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. N/A)
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
|_| 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)(4) 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
To Be Held September 29, 2005
To our Stockholders:
You are cordially invited to attend our 2005 Annual Meeting of the
Stockholders (the "Meeting") of The Stephan Co. (the "Company") which will be
held on September 29, 2005, 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 I, four (4) Class II and two (2) Class
III members of the Company's Board of Directors; and
2. 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
August 25, 2005 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
September 2, 2005
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 September 29, 2005
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 September 29, 2005 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
stockholders of the Company on or about September 9, 2005. 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 Class I director, the four Class II directors
and the two Class III directors shall be elected by the plurality vote of the
shares of Common Stock cast at the Meeting; and (ii) 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 I, the Class II directors and
Class III directors, 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 Class I,
four Class II and two Class III nominees for director named herein. Proxies
solicited by the Board of Directors will be voted for the election of the one
Class I, four Class II and two Class III nominees named herein, each 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 therefor.
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, 2004, which contains audited financial statements, is being mailed
with this proxy statement to all stockholders of record as of the close of
business on August 25, 2005. 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 August
25, 2005, 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(1) of Class
------------------- -------- --------
Merlin Partners, L.P., et al. 314,721 7.2
2000 Auburn Drive, Suite 420
Cleveland, OH 44122
Yorktown Avenue Capital, et al. 348,700 7.9
124 E. 4th Street
Tulsa, OK 74103
David M. Knott, et al. 387,900 8.8
485 Underhill Blvd., Suite 205
Syosset, NY 11791
Richard L. Scott 438,500 10.0
Boult Cummings Conners & Berry,PLC
414 Union Street, Suite 1600
Nashville, TN 37219
(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.
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 each of the seven
nominees for election as a director of the Company (five of whom are currently
directors 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):
Number of Shares
Name of Beneficially Percent
Beneficial Owner(1) Owned(2) of Class
------------------- -------- --------
Curtis Carlson..................................... 25,310 (4)
William M. Gross................................... 0 (4)
Frank F. Ferola.................................... 860,333(3) 19.60%
John DePinto....................................... 133,514 3.0%
Leonard Genovese................................... 35,310 (4)
Tyler Kiester ..................................... 0 (4)
Shouky Shaheen..................................... 337,430 7.69%
David Spiegel...................................... 700 (4)
Richard Barone..................................... 314,721 7.16%
Elliot Ross........................................ 0 (4)
David Pawl......................................... 0 (4)
--------- -----
All executive officers and directors
as a group......................................... 1,707,318 38.89%
-4-
(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. John DePinto - 20,248; Mr. Frank Ferola - 200,000; Mr. Curtis Carlson
- 20,248; Mr. Leonard Genovese - 20,248; Mr. Shouky Shaheen - 5,062; and
all executive officers and directors as a group - 265,806.
(3) Includes 14,305 shares owned by Mr. Frank Ferola's personal Charitable
foundation, of which Mr. Ferola is a co-trustee.
(4) 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.
The Board of Directors met nine (9) times during fiscal year 2004. During
fiscal year 2004, 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).
-5-
Communications with the Directors
Stockholders may communicate directly with our board of directors as a
whole or individually by 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 the he otherwise
determines requires their attention.
PROPOSAL I: ELECTION OF DIRECTORS
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 since September 2000, Class I,
Class II and Class III directors are being elected at the Meeting. The Class I
directors elected at the Meeting will have terms that expire 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 seven members.
Each of the nominees listed below has consented to being named in this
proxy statement and to serving as a director if elected. In the event that any
nominee becomes unable to or will not serve, it is intended that proxies will be
voted for substitute Class I, Class II and/or Class III nominee(s), as
applicable, designated by the current Board of Directors. The Company has no
reason to believe that any of the named nominees will be unable or unwilling to
stand for election. Messrs. Frank Ferola, Curtis Carlson and Shouky Shaheen were
elected at the Company's 2000 annual meeting. Messrs. William Gross and Richard
Barone were appointed by the Board as vacancies occurred. Messrs. Elliot Ross
and David Pawl were nominated by the Nominating Committee pursuant to
recommendations received from a shareholder of the Company.
At the Meeting, shares of Common Stock represented by proxies will, unless
otherwise specified thereon, be voted FOR the election of each of the Class I,
Class II and Class III nominees listed herein. Proxies may not be voted for a
greater number of persons than the one Class I, four Class II and two Class III
nominees 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).
Set forth below is certain information with respect to the Class I, Class
II and Class III nominees for election as directors of the Company at the
Meeting (based solely on information furnished by such persons):
-6-
Year first
Age elected as a Principal Occupation(s)
(as of Company During Past Five Years;
4/1/05) Director Other Directorships
------- -------- -------------------
Class I
nominee
-------
William M. 81 (1) Certified Public Accountant and Attorney.
Gross For more than the previous five years, he
has served as Authorized House Counsel for
the Company on a part time basis.
Class II
nominees
--------
Shouky A. 74 1998 For more than the previous five years,
Shaheen(2) President of Shaheen and Co. Mr. Shaheen
Shaheen is also the former Owner of Morris
Flamingo, L.P., which was acquired by the
Company in March 1998.
Curtis 51 1996 For more than the previous five years,
Carlson(3) partner in various law firms. Currently a
partner in the Miami-based law firm of
Carlson & Lewittes, PA.
David Pawl 56 (1) Currently retired. From 1997 to 2002
President GE Quartz, Inc., a subsidiary of
General Electric Company.
Elliot Ross 59 (1) 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
nominees
--------
Richard 63 (1) Chairman, CEO and Portfolio Manager for
Barone 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. 61 1981 For more than the previous five years,
Ferola Chairman of the Board, President and Chief
Executive Officer of the Company.
(1) Not previously elected; appointed to fill vacancy.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
The Board of Directors unanimously recommends a vote "FOR" the election of
the seven Class I, Class II and Class III nominees named above as directors of
the Company. Nomination of Directors
-7-
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 2004, the members of the
Nominating Committee were Shouky Shaeen, Curtis Carlson and John DePinto. Mr.
Carlson is not "independent" under the listing standards of the American Stock
Exchange. 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 o Selects independent certified public
accountants
Members: o Reviews reports of independent C.P.A. firm
William Gross* o Reviews & approves scope and cost of all
Leonard Genovese independent C.P.A. services, including
John DePinto non-audit services
o Monitors the effectiveness of the audit
process
o Reviews adequacy of financial and
operating controls
o Monitors corporate compliance program
--------------------------------------------------------------------------------
Compensation o Reviews and approves salaries and other
compensation matters for executive officers
Members: o Administers stock compensation programs,
Shouky Shaheen* including option grants
Leonard Genovese
John DePinto
--------------------------------------------------------------------------------
Nominating o Establishes procedures for selection of
members of the Board of Directors
Members: o Evaluates current Board members and
Shouky Shaheen nominees
Curtis Carlson* o Recommends new nominees
John DePinto
*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 4 meetings during 2004, 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,
a copy of which is attached to this proxy statement as Appendix "A". 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 William Gross; Mr. Gross is not an independent
director. The other members of the Audit Committee are Leonard Genovese and John
DePinto.
Management is responsible for the Company's internal controls and the
financial reporting process. Deloitte & Touche, 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 Deloitte & Touche. Specifically, the Audit
Committee has discussed with Deloitte & Touche matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standards, AU Section 380)
The Audit Committee received from Deloitte & Touche the written
disclosures and the letter required by Independent Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and has discussed with
Deloitte & Touche the issue of its independence from the Company. A
representative of Deloitte & Touche 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 Deloitte & Touche 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, 2004.
AUDIT COMMITTEE:
William M. Gross, Chairman
Leonard Genovese
John DePinto
-9-
COMPENSATION OF EXECUTIVE OFFFICERS AND DIRECTORS
Executive Officers
The four 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; Tyler Kiester, Assistant
Secretary; and Curtis Carlson, Vice President and 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, 57, 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, 37, 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, 2004, December 31, 2003 and December 31, 2002 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
2004.
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 2004 $828,139 $ 0 $ 0 $50,000(1) $ 0
Pres., CEO & 2003 $752,853 $630,000(2) $ 0 $50,000(1) $ 60,808
Board Chair 2002 $677,567 $ 0 $ 0 $50,000(1) $ 0
David Spiegel, 2004 $188,781 $ 0 $ 0 $ 0 $ 0
CFO 2003 $165,816 $ 0 $ 0 $ 0 $ 0
2002 $166,251 $ 0 $ 0 $ 0 $ 0
Jeff Lovelace, 2004 $104,500 $ 0 $ 0 $ 0 $ 0
Director of 2003 $83,326 $ 0 $ 0 $ 0 $ 0
Sales 2002 $76,733 $ 0 $ 0 $ 0 $ 0
(1) Reflects stock options granted pursuant to employment agreements.
(2) Bonus earned in 2003 and paid in 2004.
-10-
Stock Option Grants in Fiscal Year 2004
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 2004:
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 2004. 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, 2004. 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, 2004 ($4.25 per share).
Number of
Securities Underlying Value of
Unexercised Options Unexercised In-the-
Shares Held at Money Options at
Acquired December 31,2004 December 31, 2004
On $ Value ---------------- -----------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Frank F. Ferola 78,398 388,070 200,000 50,000
David Spiegel 2,233 10,944
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 2004, options to purchase an aggregate of 20,248 shares
of Common Stock, at an exercise price of $4.82 per share, were granted by the
Company to the four 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.
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. 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
-11-
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 80,992 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 years' base salary.
For the year ending December 31, 2004, Mr. Ferola's annual base salary was
$828,139. (However, by letter dated July 6, 2005, to the Company, Mr. Ferola
unilaterally reduced his salary to $540,000 per annum. See discussion under
Certain Relationships and Related Transactions.)
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, 2002) and pursuant to a
formula set forth in his employment agreement. For the year ending 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 five 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.
David Spiegel
Likewise, 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
Finally, 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.
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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, 2006.
Equity Compensation Plans
As of December 31, 2004, an aggregate of 462,700 options had been granted
to executive officers under the 1990 Key Employee Stock Incentive Plan and an
aggregate of 496,330 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, John DePinto, and Leonard Genovese served on the
Compensation Committee in 2004. In fiscal year 2004 the Company paid $273,000 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, increases the annual rental to
$302,780.
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
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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 participation 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 agreements with certain of its executive
officers, each such executive officer receives a fixed annual base salary and
certain of such executive officers are entitled to receive a bonus amount
determined by a formula based on certain increases in the Company's earnings per
share for each fiscal year during the term of the agreement.
Base Salary
Base salary for executive officers is determined by the terms of written
employment agreements between the Company and such officers. 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 2004 was in
the middle of the range of base salary paid by such companies.
Annual Bonus
Annual bonuses for the Chief Executive Officer and other executive
officers may be determined by specific bonus formulae set forth in written
employment agreements between the Company and such officers. Currently, only the
Chief Executive Officer is eligible to receive such a bonus (see EXECUTIVE
COMPENSATION section of this Proxy Statement). Other executives are 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
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any obligations pursuant to executive officers' employment agreements, 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 2004
After various informal meetings during 2004, 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.
COMPENSATON COMMITTEE:
Shouky Shaheen, Chairman
John DePinto
Leonard Genovese
Certain Relationships and Related Transactions
In fiscal year 2004, the Company paid $152,431 to Payton & Carlson, P.A.
and to Carlson & Associates, 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 $2,000.00 per
month for his services as Vice-President and Secretary.
In fiscal year 2004, the Company paid $273,000 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, increases the annual rental to $302,780.
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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.
Principal Accountant Fees and Services
The following table sets forth the fees billed to us by Deloitte & Touche,
our independent registered accounting firm, as of and for the years ended
December 31, 2004 and 2003.
For the Years Ended
December 31,
2004 2003
---- ----
Audit fees(1)....................................... $ 190,400 $164,100
Audit - related fees................................ $ - $ -
Tax fees(2)......................................... $ 1,062 $ 876
All other fees...................................... $ - $ -
$191,462 $164,967
======== ========
(1) 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.
Audit fees billed by Deloitte & Touche, LLP in 2003 related to the audit
of our annual consolidated financial statements and 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, 2003.
(2) 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 Deloitte & Touche, our independent auditors,
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 (see Appendix "A"), the Audit Committee has established
pre-approval policies with respect to audit and permitted non-audit services to
be provided by our independent registered public 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;
-16-
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;
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.
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 2004.
Name # of Late Reports # of Late Transactions
---- ----------------- ----------------------
John DePinto 1 2
Shouky Shaheen 1 2
Curtis Carlson 1 2
Frank F. Ferola 1 2
Leonard Genovese 1 2
Thomas D'Ambrosio 1 1
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.
-17-
SUBMISSION OF STOCKHOLDER PROPOSALS
If the Company does not receive notice by August , 2005 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 the previous year's annual
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Curtis Carlson
---------------------
Curtis Carlson
Secretary
Dated: September 2, 2005
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THE STEPHAN CO.
1850 W. McNab Rd.
Ft. Lauderdale, FL 33064
954-971-0600
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank F. Ferola and Tyler Kiester, and
each of them, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated below, all
shares of common stock of The Stephan Co. (the "Company") held of record by the
undersigned on August 25, 2005, at the Annual Meeting of Stockholders to be held
on September 29, 2005, and any adjournments thereof.
This Proxy When Properly Executed Will Be Voted As Directed. If No Direction Is
Given With Respect To A Particular Proposal, This Proxy Will Be Voted For Such
Proposal.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
The Board of Directors recommends a vote "FOR" Proposal 1.
__X__ Please mark votes as in this example.
Proposal 1. Election of Directors WITHHOLD
FOR AUTHORITY
--- ---------
Nominee: William M. Gross _____ _____
Nominee: Shouky A. Shaheen _____ _____
Nominee: Curtis Carlson _____ _____
Nominee: David Pawl _____ _____
Nominee: Elliot Ross _____ _____
Nominee: Richard Barone _____ _____
Nominee: Frank F. Ferola _____ _____
In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
If you wish to vote in accordance with the Board of Directors'
recommendation, just sign below. You need not mark any spaces.
_____________________________________ ____________________________
Signature Date
______________________________________ ____________________________
Signature Date
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If the person named on the stock certificate has died, please submit
evidence of your authority. If a corporation, please sign in full corporate name
by the President or authorized officer and indicate the signer's office. If a
partnership, please sign in the partnership name by an authorized person.
Appendix "A"
THE STEPHAN CO.
AUDIT COMMITTEE CHARTER
(Adopted December 28, 2004)
I. PURPOSE
The purpose of the Audit Committee (the "Committee") shall be to assist
the Board of Directors of The Stephan Co. (the "Company") in its oversight over
and serving as an independent, objective check and balance on the Company's
financial reporting and internal control. In particular, the purpose of the
Committee shall be to assist the Board in its oversight of:
A. The integrity of the financial statements and information of the
Company, including the audited annual and the unaudited quarterly financial
statements of the Company;
B. The independence, qualifications, performance and compensation of the
Company's Independent Accountant (defined below);
C. The performance of the Company's internal audit function and internal
auditor and/or outside consultant hired to perform the internal audit function
(the "Internal Auditor"); and
D. The Company's compliance with legal, regulatory and internal Company
policies.
II. MEMBERSHIP
The Committee shall be comprised of at least three directors, one of whom
shall be Chairman. Committee members shall be appointed by the Board of
Directors and may be removed by the Board at any time in its discretion. The
Board shall appoint only members who are qualified under the independence,
financial literacy, accounting and other applicable governance rules,
regulations or standards adopted by the Securities and Exchange Commission (the
"SEC") and the American Stock Exchange (the "AMEX"). At least one member of the
Committee shall qualify as a "financial expert" under the SEC rules promulgated
under Section 407 of the Sarbanes-Oxley Act of 2002 (the "Act").
III. AUTHORITY
A. The Committee shall be directly responsible for the appointment,
compensation, retention, dismissal and oversight of the work of any public
accounting firm engaged for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the Company (the
"Independent Accountant"). The Independent Accountant shall report directly to
the Committee.
B. The Committee shall have the authority to carry out its
responsibilities under this charter and to conduct investigations of matters
within the scope of its functions.
C. The Committee shall have the authority to obtain advice and assistance
from external legal, accounting or other advisors (the "Advisors") it deems
appropriate in its sole discretion.
D. After consulting with the Board of Directors, the Committee shall have
authority to redress identified violations of the Company's internal policies,
including the Code of Conduct and other compliance policies.
E. The Company shall provide appropriate funding for the Committee to
carry out its duties for the 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 of the Company; 2. Compensation to any Advisors
employed by the audit committee, and; 3. Ordinary administrative expenses of the
Committee that are necessary or appropriate to carry out its duties.
IV. RESPONSIBILITIES
In furtherance of its purpose, the Committee shall have the following
responsibilities:
A. Documents, Reports and Reviews
1. Review quarterly results which will be included in the earnings
press release prior to distribution to the public. This review will be performed
by the Chairman or his designee.
2. Discuss the Company's earnings press releases, as well as
financial information and any earnings guidance provided to analysts and rating
agencies.
3. Review the annual audited financial statements and quarterly
financial statements with management and the Independent Accountant, including
the Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" prior to filing such statements
with the SEC.
4. Prepare the annual Committee Report for inclusion in the
Company's proxy statement, in accordance with all applicable rules and
regulations.
5. Review and reassess on an annual basis the adequacy of the
Committee charter with respect to applicable AMEX, SEC and other corporate
governance standards.
B. Independent Accountant
1. Engage and dismiss the Independent Accountant in its sole
discretion.
2. Establish and maintain pre-approval procedures for all auditing
services and non-audit services provided to the Company by the Independent
Accountant in accordance with the SEC rules and regulations promulgated under
Section 202 of the Act.
3. Establish compensation to the Independent Accountant for audit
and non-audit services.
4. Review with management and the Independent Accountant the annual
audit scope, significant accounting policies and audit conclusions.
5. Provide a basis for direct exchanges of views and information
between the Committee and the Independent Accountant concerning unresolved
differences between management and the Independent Accountant arising from the
audit, any failure of internal controls, or any other significant financial or
accounting matters.
-2-
6. Review periodic reports from the Independent Accountant provided
in accordance with Section 204 of the Act regarding:
a. All critical accounting policies and practices;
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 Accountant; and
c. Other material written communications between the
Independent Accountant and management, such as any management letter or schedule
of unadjusted differences.
7. Review compliance by the Independent Accountant with independence
requirements under applicable AMEX and SEC rules and regulations.
8. Ensure that the Independent Accountant submits on an annual basis
to the Committee a formal written statement delineating all relationships
between such Independent Accountant and the Company consistent with Independence
Standards Board Standard #1 and actively engage in a dialog with the Independent
Accountant with respect to any disclosed relationships or services that may
impact the objectivity and independence of the Independent Accountant and for
recommending that the Board of Directors take appropriate action in response to
the Independent Accountant's report to satisfy itself of the Independent
Accountant's independence.
9. At least annually, obtain and review a report by the Independent
Accountant describing: the firm's internal quality-control procedures; any
material issues raised by the most recent internal quality-control review, or
peer review, of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years respecting one or more
independent audits carried out by the firm, and any steps taken to deal with any
such issues; and (to assess the Independent Accountant's independence) all
relationships between the Independent Accountant and the Company.
10. Review the overall performance of the Independent Accountant.
11. Review periodically with management policies with respect to
hiring former employees of the Independent Accountant.
C. Financial Reporting, Auditing and Internal Controls
1. Review with the Independent Accountant, the Internal Auditor and
management, the integrity of the Company's financial reporting processes and
disclosure controls.
2. Review with the Independent Accountant, the Internal Auditor and
management, the adequacy and effectiveness of the Company's internal controls to
ensure completeness and accuracy of the Company's financial statements and
compliance with Section 404 of the Act.
3. Prior to filing Form 10-K, review with the Independent Accountant
and the Internal Auditor the matters required under Statement of Auditing
Standards Nos. 61, 89 and 90, as amended, any significant difficulties
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information and any significant unresolved
disagreements with management. In addition, review management's response to any
"management" or "internal control" letter issued, or proposed to be issued, by
the Independent Accountant to the Company.
-3-
4. Ensure the Company maintains an internal audit function.
5. Discuss with the Independent Accountant and management the
Internal Auditor function's, responsibilities, budget and staffing and any
recommendations or suggested changes in the planned scope of the internal audit.
6. Review with the Internal Auditor, on a periodic basis as
appropriate, the results of specified projects assigned to the Internal Auditor,
and coordinate with management to ensure that any significant findings or
control weaknesses are addressed and resolved.
7. Discuss with management the Company's procedures, and any related
policies, with respect to risk assessment and risk management.
D. Compliance and Legal
1. Monitor compliance with the Company's Code of Conduct.
2. Ensure the Company maintains an appropriate ethics and compliance
program as it pertains to the integrity of the Company's financial reporting
processes, both internal and external, and to perform an annual review of its
effectiveness.
3. Review and discuss with management, the Chief Legal Officer and
the Independent Accountant any significant issues raised by the Chief Legal
Officer concerning litigation, contingencies, claims or assessments.
4. Establish and maintain whistleblower procedures for reporting
concerns and violations under Sections 301 and 307 of the Act that address:
a. the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or auditing
matters;
b. the confidential, anonymous submission by the Company's
employees of concerns regarding questionable accounting or auditing matters; and
c. the receipt, retention and treatment of complaints received
by the Company through the up-the-ladder reporting requirements that require
certain attorneys to report evidence of a material violation of securities law
or breach of fiduciary duty or similar violation by the Company or any Company
agent.
5. Provide assistance to the Board of Directors in fulfilling its
fiduciary responsibilities relating to corporate accounting and reporting
practices. Report regularly to the full Board of Directors as to the foregoing
when appropriate.
V. MEETINGS
The Committee shall hold meetings on a quarterly basis and special
meetings may be called by the Chairman as needed. The agenda for each meeting
shall be as necessary for the Committee to carry out its duties under this
charter.
VI. LIMITATION ON COMMITTEE'S ROLE
It is not the duty of the Committee, and the Committee shall not, plan or
conduct audits, prepare the Company's financial statements, or determine or
certify that the Company's financial statements and disclosures are complete and
in accordance with GAAP and applicable rules and regulations. These are the
responsibilities of management and the Independent Accountant.
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