SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 §240.14a-11(c) §240.14a-12 | |||||
OURPET’S COMPANY
(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: |
OURPET’S COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 22, 2004
To the Shareholders of OurPet’s Company:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of OurPet’s Company will be held on Saturday, May 22, 2004, at 10:00am EDT, in the Arthur S. Holden Center at Lake Erie College located at 391 West Washington Street, Painesville, Ohio 44077, for the purpose of considering and acting upon the following matters:
| (1) | Election of four members of the Company’s Board of Directors to serve until the Company’s next annual meeting and until such directors’ successors are elected and have been qualified; |
| (2) | Ratification of the appointment of S.R. Snodgrass, A.C. as the Company’s independent auditors for the fiscal year ending December 31, 2004; |
| (3) | Transact such other business as may properly come before the Annual Meeting or at any adjournment or postponement thereof. |
A proxy statement describing the matters to be considered at the Annual Meeting is attached to this notice. Only shareholders of record at the close of business on April 28, 2004 are entitled to notice of, and to vote at, the Annual Meeting and at any adjournment or postponement thereof.
Shareholders are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, you are urged to complete, sign and date the accompanying proxy and return it promptly in the enclosed postage paid envelope.
By Order of the Board of Directors,
/s/ Konstantine S. Tsengas
Konstantine S. Tsengas
Secretary
Fairport Harbor, Ohio
April 29, 2004
OurPet’s Company
1300 East Street
Fairport Harbor, Ohio 44077
Proxy Statement
General
The Board of Directors of OurPet’s Company hereby solicits your proxy for use at the Annual Meeting of Shareholders to be held on Saturday, May 22, 2004, or at any adjournment or postponement of the Annual Meeting, for the purposes set forth in the foregoing Notice of Annual Meeting of Shareholders. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians to forward to beneficial owners of stock of the Company, no par value, held in their name. The cost of solicitation of proxies, including expenses in connection with preparing and mailing this Proxy Statement, will be borne by the Company. In addition, we will reimburse brokerage firms and other persons representing beneficial owners of stock for their expenses in forwarding solicitation material to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram, internet and personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services. This Proxy Statement and accompanying Proxy will be mailed on or about April 30, 2004 to all shareholders entitled to vote at the Annual Meeting.
Voting Rights and Outstanding Shares
Shareholders of record at the close of business on April 28, 2004 will be entitled to notice of and to vote at the Annual Meeting. On the Record Date, the Company had outstanding 11,700,473 shares of Common Stock. Each holder of record of shares of Common Stock on the Record Date is entitled to one vote per share on each matter to be considered at the Annual Meeting. A quorum for the Annual Meeting consists of the presence, in person or by proxy, of the holders of a majority of the total number of shares of voting stock outstanding on the Record Date. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker holding stock in “street name” indicates on the proxy that it does not have discretionary authority to vote on a particular matter. An affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote is required for election of directors and for approval of all other matters being submitted to shareholders for their consideration. Abstentions and broker “non-votes” are not counted for purposes of the election of directors and approval of all other matters being submitted to shareholders. Cumulative voting is not allowed in the election of directors of the Company.
When proxies are properly dated, executed and returned, the shares they represent will be voted at the Annual Meeting in accordance with the instructions of the shareholder. If no specific instructions are given, the shares represented by proxies will be voted as follows:
| • | FOR the election of the nominees for the directors set forth herein; and |
| • | FOR the ratification of the appointment of auditors. |
In addition, if other matters come before the Annual Meeting, the person named in the accompanying form of proxy will vote in accordance with his best judgment with respect to such matters. A shareholder giving a proxy has the power to revoke it at any time prior to its exercise by voting in person at the Annual Meeting, by giving written notice to the Secretary of the Company prior to the Annual Meeting or by giving a later dated proxy.
2
Equity Compensation Plan Information as of April 8, 2004.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Future Issuance Under | ||||
Equity compensation plans approved by security holders | 595,250 | $ | 0.383 | 754,750 | |||
Equity compensation plans not approved by security holders | 44,761 | $ | 0.966 | -0- | |||
Total | 640,011 | $ | 0.424 | 754,750 | |||
The equity compensation plans not approved by security holders include the following issuances of warrants to purchase Common Stock as partial payment for public relations services to an individual and payment in full for investor relations services to an unrelated firm:
Public relations in 2001 for 6,073 warrants at $0.988 per share which expire on December 1, 2004.
Public relations in 2002 for 13,364 warrants at $0.449 per share which expire on March 1, 2005.
Investor relations in 2002 for 25,324 warrants at $1.234 per share which expire on August 3, 2006.
3
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of April 8, 2004, certain information as to the stock ownership and voting power of all persons (or group of persons) known by the Company to be the beneficial owner of more than five percent of the Company’s stock, each director and executive officer of the Company, and all directors and executive officers as a group.
| Number of Shares Beneficially Owned | Warrants and Options Exercisable within | Percentage of Voting Power (5) | ||||||
Name of Beneficial Owner(1) | Common (2) | Preferred (3) | ||||||
Joseph T. Aveni(6) | 459,452 | — | 183,109 | 5.1 | ||||
Dr. James W. McCourt(7) | 875,561 | 380,000 | 340,296 | 12.5 | ||||
Patrick K. Stewart | — | — | — | * | ||||
Benjamin D. Suarez | — | — | — | * | ||||
Dr. Steven and Evangelia S. Tsengas(8) | 3,823,850 | — | 800,823 | 35.0 | ||||
Glenn R. Godley | — | — | — | * | ||||
John G. Murchie(9) Heather L. Novak (10) | 9,000 — | — — | 66,666 — | * * | ||||
Konstantine S. Tsengas(11) | 1,082,812 | — | 202,578 | 10.7 | ||||
Nicholas S. Tsengas(12) 9932 Brookhill Circle, Twinsburg, OH 44087 | 1,119,750 | — | 52,578 | 9.9 | ||||
All directors and officers as a Group (9 persons)(13) | 6,250,675 | 380,000 | 1,593,472 | 58.7 | ||||
| * | Less than one percent |
| (1) | Unless otherwise indicated and subject to applicable community property laws, each shareholder has sole voting and investment power with respect to all shares of stock beneficially owned by such shareholder. Unless otherwise indicated, the address of each shareholder is c/o OurPet’s Company, 1300 East Street, Fairport Harbor, OH 44077. |
| (2) | The number of shares beneficially owned by each person named in the table includes shares held by each individual of the Company’s Common Stock which is the only voting stock. |
| (3) | The number of shares beneficially owned by each person named in the table includes shares held by each individual of the Company’s Preferred Stock, as if converted into Common Stock. The Preferred Stock is nonvoting unless and until it is actually converted into Common Stock. |
| (4) | The number of warrants and options for each person named in the table includes shares reserved for each individual of (i) Common Stock subject to stock options issued under the 1999 Stock Option Plan that are now exercisable or exercisable within 60 days of April 8, 2004; and (ii) Common Stock subject to warrants that are presently exercisable or exercisable within 60 days of April 8, 2004. |
| (5) | Applicable percentage of voting power is based on the 12,410,473 shares of Common Stock outstanding as of April 8, 2004. That number is comprised of 11,700,473 outstanding shares of Common Stock and 710,000 shares of Common Stock issuable upon conversion of 71,000 outstanding shares of Preferred Stock. Shares of Common Stock subject to warrants and options that are presently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding such warrants and options for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. |
| (6) | Includes 459,452 shares of Common Stock held and currently exercisable warrants to purchase 183,109 shares of Common Stock. Excludes 192,000 shares of Common Stock held by the Joseph T. Aveni Dynasty Trusts for the benefit of his adult children; Mr. Aveni disclaims beneficial ownership of such shares. |
| (7) | Includes securities issued to Dr. McCourt, and to Beachcraft Limited Partnership, in which Dr. McCourt serves as Trustee for its general partner, and to DKKS, LP in which Dr. McCourt is the general partner. Securities issued directly to Dr. McCourt include 470,180 shares of Common Stock and currently exercisable warrants to purchase 7,161 shares of Common Stock; Beachcraft Limited Partnership holds |
4
325,381 shares of Common Stock, 180,000 shares of Common Stock issuable upon conversion of 18,000 outstanding shares of Preferred Stock and currently exercisable warrants to purchase 210,289 shares of Common Stock; and DKKS, LP holds 80,000 shares of Common Stock, 200,000 shares of Common Stock issuable upon conversion of 20,000 outstanding shares of Preferred Stock and currently exercisable warrants to purchase 122,846 shares of Common Stock. Excludes 9,212 shares of Common Stock held and currently exercisable warrants to purchase 2,504 shares of Common Stock issued to Dr. McCourt’s adult daughters and son; Dr. McCourt disclaims beneficial ownership of such shares and warrants. |
| (8) | Includes 3,090,558 shares of Common Stock held, currently exercisable stock options to purchase 200,000 shares of Common Stock and currently exercisable warrants to purchase 329,690 shares of Common Stock issued to Dr. Tsengas. Also includes currently exercisable warrants to purchase 107,216 shares of Common Stock issued to Senk Properties in which Dr. Tsengas is a partner. The number of warrants held by Senk Properties attributed to Dr. Tsengas is based upon his ownership percentage of 52%. Also includes 733,292 shares of Common Stock held and currently exercisable warrants to purchase 139,175 shares of Common Stock issued to Dr. Tsengas’s wife and currently exercisable warrants to purchase 24,742 shares of Common Stock issued to Senk Properties in which Dr. Tsengas’s wife is a partner. The number of warrants held by Senk Properties attributed to Dr. Tsengas’s wife is based upon her ownership percentage of 12%. Excludes 2,202,562 shares of Common Stock held, currently exercisable stock options to purchase 150,000 shares of Common Stock and currently exercisable warrants to purchase 30,929 shares of Common Stock issued to Dr. Tsengas’s sons and currently exercisable warrants to purchase 74,227 shares of Common Stock issued to Senk Properties in which Dr. Tsengas’s sons are partners. The number of warrants held by Senk Properties attributable to Dr. Tsengas’s sons is based upon their ownership percentage of 36%. Dr. Tsengas disclaims beneficial ownership of such shares and warrants. |
| (9) | Includes 9,000 shares of Common Stock held and currently exercisable stock options to purchase 66,666 shares of Common Stock. Excludes options to purchase 33,334 shares of Common Stock, which are not exercisable within 60 days. |
| (10) | Excludes options to purchase 100,000 shares of Common Stock, which are not exercisable within 60 days. |
| (11) | Includes 1,008,403 shares of Common Stock held, currently exercisable stock options to purchase 150,000 shares of Common Stock and currently exercisable warrants to purchase 5,155 shares of Common Stock issued to Mr. Tsengas and also currently exercisable warrants to purchase 37,114 shares of Common Stock issued to Senk Properties in which Mr. Tsengas is a partner. The number of warrants issued to Senk Properties attributed to Mr. Tsengas is based upon his ownership percentage of 18%. Includes 74,409 shares of Common Stock held and currently exercisable warrants to purchase 10,309 shares of Common Stock issued to Mr. Tsengas’s daughter and son. Mr. Tsengas is the son of Dr. Tsengas. |
| (12) | Includes 1,008,403 shares of Common Stock held and currently exercisable warrants to purchase 5,155 shares of Common Stock issued to Mr. Tsengas and also currently exercisable warrants to purchase 37,113 shares of Common Stock issued to Senk Properties in which Mr. Tsengas is a partner. The number of warrants issued to Senk Properties attributed to Mr. Tsengas is based upon his ownership percentage of 18%. Includes 111,347 shares of Common Stock held and currently exercisable warrants to purchase 10,310 shares of Common Stock issued to Mr. Tsengas’s daughters. Mr. Tsengas is the son of Dr.Tsengas. |
| (13) | Includes 6,250,675 shares of Common Stock held, 380,000 shares of Common Stock issuable upon conversion of 38,000 outstanding shares of Preferred Stock, currently exercisable stock options to purchase 416,666 shares of Common Stock and currently exercisable warrants to purchase 1,176,806 shares of Common Stock. Excludes options to purchase 133,334 shares of Common Stock, which are not exercisable within 60 days. |
5
PROPOSAL 1: Election of Directors
Unless marked otherwise, proxies received will be votedFOR the election of each of the four nominees named below. Each of the current directors has been nominated for election to the Board of Directors, except Patrick K. Stewart, a director since 2003. Mr. Stewart resigned from the Board of Directors as of March 18, 2004. This will result in one vacancy on the Board of Directors. Under the terms of the Company’s Certificate of Incorporation, any vacancy on the Board of Directors may be filled by a majority vote of the directors then in office. If any of the four nominees is unable or unwilling to serve as a nominee for the office of director at the time of the Annual Meeting, the proxies may be voted either (i) for a substitute nominee who shall be designated by the proxy holder or by the present Board of Directors to fill such vacancy or (ii) for the balance of the nominees, leaving a vacancy. Alternatively, the size of the Board may be reduced accordingly by Board resolution. The Board of Directors has no reason to believe that any of the following nominees will be unwilling or unable to serve if elected as a director. Such persons have been nominated to serve until the next Annual Meeting of shareholders following the 2004 Annual Meeting or until their successors, if any, are elected or appointed.The Board of Directors recommends a vote “FOR” the election of each of the nominees listed below.
Joseph T. Aveni 72 years old Director since 1998 Chairman Emeritus of First Realty Property Management LLC | Mr. Aveni was elected to the Company’s Board of Directors in November 1998. Mr. Aveni has been the Chairman Emeritus of First Realty Property Management LLP since 1997. He was the Chairman and Chief Executive Officer of Realty One from 1990 to 2001 and served on the Board of Directors of the Cleveland Ballet and the Greater Cleveland Growth Association. He has served as President of Property Management Division of FIABCI and of National Institute of Real Estate Management, as a member of the Board of Directors of the National Association of Realtors, as Chairman of the Genesis Relocation Services and as a member of the Leadership Cleveland Class of ‘92. He has received the Distinguished Service Award and Realtor of the Year Award from the Association of Realtors and the Franklin Delano Roosevelt Award for Excellence from the March of Dimes. | |
Dr. James W. McCourt 63 years old Director since 1999 Retired | Dr. McCourt was elected to the Company’s Board of Directors in December 1999. Dr. McCourt retired in 1998 from his dentistry practice in Harlingen, Texas which he operated from 1995 to 1998 and has not participated in any business activity since his retirement. As an associate professor, he has held positions at colleges and universities and has also served as a consultant and on the surgical staff of many hospitals. | |
Benjamin D. Suarez 62 years old Director since 2003 Corporate President and Chief Executive Officer of Suarez Corporation Industries | Mr. Suarez was elected to the Company’s Board of Directors on October 20, 2003 by a majority vote of the directors then in office. Mr. Suarez has been Corporate President, Chief Executive Officer, and Founder of Suarez Corporation Industries, one of the leading direct-marketing companies in the world since it was formed in 1970. | |
6
Dr. Steven Tsengas 66 years old Director since 1985 Chairman of the Board, President and Chief Executive Officer of the Company | Dr. Tsengas has served on the Company’s Board of Directors since the merger with Manticus, Inc. in 1998 and also was a director of the predecessor company since it was incorporated in 1985. Dr. Tsengas has also been Chairman, President and Chief Executive Officer of the Company since the merger in 1998. Dr. Tsengas received his BS in Industrial Engineering from the State of New York University at Buffalo, his MS in Business from the University of Rochester, W. Simon Graduate School of Management, and his Ph.D. degree in Natural Health from Clayton College of Natural Health. He holds numerous patents, has taught and lectured at various colleges and was elected to the National Inventors Hall of Fame. He is active in numerous professional, community and technical associations, including the Ohio Venture Association, American Naturopathic Medical Association, the Coalition for Natural Health, the Lake County Development Council and the Lake County Workforce Development Council. His son also serves as Vice President of Operations and Secretary. |
Attendance of Board at Meetings
All directors were present for at least 75% of all meetings of the Board of Directors and the meetings of the committee of which each was a member. The Board of Directors met four times in 2003. The Board is also strongly encouraged to attend the Annual Meeting of Shareholders, either in person or by teleconference. All of the directors attended last year’s Annual Meeting.
Board Committees
The Board of Directors has established a Compensation Committee, which makes recommendations to the Board with respect to general compensation and benefit levels for employees, determines the compensation and benefits for the Company’s executive officers and administers the Company’s stock option plan. The current members of this Committee are Joseph T. Aveni, Dr. James W. McCourt and Dr. Steven Tsengas. The Compensation Committee did not meet in 2003.
We do not have a Nominating Committee of the Board of Directors. Instead, the Board believes it is in the best interests of the Company to rely on the insight and expertise of all directors in the nominating process. Generally, the Chairman of the Board recommends qualified candidates for director to the full Board and nominees are approved by a majority of the Board, including Mr. Aveni, Dr. McCourt and Mr Suarez, who are independent directors as defined by Nasdaq. Nominees are not required to possess specific skills or qualifications, however, nominees are recommended and approved based on various criteria including relevant skills and experience, personal integrity and ability and willingness to devote their time and efforts to the Company. Qualified nominees are considered without regard to age, race, color, sex, religion, disability or national origin. We do not use a third party to locate or evaluate potential candidates for director.
It is the policy of the Board of Directors to consider nominees recommended by shareholders according to the same criteria. A shareholder desiring to nominate a director for election at our 2005 annual meeting of shareholders must deliver a written notice to our Secretary at our offices located at 1300 East Street, Fairport
7
Harbor, Ohio 44077 no later than December 31, 2004. Such notice must include as to each person the shareholder proposes to nominate for election or re-election as a director:
| • | the name, age, business address and residence address of the person; |
| • | the principal occupation or employment of the person; |
| • | the written consent of the person, consenting to be named in the proxy as a nominee and to serve as a director; |
| • | the class and number of our shares beneficially owned by the person, if any; and |
| • | any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Exchange Act; |
and as to the shareholder giving the notice:
| • | the name and record address of the shareholder; and |
| • | the class and number of our shares beneficially owned by the shareholder; |
We may require any proposed nominee to furnish additional information required by us to determine the eligibility of the proposed nominee to serve as our director.
The Board of Directors has established an Audit Committee, which meets with financial management and the independent auditors to make recommendations to the Board regarding the selection of independent auditors, review the Company’s filings with the Securities and Exchange Commission, review the results and scope of audit and any other services provided by the Company’s independent auditors and review and evaluate our internal control functions. The members of this committee in 2003 were Mr. Aveni and Mr. Stewart. Mr. Stewart resigned from the Audit Committee and Board as of March 18, 2004. The Audit Committee met twice in 2003.
Compensation of Directors
In 2001, 2002 and 2003, directors who were full-time employees of the Company received no cash compensation for services rendered as members of the Board of Directors or a committee thereof. Directors who were not full-time employees of the Company received reimbursement of out-of-pocket expenses for attendance at Board of Director meetings. Non-employee directors received compensation in 2001 in the form of 7,161 warrants each to Joseph T. Aveni and Dr. James W. McCourt at an exercise price of $1.222 per share with an expiration date of October 1, 2006 for their services as directors in 2001.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
Other than the Company’s standard form of non-competition and confidentiality agreement, the Company does not presently have any employment contracts in effect with the executive officers of the Company, including any compensatory plans or arrangements resulting from the resignation, retirement or other terminations of the executive officers.
Executive Compensation
Executive Officers of the Company
Dr. Steven Tsengas 66 years old Chairman of the Board, President and Chief Executive Officer of the Company | Dr. Tsengas has been Chairman, President and Chief Executive Officer of the Company since the merger with Manticus, Inc. in 1998 and also held the same positions with the predecessor company since 1985. His son also serves as Vice President of Operations and Secretary. |
8
Konstantine S. Tsengas 39 years old Vice President of Operations and Secretary | Mr. Tsengas has been Vice President of Operations and Secretary of the Company since the merger in 1998 and served in the same capacities with the predecessor company since 1995. Mr. Tsengas received his BS in Industrial Engineering from the University of Toledo and has completed graduate level courses in marketing and organizational behavior at Cleveland State University. His father also serves as Chairman, President and Chief Executive Officer. | |
Glenn R. Godley 40 years old Executive Vice President of Marketing / Sales | Mr. Godley was formerly the Executive Vice President of Marketing / Sales of the Company from May of 1999 until November of 2003. From 1991 to 1999 Mr. Godley was Regional Manager of Sales and Marketing for Catalina Industries. Mr. Godley received his BS in Business Administration and Marketing from Cleveland State University. | |
Heather L. Novak 29 years old Vice President of Marketing | Ms. Novak has been Vice President of Marketing of the Company since July of 2003. From 1995 to 2003 Ms. Novak served as a chemist, product manager, and account executive at Sherwin-Williams Company. Ms. Novak received her BS in Chemistry and Psychology from Miami University of Ohio and her MBA from Case Western Reserve University. | |
John G. Murchie 66 years old Vice President, Treasurer and Controller | Mr. Murchie was appointed Vice President of the Company on November 15, 2002. Mr. Murchie has been Treasurer and Controller of the Company since January of 2000. From 1995 through 1999, Mr. Murchie served as Acting Chief Financial Officer, Controller and Chief Administrative Officer of Conversion Technologies International, Inc. and one of its subsidiaries. Mr. Murchie received his BS in Business Administration from Miami University of Ohio. | |
Summary Compensation Table
The following summary compensation table sets forth the aggregate compensation paid or accrued by the Company for the years ended December 31, 2003, 2002 and 2001 to its Chief Executive Officer.
| Annual Compensation | Long Term Compensation | ||||||||||||||
| Awards | Payouts | ||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation | Securities Underlying Options /SARS | LTIP Payouts | All Other | ||||||||
Dr. Steven Tsengas | 2003 | 88,580 | — | — | — | — | — | ||||||||
Chairman, President | 2002 | 88,365 | — | — | — | — | — | ||||||||
& Chief Executive Officer | 2001 | 84,000 | — | 2,057 | (1) | — | — | — | |||||||
| (1) | The other annual compensation amounts shown in the table reflect Mr. Tsengas’ share of the 10 percent profit sharing plan for 2001 based upon the Company’s net income before taxes. |
9
Option Plan
The Company maintains the 1999 Stock Option Plan for its officers and key employees under which options may be granted at the discretion of the Board of Directors. The Company has reserved 1,350,000 shares of its Common Stock for issuance upon the exercise of options granted under the Plan.
Under the Plan, options to purchase an aggregate of 595,250 shares are outstanding as of April 8, 2003. These options vest one-third on each of the second, third and fourth anniversaries of the date of grant and expire on the fifth anniversary of the date of grant. The Company grants options for the Plan at exercise prices equal to or greater than the fair market value of the Common Stock on the date of grant.
The following table sets forth information concerning exercises of stock options during 2003 by each of the named executive officers and the final December 31, 2003 value of unexercised options.
| Shares Acquired | Number of Securities Underlying unexercised Options/SARs at 12/31/03 | Value of Unexercised “In-the-Money” Options/SARs at 12/31/03 (1) | ||||||||||||
Name | or Exercise | Value Realized | Exercisable | Unexerciseable | Exercisable | Unexerciseable | ||||||||
Dr. Steven Tsengas | 0 | 0 | 200,000 | 0 | $ | 0 | $ | 0 | ||||||
| (1) | Calculated based upon the difference between the exercise price and the closing price of a share of Common Stock on the over-the-counter market of $0.26 a share on December 31, 2003. |
On May 8, 2003, the Board of Directors approved the adjustment of the exercise price of unexercised stock options to the higher of 50% of the existing exercise price or the current market price on May 8, 2003. In order to give our employees an incentive to exercise their stock options in the future and to continue to put forth their efforts for the success and growth of the Company the exercise price was adjusted to reflect more accurately the current economic conditions. The exercise prices were established when the options were granted, which in most instances were in 1998, 1999 and 2000, subsequent to which the status of the economy and the stock market has significantly changed.
Certain Relationships and Related Transactions
The Company leases warehouse and office facilities from a related entity, Senk Properties, a general partnership comprised of Dr. Steven Tsengas, Konstantine S. Tsengas, Evangelia S. Tsengas and Nicholas S. Tsengas. At December 31, 2003, the current monthly rental was $11,690 plus real estate taxes with annual increases each June in the monthly rental based upon the change in the indicated consumer price index in the preceding year. The initial lease term was five years ending on May 31, 1998 and it has been extended for two additional five-year terms, with the possibility of three additional extensions of five years each. Lease expense was $147,560 for 2003 and $143,845 for 2002.
In March 1998, Napro, the predecessor company to OurPet’s Company, borrowed $50,000 from Dr. Steven Tsengas for equipment purchases. In connection with this loan, 50,000 warrants were issued for the purchase of Common Stock at $0.75 a share to Dr. Tsengas. These warrants were exchanged for Company warrants after Napro’s merger into Manticus and expire on October 31, 2004. In accordance with the anti-dilution provisions the number of warrants issued to Dr. Tsengas have been adjusted to 51,654 and the exercise price adjusted to $0.726 as a result of dividends on Preferred Stock being paid in Common Stock.
On September 1, 1999, the Company borrowed $200,000 for working capital purposes from Mr. Aveni. The loan was due on August 31, 2004 and had an annual interest rate of 10%. In addition, Mr. Aveni received 50,000 warrants for the purchase of Common Stock at $0.75 per share which expired on July 31, 2001. The 50,000
10
warrants were subsequently adjusted to 50,471 warrants exercisable at $0.743 a share in accordance with the warrant anti-dilution provisions and were exercised in July 2001 for cancellation of accrued interest due Mr. Aveni as consideration.
On July 21, 2000, the Company borrowed $50,000 from Dr. Steven Tsengas, on August 1, 2000, it borrowed $25,000 from Joseph T. Aveni, and on August 2, 2000, it borrowed $150,000 from Beachcraft Limited Partnership, a firm for which Dr. James W. McCourt serves as Trustee for its general partner for working capital purposes. The notes had an annual interest rate of 10% and were due on July 31, 2004 for Dr. Tsengas and Mr. Aveni, and on February 1, 2004 for Beachcraft, L.P. due to six six-month extensions obtained. In connection with these loans, the Company issued 50,000 warrants for the purchase of Common Stock at $1.25 a share, subsequently adjusted to 51,610 warrants exercisable at $1.211 a share in accordance with the warrant anti-dilution provisions, to Dr. Tsengas, warrants to purchase 25,000 shares at the same price, subsequently adjusted to 25,804 warrants exercisable at $1.211 a share in accordance with the warrant anti-dilution provisions, to Mr. Aveni and warrants to purchase 150,000 shares at the same price, subsequently adjusted to 38,708 warrants exercisable at $1.211 a share, 76,718 warrants exercisable at $1.222 a share and 37,987 warrants exercisable at $1.234 a share in accordance with the warrant anti-dilution provisions, to Beachcraft Limited Partnership. The 150,000 warrants issued to Beachcraft, L.P. includes 37,500 warrants issued in each of February 2001, August 2001 and February 2002 for the six-month extensions on repayment of its loan. These warrants all expire on July 31, 2004.
On August 28, 2003, the Company borrowed an additional $100,000 from Mr. Aveni for working capital purposes. This note was due on November 30, 2003 with interest at prime plus 3%. The note due date was extended and it was repaid to Mr. Aveni with accrued interest on December 30, 2003. In connection with this loan, the Company issued 12,500 warrants for the purchase of Common Stock at $0.41 a share, subsequently adjusted to 12,592 warrants exercisable at $0.407 a share in accordance with the warrant anti-dilution provisions. These warrants expire on September 4, 2006.
On December 30, 2003, the Company repaid Dr. Tsengas $25,000 in cash and issued 73,529 shares of Common Stock to his grandchildren in payment for the note dated July 21, 2000 for $50,000. On the same date the Company repaid Mr. Aveni $100,000 in cash and issued 367,647 shares of Common Stock to him and trusts for his children in payment for the notes dated September 1, 1999 for $200,000 and August 1, 2000 for $25,000. Also on December 30, 2003, the Company repaid Beachcraft $75,000 in cash in partial payment for the note dated August 2, 2000 for $150,000. As of February 1, 2004, a new note payable for $75,000 was issued to Beachcraft to replace the remaining balance on the August 2, 2000 note. The new note is due on February 1, 2006 with interest payable quarterly at prime plus 3%. In consideration for this refinancing the Company issued warrants for the purchase of 56,250 shares of Common Stock to Beachcraft at an exercise price of $0.30 per share with an expiration date of February 1, 2007.
The Company believes the terms it received from the loans described above are at least as favorable as terms it could have obtained from unaffiliated third parties.
Code of Ethics
On February 6, 2004, the Board of Directors adopted a code of conduct and ethics that applies to all officers, directors and employees of OurPet’s, including our principal executive officer, principal financial officer, principal accounting officer, and any person performing similar functions. The code was filed with the Company’s December 31, 2003 annual report on Form 10-KSB as Exhibit 14.
11
Audit Committee
The Audit Committee oversees the quality and integrity of the financial statements of the Company, the independent auditor’s qualifications and independence, the performance of the independent auditors, and the compliance by the Company with legal and regulatory matters. The Audit Committee is also directly responsible for the engagement of the independent auditor and considers and approves all services performed by the independent auditor. The members of the Audit Committee in 2003 were Messrs. Aveni and Stewart, each of whom was appointed by the Board of Directors. Mr. Stewart resigned from the Audit Committee and Board of Directors on March 18, 2004. The Board will name a replacement for Mr. Stewart before the next meeting of the Audit Committee.
The Audit Committee operates under a written charter setting forth the Committee’s composition, responsibilities and authority. This charter, attached as Annex A, was adopted by OurPet’s on February 6, 2004 to fully comply with new SEC rules and adopted pursuant to the Sarbanes-Oxley Act of 2002. The charter is reviewed and assessed annually by the Audit Committee.
The directors who serve on the Audit Committee have no financial or personal ties to the Company other than as described in this proxy statement. The Board of Directors has determined all members of the Audit Committee in 2003 satisfied the regulations of Nasdaq, governing audit committee composition, including the requirement that all committee members be “independent” as defined in applicable Nasdaq regulations. In addition, the Board has determined that Mr. Aveni is an audit committee financial expert as defined by the SEC.
Report of the Audit Committee
The Audit Committee; (1) reviewed and discussed with management and the independent auditors the Company’s audited financial statements for the year ended December 31, 2003; (2) discussed with the independent auditors the matters required by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement on Auditing Standards No. 90, Audit Committee Communications; (3) received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees; (4) considered whether the provision of non-audit services is compatible with maintaining the auditor’s independence; and (5) discussed with the auditors the auditor’s independence.
Based on the review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 2003, be included in the Company’s Annual Report on Form 10-KSB for filing with the Securities and Exchange Commission.
Joseph T. Aveni
Chairman of the Audit Committee
Patrick K. Stewart
former member of the Audit Committee
12
PROPOSAL 2: Ratification of Selection of Independent Auditors
The Audit Committee following a review of the independent auditor’s performance and qualifications has selected and the Board of Directors has ratified, subject to shareholder approval, S.R. Snodgrass, A.C. as the company’s independent auditors for the year ending December 31, 2004. S.R. Snodgrass, A.C. has audited the Company’s financial statements since 1998. Representatives of S.R. Snodgrass, A.C. are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Shareholder ratification of the selection of S.R. Snodgrass, A.C. as the Company’s independent auditors is not required by the Bylaws or otherwise. The Board of Directors has elected to seek such ratification as a matter of good corporate practice. Should the shareholders fail to ratify the selection of S.R. Snodgrass, A.C. as independent auditors, the Board of Directors will consider whether to retain that firm for the year ending December 31, 2004. The affirmative vote of the holders of a majority of the voting stock represented at the Annual Meeting is required for approval of this proposal.The Board of Directors recommends a vote “FOR” ratification of the appointment of S.R. Snodgrass, A.C. as independent auditors for the Company for the current year.
The following table summarizes fees billed to the Company by S.R. Snodgrass, A.C. for professional services rendered as of and for the years ended December 31, 2003 and 2002.
| 2003 | 2002 | |||||
Audit Fees | $ | 38,800 | $ | 30,100 | ||
Audit Related Fees | 1,225 | 0 | ||||
Tax Fees | 0 | 250 | ||||
All Other Fees | 0 | 0 | ||||
Total Fees | $ | 40,025 | $ | 30,350 | ||
Audit Fees. These fees comprise professional services rendered in connection with the audit of the Company’s financial statements and the review of the Company’s quarterly financial statements on Form 10-QSB’s that are customary under auditing standards generally accepted in the United States.
Audited Related Fees. These fees comprise professional services rendered in connection with compliance with the provisions of the Sarbanes-Oxley Act of 2002.
Tax Fees. These fees comprise professional services rendered in connection with tax compliance reviews.
Pre-Approval Policies and Procedures
Before the independent auditors are engaged by OurPet’s to render audit or permissible non-audit services, the Audit Committee approves the engagement. The Audit Committee also reviews the scope of any audit and other assignments given to our auditors to assess whether such assignments would affect their independence.
Shareholder Proposals and Communications
A shareholder intending to present a proposal to be included in our proxy statement for our 2005 annual meeting of shareholders must deliver a proposal, in accordance with the requirements of Rule 14a-8 under the Exchange Act, to our Secretary at our principal executive office no later than December 31, 2004. A shareholder’s notice to the Secretary must set forth as to each matter the shareholder proposes to bring before the meeting:
| a) | brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, |
| b) | the name and record address of the shareholder proposing such business, |
13
| c) | the number of shares of our voting stock that are beneficially owned by the shareholder, and |
| d) | any material interest of the shareholder in such business. |
OurPet’s Board of Directors also provides a process for shareholders to send communications to the Board. Shareholders may mail any communications to our Corporate Secretary at the Company’s offices, 1300 East Street, Fairport Harbor, Ohio 44077. The Secretary will review all communications and forward to the Board of Directors all communications other than solicitations for products or services or trivial or obscene items. Mail addressed to a particular director or committee of the Board will be forwarded to that director or committee. All other communications will be forwarded to the Chairman for the review of the entire Board.
Other Matters
The Board of Directors knows of no other business to be presented at the Annual Meeting, but if other matters do properly come before the Annual Meeting, it is intended that the person named on the Proxy will vote on such matters in accordance with his best judgment.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, officers and persons who own more than 10% of the Common Stock or the Convertible Preferred Stock, to file with the Securities and Exchange Commission an initial report of ownership and reports of changes in ownership of the Company’s stock. Persons subject to Section 16 are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file. As a matter of practice, the Company’s administrative staff may assist in preparing and filing these reports. Based solely upon a review of the copies of forms furnished to the Company, and written representations from certain reporting persons, the Company believes that during the fiscal year ended December 31, 2003, all its officers, directors and ten percent beneficial owners complied with applicable filing requirements.
By Order of the Board of Directors,
/s/ Konstantine S. Tsengas
Konstantine S. Tsengas
Secretary
Fairport Harbor, Ohio
April 29, 2004
14
Annex A
OURPET’S COMPANY
AUDIT COMMITTEE CHARTER
This Audit Committee Charter has been adopted by the Board of Directors of OurPet’s Company. The Audit Committee of the Board of Directors of OurPet’s shall review and reassess this charter annually and recommend any proposed changes to the Board for approval.
Purpose
The Committee is responsible for oversight of the quality and integrity of the accounting, auditing, internal control and financial reporting practices of OurPet’s and the appointment, compensation and retention of our independent auditors. The Committee may also have other duties assigned from time to time by the Board.
The Committee will maintain free and open communication with our independent auditors and the company’s management. In discharging its oversight role, the Committee is empowered to investigate any matter relating to OurPet’s accounting, auditing, internal control or financial reporting practices brought to the Committee’s attention, with full access to all books, records, facilities and personnel. The Committee may retain outside counsel, auditors or other advisors.
Composition and Organization
The membership of the Committee consists of at least three directors who are each free of any relationship that, in the opinion of the Board, may interfere with his or her individual exercise of independent judgment. Each Committee member will also meet the independence and financial literacy requirements for serving on audit committees and at least one member will have accounting or related financial management expertise, all as set forth in the applicable rules of the Nasdaq or other applicable independence requirements. None of the members of the Committee will have participated in the preparation of OurPet’s financial statements during the past three years.
The members of the Committee are appointed by the Board. One member of the Committee will be appointed by the Board as chair. The chair is responsible for leadership of the Committee, including scheduling and presiding over meetings, preparing agendas, and making regular reports to the Board. The chair will also maintain regular liaison with our chief executive officer and chief financial officer and lead independent audit partner.
The Committee will meet at least quarterly in person or by telephone, or more frequently as the Committee considers necessary. The Committee may also have separate private meetings with our independent auditors and management as it considers necessary.
Responsibilities
Although the Committee may wish to consider other duties from time to time, the general recurring activities of the Committee in carrying out its oversight role are:
| • | Recommending to the Board the independent auditors to be retained (or nominated for shareholder approval) to audit OurPet’s financial statements. Such auditors are ultimately accountable to the Board and the Committee as representatives of the shareholders; |
15
| • | Evaluating, together with the Board and management, the performance of our independent auditors and, when appropriate, replacing such auditors; |
| • | Obtaining annually from our independent auditors a formal written statement describing all relationships between the auditors and OurPet’s, consistent with Independence Standards Board Standard Number 1. The Committee will actively engage in a dialogue with the independent auditors with respect to any relationships that may impact the objectivity and independence of the auditors and will take, or recommend that the Board take, appropriate actions to oversee and satisfy itself as to the auditor’s independence; |
| • | Reviewing the audited financial statements and discussing them with management and the independent auditors. These discussions shall include a review of the annual management letter and matters required to be discussed under Statement of Auditing Standards No. 61, as amended by SAS 89 and 90, and consideration of the quality of OurPet’s accounting principals as applied in our financial reporting, including a review of particularly sensitive accounting estimates, reserves and accruals, judgmental areas, audit adjustments (whether or not recorded) and other such inquiries as the Committee or the independent auditors consider appropriate. Based on this review, the Committee shall make its recommendation to the Board as to the inclusion of the audited financial statements in OurPet’s annual report; |
| • | Issuing annually a report to be included in OurPet’s proxy statement as required by the rules of the Securities and Exchange Commission; |
| • | Overseeing OurPet’s relationship with our independent auditors, including discussing with the auditors the nature and rigor of the audit process, receiving and reviewing audit reports, and providing the auditors full access to the Committee and the Board to report on any and all appropriate matters; |
| • | Discussing with a representative of management and our independent auditors: (i) the interim financial information contained in OurPet’s quarterly report prior to filing; and (ii) the results of the review of such information by the auditors; |
| • | Discussing with management and our independent auditors the quality and adequacy of and compliance with OurPet’s internal controls; |
| • | Discussing with management and/or our counsel any legal matters (including the status of pending litigation) that may have a material impact on OurPet’s financial statements, and any material reports or inquiries from regulatory or governmental agencies; |
| • | Reviewing alleged fraudulent actions or violations of law reported by internal compliance programs or by the independent auditors; |
| • | Pre-approving all engagements in connection with the audit, review or attestation of reports required under the securities laws, as well as all permissible non-audit services; |
| • | Assuring the regular rotation of the lead audit partner as required by the securities laws; |
| • | Performing any other activities consistent with this charter, OurPet’s Bylaws and Certificate of Incorporation as the Committee or the Board deems necessary or appropriate; and |
| • | Evaluating annually, with the Board, the Committee’s performance under this charter. |
The Committee will rely on the expertise, knowledge and experience of management and OurPet’s independent auditor in performing its oversight responsibilities. In discharging its responsibilities, the Committee is not responsible for the planning or conduct of audits or for any determination that OurPet’s statements are complete and accurate or in accordance with GAAP and applicable rules and regulations. These matters are the responsibility of management and our independent auditor.
16
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
OURPET’S COMPANY
Konstantine S. Tsengas is hereby authorized to represent the undersigned at the Annual Meeting of Shareholders of OurPet’s Company to be held on Saturday, May 22, 2004 in the Arthur S. Holden Center at Lake Erie College located at 391 West Washington Street, Painesville, Ohio 44077 at 10:00 am EDT, and any adjournment or postponement thereof, and to vote the number of shares which the undersigned would be entitled to vote if personally present.
| Number of Shares: | x Please mark votes as in this example. | |
| Name and Address of Shareholder: | ||
This Proxy will be voted as you direct below. In the absence of such direction, it will be voted FOR all of the Directors and FOR each of the Proposals below.
1. | SELECTION OF DIRECTORS | For | Against | Abstain | ||||||
| Nominees: | Joseph T. Aveni | ¨ | ¨ | ¨ | ||||||
| Dr. James W. McCourt | ¨ For all nominees except as noted | |||||||||
| Benjamin D. Suarez | ||||||||||
| Dr. Steven Tsengas | ||||||||||
2. | Proposal to ratify the Appointment of S.R. Snodgrass, A.C. as the Independent Auditors for Fiscal Year 2004. | |||||||||
| ¨ | ¨ | ¨ | ||||||||
3. | In his discretion, upon such other matters as properly may come before the meeting. | |||||||||
| ¨ | ¨ | ¨ | ||||||||
| ¨ | Mark here for address change and note above. |
| ¨ | Mark here if planing on attending the Annual Meeting in person. |
| ¨ | Mark here and give us your e-mail address if you desire to receive information about the Company and its new products. |
Note: Please sign exactly as name appears. Joint owners should each sign. Executor, Administrator, or Guardian, please sign full title as such. If signer is a corporation, please sign with the full corporation name by duly authorized officer or officers.
Signature: Date:
Signature: Date:
