
matter(s) in their discretion as they may deem appropriate, unless they are
directed in a proxy to do otherwise.
-18-
SUBMISSION OF STOCKHOLDER PROPOSALS
If the Company does not receive notice by October 30, 2006 of any other
proposed matter to be submitted for stockholder vote at the Meeting, any proxies
received in respect of the Meeting will be voted in the discretion of the
Company's management on any other matters which may properly come before the
Meeting.
Any proposal which is intended to be presented by any stockholder for
action at next year's annual meeting must be received in writing by the
Secretary of the Company at 1850 West McNab Road, Fort Lauderdale, Florida
33309, no later than 120 calendar days before the date of the Company's proxy
statement released to shareholders in connection with its next annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Curtis Carlson
------------------
Curtis Carlson
Secretary
Dated: October 23, 2006
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