UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Rule 14a-12
SHARPS COMPLIANCE CORP.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OMITTED]
October 8, 2004
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the 2004
Annual Meeting of Stockholders of Sharps Compliance Corp. The Annual Meeting
will be held on Thursday, November 11th at 10:00 a.m. at The Doubletree Hotel,
2001 Post Oak Boulevard, Houston, Texas. The formal Notice of the Annual Meeting
is set forth in the enclosed materials.
This year, you are being asked to act upon the election of five (5) Directors.
These matters are discussed in greater detail in the attached Notice of Annual
Meeting of Stockholders and Proxy Statement.
Regardless of the number of shares you own and whether or not you expect to be
present at the meeting, please mark, sign, date, and promptly return the
enclosed Proxy Card in the envelope provided. Returning the Proxy Card will not
deprive you of your right to attend the meeting and vote your shares in person.
If you attend the meeting, you may withdraw your Proxy and vote your own shares.
On behalf of the Board of Directors, I would like to express our appreciation
for your continued support of our Company. We look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/
----------------------------
Dr. Burton J. Kunik
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
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SHARPS COMPLIANCE CORP.
9350 KIRBY DRIVE, SUITE 300
HOUSTON, TEXAS 77054
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 11, 2004
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Stockholders
(the "Annual Meeting") of Sharps Compliance Corp., a Delaware corporation (the
"Company"), will be held on Thursday, November 11, 2004 at 10:00 a.m. local time
at The Doubletree Hotel, 2001 Post Oak Boulevard, Houston, Texas, for the
purpose of considering and voting upon the following:
(1) the election of five directors to hold office until the next Annual
Meeting of Stockholders or until the election and qualification of their
respective successors; and
(2) such other business as properly may come before the Annual Meeting
or any adjournment(s) thereof. The Board of Directors is presently unaware of
any other business to be presented to a vote of the stockholders at the Annual
Meeting.
The Board of Directors has fixed September 24, 2004 as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting or any adjournment(s) or postponement(s)
thereof. Only stockholders of record at the close of business on the Record Date
are entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed. A list of stockholders entitled to vote at the Annual
Meeting will be available for examination at the offices of the Company for ten
days prior to the Annual Meeting.
By Order of the Board of Directors
----------------------------------
David P. Tusa
Corporate Secretary
Houston, Texas
October 8, 2004
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED
TO PROMPTLY MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED,
SELF-ADDRESSED, STAMPED ENVELOPE SO THAT YOUR SHARES OF STOCK MAY BE REPRESENTED
AND VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED AT THE ANNUAL MEETING. YOUR PROXY WILL BE RETURNED TO YOU
IF YOU SHOULD BE PRESENT AT THE ANNUAL MEETING AND SHOULD REQUEST SUCH RETURN OR
IF YOU SHOULD REQUEST SUCH RETURN IN THE MANNER PROVIDED FOR REVOCATION OF
PROXIES ON THE INITIAL PAGES OF THE ENCLOSED PROXY STATEMENT. PROMPT RESPONSE BY
OUR STOCKHOLDERS WILL REDUCE THE TIME AND EXPENSE OF SOLICITATION.
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SHARPS COMPLIANCE CORP.
9350 KIRBY DRIVE, SUITE 300
HOUSTON, TEXAS 77054
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 11, 2004
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement (the "Proxy Statement") and the accompanying
materials are furnished in connection with the solicitation of proxies by the
Board of Directors of Sharps Compliance Corp., a Delaware corporation (the
"Company"), to be used at the Annual Meeting of Stockholders of the Company to
be held on November 11, 2004 (the "Annual Meeting") at the time and place and
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders and adjournment(s) or postponement(s) thereof.
The accompanying proxy is designed to permit each holder of the
Company's common stock, par value $0.01 per share (the "Common Stock"), to vote
for or withhold voting for the nominees for election as directors of the Company
set forth under the Proposals, and to authorize the proxies to vote in their
discretion with respect to any other proposal brought before the Annual Meeting.
When a stockholder's executed proxy card specifies a choice with respect to a
voting matter, the shares will be voted accordingly. If no such specifications
are made, the Proxies for the Common Stock will be voted by those persons named
in the Proxies at the Annual Meeting FOR the election of the nominees specified
under the caption "Election of Directors". If any other matters properly come
before the Annual Meeting, the Proxies will vote upon such matters according to
their judgment.
The Company encourages the personal attendance of its stockholders at
the Annual Meeting, and execution of the accompanying proxy will not affect a
stockholder's right to attend the Annual Meeting and to vote his or her shares
in person. Any stockholder giving a proxy has the right to revoke it by giving
written notice of revocation to David P. Tusa, Corporate Secretary, Sharps
Compliance Corp., at the Company's executive office, 9350 Kirby Drive, Suite
300, Houston, Texas 77054, at any time before the proxy is voted, by executing
and delivering a later-dated proxy, or by attending the Annual Meeting and
voting his or her shares in person. No such notice of revocation or later-dated
proxy will be effective, however, until received by the Company at or prior to
the Annual Meeting. Such revocation will not affect a vote on any matters taken
prior to the receipt of such revocation. Mere attendance at the Annual Meeting
will not of itself revoke the proxy.
All expenses of the Company in connection with the solicitation will be
borne by the Company. In addition to the solicitation of proxies by use of the
mail, officers, directors and regular employees of the Company may solicit the
return of proxies by personal interview, mail, telephone and/or facsimile. Such
persons will not be additionally compensated, but will be reimbursed for
out-of-pocket expenses. The Company also will request brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of shares held of record by such persons and will reimburse
such persons and their transfer agents for their reasonable out-of-pocket
expense in forwarding such material.
This Proxy Statement, Proxy Card and the Company's Annual Report
covering the Company's fiscal year ended June 30, 2004, including audited
financial statements, are being mailed to the stockholders of the Company on or
about October 8, 2004.
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The date of this Proxy Statement is October 8, 2004.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report for the fiscal year ended June 30, 2004 is
incorporated by reference in this Proxy Statement. A copy of such Annual Report
is enclosed with this Proxy Statement. In the event this Proxy Statement was
delivered without a copy of such Annual Report, the Company will, upon written
or oral request, provide within one business day of such request without charge,
a copy of such Annual Report (other than exhibits to such document, unless such
exhibits are specifically incorporated by reference into such document).
Requests should be directed to Sharps Compliance Corp., 9350 Kirby Drive, Suite
300, Houston, Texas 77054, Attention: David P. Tusa, Senior Vice President and
Chief Financial Officer, telephone (713) 660-3514.
INDEPENDENT PUBLIC ACCOUNTANTS
Mann Frankfort Stein & Lipp has been engaged by the Board of Directors
of the Company as independent public accountants for the Company and its
subsidiaries since January 8, 2002. Management expects that a representative of
Mann Frankfort Stein & Lipp will be present at the Annual Meeting to make a
statement if he or she desires to do so and to be available to answer
appropriate questions posed by stockholders.
The Company's independent public accountant has not directly or
indirectly operated or supervised the Company's information system or local area
network. Additionally, the Company's independent public accountant has not
designed or implemented hardware or software used by the Company to prepare the
Company's financial statement information.
AUDIT FEES
The aggregate fees billed to the Company by its independent public
accountants for audit services including the quarterly reviews were $50,109 and
$50,435 for the fiscal years ended June 30, 2004 and 2003, respectively.
AUDIT - RELATED FEES
The aggregate fees billed to the Company by its independent public
accountants for audit-related services were $-0- and $12,877 for the fiscal
years ended June 30, 2004 and 2003, respectively.
TAX FEES
The aggregate fees billed to the Company by its independent public
accountants for tax related services were $-0- and $22,312 for the fiscal years
ended June 30, 2004 and 2003, respectively.
During the fiscal year 2004, the Company was billed $6,627 for state
and local tax services by a firm other than its independent public accountants.
ALL OTHER FEES
There were no fees billed to the Company by its independent public
accountants for other services for the fiscal years ended June 30, 2004 and
2003, respectively.
6
ADDITIONAL INFORMATION
The audit committee's pre-approval policies and procedures are
described in the Company's Audit Committee Charter which is included in Annex A.
All of the above noted services performed by the Company's independent
public accountants were approved in compliance with the Company's Audit
Committee Charter. All of the hours expended by the Company's independent public
accountants during the audit engagements noted above were performed by the
accounting firm's full-time permanent employees.
The Board of Directors has adopted corporate governance guidelines that
provide that security holders of the Company and other interested parties may
communicate with one or more of the Company's directors by mail in care of:
David P. Tusa, Secretary, Sharps Compliance Corp., 9350 Kirby Dr., Suite 300,
Houston, Texas 77054. Such communications should specify the intended recipient
or recipients. All such communications, other than unsolicited commercial
solicitations, will be forwarded to the appropriate director or directors for
review.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
GENERAL
The Board has fixed the close of business on September 24, 2004 as the
record date (the "Record Date") for the Annual Meeting. Only holders of record
of the outstanding shares of Common Stock at the close of business on the Record
Date are entitled to notice of and to vote at the Annual Meeting and any
adjournment(s) thereof. At the close of business on September 24, 2004, there
were 10,538,144 shares of Common Stock outstanding and entitled to be voted at
the Annual Meeting. The Common Stock is the only class of stock entitled to vote
at the Annual Meeting. Each share of Common Stock is entitled to one vote on
each matter presented to the stockholders. Cumulative voting is not permitted by
Common Stock shareholders of the Company.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the total shares
of Common Stock issued and outstanding at the close of business on the Record
Date is necessary to constitute a quorum for transaction of business at the
Annual Meeting. Assuming the existence of a quorum, the affirmative vote of a
plurality of the shares of Common Stock present, either in person or represented
by proxy, and entitled to vote at the Annual Meeting is required to elect
directors, and the affirmative vote of a majority of the shares of Common Stock
present, either in person or represented by proxy, and entitled to vote at the
Annual Meeting is required to decide any other questions brought before such
meeting, unless the question is one upon which, by express provision of a
statute or the certificate of incorporation of the Company, a different vote is
required, in which case such express provision shall govern and control the
decision in question. If a quorum is not present in person or by proxy, the
Annual Meeting may be adjourned until a quorum is obtained.
Abstentions are counted toward the calculation of a quorum and will
have the same effect as a vote against a proposal. Broker non-votes will be
counted toward the calculation of a quorum but will have no effect on the voting
outcome of a proposal.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table and notes thereto set forth certain information
with respect to the shares of Common Stock beneficially owned by (i) each
director and nominee for director of the Company, (ii) all executive officers of
the Company, including those listed in the Summary Compensation Table set forth
under the caption "Executive Compensation" below, (iii) all directors and
executive officers of the Company as a group and (iv) each person known by the
Company to be the beneficial owner of 5% or more of the outstanding Common
Stock, as of the Record Date:
COMMON STOCK
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PERCENT OF
AMOUNT AND NATURE OF CLASS
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OWNED BENEFICIALLY (2)
------------------------ ---------------------- ----------------------------
DIRECTORS:
Dr. Burton J. Kunik (3) 2,720,333(4) 25.81%
C. Lee Cooke, Jr. 126,147(5) 1.20%
Ramsay Gillman 390,824(6) 3.71%
Parris H. Holmes, Jr. (7) 1,272,066(8) 12.07%
F. Gardner Parker 76,654(9) *
Philip C. Zerrillo 126,650(10) 1.20%
OFFICERS:
David P. Tusa 280,000(11) 2.66%
Michael D. Archer 33,000(12) *
OTHERS:
John W. Dalton(13) 1,370,000 (14) 13.0%
Herb Schneider (15) 800,000 7.59%
New Century Equity Holdings Corp.
375,000 3.56%
All executive officers and 4,992,674 (16) 47.38%
directors as a group (9
individuals)
* Represents less than 1% of the issued and outstanding shares of Common Stock.
(1) Each of the persons named in the table has sole voting and investment power
with respect to the shares reported, subject to community property laws
where applicable and the information contained in this table and these
notes.
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(2) The percentages indicated are based on outstanding stock options
exercisable within 60 days for each individual and 10,538,144 shares of
Common Stock issued and outstanding on the Record Date.
(3) Dr. Kunik's address is 9350 Kirby Drive, Suite 300, Houston, Texas 77054.
(4) Includes 148,333 shares that Dr. Kunik has the right to acquire upon the
exercise of stock options.
(5) Represents the 126,147 shares that Mr. Cooke has the right to acquire upon
the exercise of stock options.
(6) Includes 18,324 shares that Mr. Gillman has the right to acquire upon the
exercise of stock options.
(7) Mr. Holmes address is 10101 P.O. Box 461127, San Antonio, Texas 78246.
(8) Includes 316,620 shares that Mr. Holmes has the right to acquire upon the
exercise of stock options, and 9,500 shares owned by Mr. Holmes' wife.
(9) Includes 26,654 shares that Mr. Parker has the right to acquire upon
exercise of stock options.
(10) Includes 81,650 shares that Dr. Zerrillo has the right to acquire upon the
exercise of stock options.
(11) Includes 255,000 shares that Mr. Tusa has the right to acquire upon the
exercise of stock options.
(12) Includes 33,000 shares that Mr. Archer has the right to acquire upon the
exercise of stock options.
(13) Mr. Dalton's address is 9258 Elizabeth, Houston, Texas 77055.
(14) Includes 270,000 shares that Mr. Dalton has the right to acquire upon the
exercise of stock options. This amount does not include 272,000 shares
owned by Mr. Dalton's adult children, of which Mr. Dalton disclaims
beneficial ownership.
(15) Mr. Schneider's address is 4027 Sunridge Road, Pebble Beach, California
93953.
(16) Includes 1,122,362 shares that all directors and executive officers have
the right to acquire upon the exercise of stock options.
ITEM 1
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company provide that the Board of Directors shall
consist of not fewer than three nor more than fifteen members and that the
number of directors, within such limits, shall be determined by resolution of
the Board of Directors at any meeting or by the stockholders at the Annual
Meeting. The Board of Directors of the Company has set the number of directors
comprising the Board of Directors at five.
The Board of Directors has nominated for director the individuals named
below to be elected at the Annual Meeting. Each of the nominees has agreed to
stand for election as a director of the Company, to serve until the 2005 Annual
Meeting or until their respective successors have been duly elected and
qualified.
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The table below sets forth the names and ages of the nominees for
director and the year each nominee first became a director of the Company. Each
of the nominees is presently serving as a director of the Company. Biographical
information on the nominees is set forth below under "Management."
YEAR FIRST BECAME A
NAME AND AGE DIRECTOR OF THE COMPANY
Ramsay Gillman (60) 2002
Parris H. Holmes, Jr. (60) 1998
Dr. Burton J. Kunik (66) 1998
F. Gardner Parker (62) 2003
Philip C. Zerrillo (46) 1999
Unless otherwise indicated on any duly executed and dated proxy, the
persons named in the enclosed proxy intend to vote the shares that it represents
for the election of the nominees listed in the table above for the term
specified. Although the Company does not anticipate that the above-named
nominees will refuse or be unable to accept or serve as directors of the Company
for the term specified, the persons named in the enclosed form of proxy intend,
if either of such nominees is unable or unwilling to serve as a director, to
vote the shares represented by the proxy for the election of such other person
as may be nominated or designated by management, unless they are directed by the
proxy to do otherwise.
Assuming the presence of a quorum, the affirmative vote of the holders
of a plurality of the shares of Common Stock, represented in person or by proxy
at the Annual Meeting, is required for the election of directors. Assuming the
receipt by each such nominee of the affirmative vote of at least a plurality of
the shares of Common Stock represented at the Annual Meeting, such nominees will
be elected as directors. Proxies will be voted in accordance with the
specifications marked thereon, and if no specification is made, will be voted
"FOR" the nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF EACH OF THE INDIVIDUALS NOMINATED
FOR ELECTION AS DIRECTORS.
ITEM 2
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than that described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to vote
in accordance with their best judgment on such matters.
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MANAGEMENT
Set forth below is information with respect to each director and
executive officer of the Company as of September 24, 2004. The executive
officers are elected by the Board of Directors and serve at the discretion of
the Board. There are no family relationships between any two directors or
executive officers.
NAME AGE POSITION
---------------------------------- ----------- -------------------------------------------------
DIRECTORS:
Dr. Burton J. Kunik 66 Chairman of the Board, Chief Executive Officer
and President
C. Lee Cooke, Jr. (1) (2) 60 Director
Ramsay Gillman (2) 60 Director
Parris H. Holmes, Jr. (2) 60 Director
F. Gardner Parker (1) 62 Director
Philip C. Zerrillo (1) 46 Director
OFFICERS:
David P. Tusa 44 Senior Vice President and
Chief Financial Officer
Michael D. Archer 58 Senior Vice President of Sales and Marketing
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
The following is a description of the biographies of the Company's
executive officers and directors and nominees for director for the past five
years.
Dr. Burton J. Kunik has been a director, Chairman of the Board, Chief
Executive Officer and President of the Company since July 1998. He founded
Sharps Compliance, Inc., now a wholly owned subsidiary of the Company, in May
1994 and has served as a director and Chief Executive Officer of Sharps
Compliance, Inc. since that time. Dr. Kunik has 24 years of experience as an
endodontist, including management experience of three successful start-up
companies in the medical waste and insurance industries. Previously, Dr. Kunik
spent five years with 3CI Complete Compliance Corporation, which he co-founded.
Its successor, American 3CI currently is engaged in the business of medical
waste services in the southeastern and southwestern United States. Other
previous business experience includes management roles in real estate, oil and
gas, cattle ranching and the travel industry. Dr. Kunik has been very active in
the medical waste industry for ten years. He served as Chairman of the Medical
Waste Institute in 1992 and has served on the board of the Environmental
Industry Association.
C. Lee Cooke, Jr. has been a director of the Company since March 1992.
He served as Chairman of the Board, Chief Executive Officer and President of the
Company from March 1992 until July 1998. Since 1991 he has been President and
Chief Executive Officer of Habitek International, Inc., d/b/a U.S. Medical
Systems, Inc., a biomedical company. Mr. Cooke served as Chairman of the Board
for Tanisys Technology, Inc. ("Tanisys"), a developer and marketer of
semi-conductor testing equipment from February 2002 until February 2003 and
served as Chief Executive Officer from March 2002 until February 2003. Mr. Cooke
serves as an advisory director to the Staubach Group, CTLLC, a real estate
representative company. Mr. Cooke also serves on the board of two other private
companies. Mr. Cooke was President and Chief Executive Officer of CUville, Inc.,
d/b/a Good2CU.com, from 1999 until 2000. Mr. Cooke served as Chief Executive
Officer of The Greater Austin Chamber of Commerce from 1983 to 1987. From 1972
to 1983, Mr. Cooke also served in various management roles with Texas
Instruments. From 1988 to 1991 he served in the elected position of Mayor of
Austin, Texas. Mr. Cooke has served as director of New Century Equity Holdings
Corp. ("New Century"), a publicly-held holding company focused on high growth
companies since 1996. Mr. Cooke also serves as a director of Reliability, Inc.,
a public company serving the high-tech industry.
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Ramsay Gillman has served as a director of the Company since July 2002.
He also served as the Director of the South Texas region for the National
Automobile Dealers Association (NADA) from 1989 through 1999 and was elected
President of NADA in 1997. Currently, Mr. Gillman serves as a Trustee for the
NADA Charitable Foundation and for the NADA Dealers Election Action Committee.
He has also served as President of the Houston Automobile Dealer's Association,
Vice President of the Texas Automobile Dealer's Association and was appointed
Vice Chairman of the Texas Motor Vehicle Commission from 1984 through 1987 by
the then Governor of Texas.
Parris H. Holmes, Jr. has been a director of the Company since July
1998. He previously served on the Company's Board of Directors from March 1992
until April 1996. Mr. Holmes served as Chairman of the Board and Chief Executive
Officer of New Century from May 1996 to June 2004. Mr. Holmes served as both
Chairman of the Board and Chief Executive Officer of USLD Communications Corp.,
formerly U.S. Long Distance Corp. ("USLD"), from September 1986 until August
1996, and served as Chairman of the Board of USLD until June 2, 1997. Prior to
March 1993, Mr. Holmes also served as President of USLD. Mr. Holmes was a member
of the Board of Directors of Princeton eCom Corporation ("Princeton"), a leading
provider of electronic bill presentment and payment services, from September
1998 until March 2004. Mr. Holmes served on the Board of Tanisys, but resigned
as Chairman of the Board and a Board member in January 2002.
F. Gardner Parker has been a director of the Company since February
2003. Mr. Parker has served on the board of directors of two other public
companies, Camden Property Trust and Crown Resources Corporation. Mr. Parker
serves as a director of Gillman Automobile Dealerships, Net Near U
Communications, MCS Technologies, Camp Longhorn, Inc., nii communications, inc.,
Sherwood Healthcare Inc., and Arena Power. Mr. Parker was previously with Ernst
& Ernst (now Ernst &Young LLP) for 14 years, seven of which he served as a
partner.
Philip C. Zerrillo, Ph.D., has been a director of the Company since
September 1999. Dr. Zerrillo has served as Associate Dean of The University of
Texas Graduate School of Business since September 1999 and is a member of the
faculty of The University of Texas. He has been a visiting professor at several
universities, including Thommasat University (Thailand) and Northwestern
University's J.L. Kellogg Graduate School of Management, since 1991, and is the
author of numerous published articles in the fields of distribution channel
management and business system innovation.
David P. Tusa, CPA, Senior Vice President, Chief Financial Officer and
Corporate Secretary joined the Company in February 2003. Mr. Tusa was the
Executive Vice President, Chief Financial Officer of New Century Equity Holdings
Corp. ("New Century") from August 1999 until June 2004. Prior to New Century,
Mr. Tusa was Executive Vice President and Chief Financial Officer of U.S. Legal
Support, a provider of litigation support services, during the period from
September 1997 to August 1999. Mr. Tusa also served as Senior Vice President and
Chief Financial Officer of Serv-Tech, Inc., a publicly-held provider of
specialty services to industrial customers in multiple industries, from April
1994 through August 1997. Additionally, Mr. Tusa was with CRSS, Inc., a
publicly-held diversified services company from May 1990 through April 1994. Mr.
Tusa served on the Board of Directors of Tanisys Technology, Inc., a developer
and marketer of semiconductor testing equipment from August 2001 to March 2003.
Mr. Tusa served as a member of the Board of Directors of Princeton eCom, a
leading application service provider for electronic and Internet bill
presentment and payment solutions from December 2001 to June 2002. Mr. Tusa
served as an Advisor to the Board of Directors of the Company from October 2001
to February 2003.
12
Michael D. Archer, Senior Vice President of Sales and Marketing joined
the Company in July 2003. Mr. Archer was previously the Vice President of Sales
and Marketing of Tartan Textile Services from 2001 to 2003. Mr. Archer was the
Vice President of Sales and Marketing for Heartland Information Services from
2000 to 2001 and Vice President of Sales and Marketing for Stericycle during
1999 and 2000. Additionally, Mr. Archer was a Director of Sales and Marketing
for the Healthcare division of Browning Ferris Industries from 1995 to1999.
COMMITTEES, MEETINGS AND BOARD COMPENSATION
AUDIT COMMITTEE. The Audit Committee is comprised of certain directors
who are not employees of the Company or any of its subsidiaries. Messrs.
Zerrillo, Cooke and Parker are the current members of the Audit Committee, with
Dr. Zerrillo serving as Chairman. The Company's Board has determined that Mr.
Parker is an independent director who qualifies as an audit committee accounting
expert, as that term is defined in Item 401(h) of Regulation S-K under the
Securities Act of 1933, as amended. The Audit Committee acts on behalf of the
Board of Directors with respect to the Company's financial statements,
record-keeping, auditing practices and matters relating to the Company's
independent public accountants, including recommending to the Board of Directors
the firm to be engaged as independent public accountants for the next fiscal
year; reviewing with the Company's independent public accountants the scope and
results of the audit and any related management letter; consulting with the
independent public accountants and management with regard to the Company's
independent public accountants; and reviewing the independence of the
independent public accountants. The Audit Committee also pre-approves all
services provided by the Company's independent public accountants.
THE AUDIT COMMITTEE HAS FURNISHED THE FOLLOWING REPORT. The Audit
Committee met four times during the fiscal year ended June 30, 2004. The Audit
Committee reviewed and discussed the Company's audited financial statements for
the fiscal year ended June 30, 2004 as well as the interim quarterly financial
statements, with the Company's management. The Audit Committee discussed with
the Company's independent auditors the matters required to be discussed by SAS
61. The Audit Committee has received the written disclosures and the letter from
the independent public accountants required by Independence and Standards Board
Standard No. 1, and has discussed with the independent public accountant the
independent public accountant's independence. Based on the above, the Audit
Committee recommended to the Company's Board of Directors that the audited
financial statements of the Company be included in the Company's annual report
on Form 10-KSB for the fiscal year ended June 30, 2004. The information
contained in this "Audit Committee Report" shall not be deemed to be "soliciting
material" or to be "filed" with the Commission, nor shall such information be
incorporated by reference into any future filings under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
THE AUDIT COMMITTEE: F. Gardner Parker, C. Lee Cooke, Jr., and Philip
C. Zerrillo.
COMPENSATION COMMITTEE. The Compensation Committee has furnished the
following report on the Company's executive compensation policies. This report
describes the Compensation Committee's policies applicable to the compensation
of the Company's Executive Officers and provides specific information regarding
the compensation of the Company's CEO. The information contained in this
"Compensation Committee Report on Executive Compensation" shall not be deemed to
be "soliciting material" or to be "filed" with the Commission, nor shall such
information be incorporated by reference into any future filings under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
13
The Compensation Committee currently is comprised of three outside
Directors, Messrs. Cooke (Chairman), Gillman and Holmes, and administers and
oversees all aspects of the Company's Executive Compensation Policy and reports
its determinations to the Board of Directors. The Compensation Committee's
overall goal is to develop executive compensation policies that are consistent
with, and linked to, strategic business objectives and Company values. The
Compensation Committee approves the design of, assesses the effectiveness of and
administers executive compensation programs in support of the Company's
compensation policies. The Compensation Committee also reviews and approves all
salary arrangements and other remuneration for executives, evaluates executive
performance and considers related matters.
COMPENSATION PHILOSOPHY. The Company's executive compensation policies
have four primary objectives: to attract and retain highly competent executives
to manage the Company's business, to offer executives appropriate incentives for
accomplishment of the Company's business objectives and strategy, to encourage
stock ownership by executives to enhance mutuality of interest with stockholders
and to maximize long-term stockholder value.
ELEMENTS OF COMPENSATION. The key elements of the Company's executive
compensation are base salary, annual incentive and long-term incentive. These
key elements are addressed separately below. In determining compensation, the
Compensation Committee considers all elements of an executive's total
compensation package.
BASE SALARY. Base salaries for executives are determined initially by
evaluating the executive's level of responsibility, prior experience, breadth of
knowledge, internal equity issues and external pay practices.
Increases to base salaries are driven primarily by individual
performance. Individual performance is evaluated based on sustained levels of
individual contribution to the Company. When evaluating individual performance,
the Compensation Committee considers the executive's efforts in promoting
Company values, continuing educational and management training, improving
product quality, developing relationships with customers and vendors and
demonstrating leadership abilities among co-workers.
ANNUAL INCENTIVE. Each year, the Compensation Committee evaluates the
performance of the Company as a whole, as well as the performance of each
individual executive. Factors considered include Company performance versus
expectations, as well as individual accomplishments. The Compensation Committee
does not utilize formalized mathematical formulae, nor does it assign weightings
to these factors. The Compensation Committee, in its sole discretion, determines
the amount, if any, of incentive payments to each executive. The Compensation
Committee believes that the Company's performance versus expectations and
individual accomplishments require subjectivity on the part of the Committee
when determining incentive payments.
LONG-TERM INCENTIVE. The Company's long-term compensation philosophy
provides that long-term incentives should relate to improvement in stockholder
value, thereby creating a mutuality of interests between executives and
stockholders. Additionally, the Compensation Committee believes that the
long-term security of executives is critical for the perpetuation of the
Company. Long-term incentives are provided to executives through the Company's
1993 Stock Plan, in the form of stock options and restricted stock awards.
STOCK OPTIONS. Stock options generally are granted at an option price
not less than the fair market value of the Common Stock on the date of grant.
Accordingly, stock options have value only if the price of the Common Stock
appreciates after the date the options are granted. The design focuses
executives on the creation of stockholder value over the long-term and
encourages equity ownership in the Company. The Board of Directors accepted the
Compensation Committee's recommendations made during the fiscal year ended June
30, 2004.
14
The Compensation Committee met three times during the fiscal year ended
June 30, 2004. The Board of Directors accepted the Compensation Committee's
recommendations made during the fiscal year ended June 30, 2004.
The Compensation Committee: C. Lee Cooke, Jr., Ramsay Gillman, and
Parris H. Holmes, Jr.
BOARD OF DIRECTOR AND COMMITTEE MEETINGS. The Board of Directors met
six times during the fiscal year ended June 30, 2004. During the fiscal year,
each of the directors of the Company attended at least 75% of the aggregate
meetings the Board of Directors and committees of which such director was a
member.
COMPENSATION OF DIRECTORS
MEETING FEES. The Company does not pay cash compensation to its
Directors. The Company does reimburse its directors for travel and out-of-pocket
expenses incurred in conjunction with attending Board meetings.
STOCK OPTIONS. Beginning June 2003, the Company grants annual stock
options to its non-employee Directors under the Company's 1993 Stock Plan as
follows:
o 30,000 stock options to each non-employee Director;
o an additional 20,000 stock options to the Chairman of the Audit
Committee;
o an additional 10,000 stock options to the Chairman of the Compensation
Committee; and
o an additional 10,000 stock options to the other Audit Committee
members.
In accordance with the policy, 200,000 stock options, with an exercise price of
$0.70, were granted in June 2004 to the five non-employee Directors. This grant
represents compensation for director services to be performed over the fiscal
year 2005.
15
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of the Company's Chief Executive Officer, Chief Operating Officer,
and Senior Vice President and Chief Financial Officer and Senior Vice President
of Sales and Marketing for fiscal year 2004.
SUMMARY COMPENSATION TABLE
LONG -TERM
COMPENSATION AWARDS
-----------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL COMPENSATION OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) AWARDS ($) OPTIONS (#) COMPENSATION ($)
----------------------- ---- ---------- --------- --------------- ---------- -------- ----------------
DR. BURTON J. KUNIK 2004 $200,000 - $27,988(3) - -
CHAIRMAN OF THE BOARD, 2003 $190,000 $80,000 $30,717(4) - 250,000 -
PRESIDENT AND CHIEF 2002 $180,000 $58,950 - - 45,000 -
EXECUTIVE OFFICER
RONALD E. PIERCE (1) 2004 $191,088 - $8,241(5) - 100,000 -
CHIEF OPERATING OFFICER 2003 $136,659 - $7,740(5) - 400,000
DAVID P. TUSA (2) 2004 $173,750 - - - 150,000 -
SR. VICE PRESIDENT AND 2003 (6) - - - 150,000
CHIEF FINANCIAL OFFICER $40,000
MICHAEL D. ARCHER 2004 - $9,402(5) - 150,000 -
Sr. Vice President $142,008
Sales and Marketing
(1) Mr. Pierce's employment contract was not renewed on June 14, 2004,
therefore Mr. Pierce's employment with the Company terminated on July 14,
2004.
(2) Mr. Tusa's salary was paid to New Century via a salary allocation
agreement.
(3) Amount represents $19,440 in Company paid medical-related insurance
premiums and $8,548 in Company paid vehicle-related expenses.
(4) Amount represents $20,043 in Company paid medical-related insurance
premiums and $10,674 in Company paid vehicle-related expenses.
(5) Amount represents Company paid medical-related insurance premiums.
(6) This amount includes a salary allocation of $147,500 and benefits
reimbursement of $26,250.
STOCK OPTION GRANTS IN FISCAL 2004
The following table provides certain information related to options
granted to the named executive officers during fiscal 2004 pursuant to the 1993
Stock Plan. The Company has never granted stock appreciation rights.
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR
UNDERLYING OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL 2004 ($/SH) DATE
---------------------- ------------------------- -------------------------- ----------------- -------------
Ronald E. Pierce 100,000 8.56% $0.84 07/14/2010
David P. Tusa 150,000 12.84% $0.84 07/14/2010
Michael D. Archer 150,000 12.84% $0.70 06/28/2011
16
AGGREGATED OPTION EXERCISES IN FISCAL 2004 AND FISCAL YEAR-END OPTION VALUES
There were no option exercises by the named executive officers during
the 2004 fiscal year. The following table provides the number and value of
options held at fiscal year end. The Company does not have any outstanding stock
appreciation rights.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT FY END OPTIONS AT FY END($)(1)
UPON OPTION VALUE ---------------------------- --------------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ------------- ----------- ------------ ------------- ------------ ---------------
Dr. Burton J. - N/A 173,300 181,667 - $6,650
Kunik
Ronald E. Pierce - N/A 166,634 233,366 - -
David P. Tusa - N/A 155,000 195,000 - -
Michael D. - N/A 33,000 117,000 - -
Archer
(1) Market value of the underlying securities as determined by reference to the
closing price of the Common Stock on the NASD OTC Bulletin Board on June 30,
2004 ($0.70) minus the exercise price.
EMPLOYEE BENEFIT PLANS
SHARPS COMPLIANCE CORP. 1993 STOCK PLAN
General. Effective November 16, 1993, the stockholders of the Company
approved the Stock Plan. Under the Stock Plan, (a) employees of the Company and
any subsidiary of the Company may be awarded incentive stock options ("ISOs"),
as defined in Section 422A(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (b) employees, consultants and affiliates or any other person
or entity, as determined by the Administrator to be in the best interests of the
Company, may be granted (i) stock options which do not qualify as ISOs
("Non-qualified Options"), (ii) awards of stock in the Company ("Awards"), (iii)
stock appreciation rights ("SARs") in conjunction with, or independently of,
options granted thereunder, (iv) performance awards in the form of units
("Units") representing phantom shares of stock, (v) non-employee director
options and (vi) opportunities to make direct purchases of stock in the Company
("Purchases"). ISOs and Non-qualified Options are collectively referred to as
"Options," and together with Awards, SARs, Units, Purchases and non-employee
director options are collectively referred to as "Stock Rights."
Shares Subject to the Stock Plan. The Stock Plan authorizes the
issuance of up to 3,000,000 shares. At September 24, 2004, options to purchase
2,326,390 shares had been granted under the Stock Plan. If any Stock Right
granted under the Stock Plan terminates, expires or is surrendered, new Stock
Rights may thereafter be granted covering such shares.
Administration. The Stock Plan is administered by the Board of
Directors (the "Administrator"). Subject to the terms of the Stock Plan, the
Administrator has the authority to determine the persons to whom Stock Rights
(except non-employee director options) shall be granted, the number of shares
covered by each such grant, the exercise or purchase price per share, the time
or times at which Stock Rights shall be granted, whether each option granted
shall be an ISO or a Non-qualified Option, whether restrictions such as
repurchase options are to be imposed on shares subject to Stock Rights and the
nature of such restrictions, if any. The interpretation or construction by the
Administrator of the Stock Plan or with respect to any Stock Rights granted
thereunder shall, unless otherwise determined by the Board of Directors, be
final. The option price for ISOs may not be less than 100% of the fair market
value of the Common Stock on the date of grant, or 110% of the fair market value
with respect to any ISO issued to a holder of 10% or more of the Company's
shares. There is no price requirement for Non-qualified Stock Options. In no
event may the aggregate fair market value (determined on the date of the grant
of an ISO) of Common Stock for which ISOs granted to any employee under the
Stock Plan are exercisable for the first time by such employee during any
calendar year exceed $100,000. The Stock Plan further directs the Administrator
to set forth provisions in Option agreements regarding the exercise and
expiration of Options according to stated criteria. The Administrator oversees
the methods of exercise of Options, with attention being given to compliance
with appropriate securities laws and regulations. The Stock Plan permits the use
of already owned Common Stock as payment for the exercise price of Stock Rights.
17
Eligibility for Granting of Stock Rights. ISOs may be granted under the
Stock Plan only to employees of the Company. Non-qualified Options, SARs and
Units may be granted to any officer, employee, consultant or affiliate of the
Company, or any other person or entity, as determined by the Administrator to be
in the best interests of the Company.
Awards. Restricted stock awards may be granted under the Stock Plan at
the discretion of the Administrator. The grantee purchases the number of shares
subject to the Award, usually for a nominal price such as the par value. The
shares, however, are held in escrow and may not be sold until they are vested in
accordance with the terms of the grant, such as continued employment for a
specific period of time, accomplishment by the Company of certain goals, or a
combination of criteria. Upon termination of the Award, all unvested shares are
repurchased by the Company for the same nominal purchase price originally paid
for the stock. As of September 24, 2004 the Company had not granted any Awards
under the Stock Plan.
Stock Appreciation Rights. Options (except non-employee director
options) granted under the Stock Plan may be granted in tandem with SARs
("tandem SARs") or independently of and not in tandem with an Option ("naked
SARs"). SARs will become exercisable at such time or times, and on such
conditions, as specified in the grant. Any tandem SAR granted with an ISO may be
granted only at the date of grant of such ISO. Any tandem SAR granted with a
Non-qualified Option may be granted either at or after the time such Option is
granted. As of September 24, 2004, the Company had not granted any SARs under
the Stock Plan.
A tandem SAR is the right of an optionee, without payment to the
Company (except for applicable withholding taxes), to receive the excess of the
fair market value per share on the date which such SAR is exercised over the
option price per share as provided in the related underlying Option. A tandem
SAR granted with an Option shall pertain to, and be exercised only in
conjunction with, the related underlying Option granted under the Stock Plan and
shall be exercisable and exercised only to the extent that the underlying Option
is exercisable. The tandem SAR shall become either fully or partially
non-exercisable and shall then be fully or partially unexercisable and fully or
partially forfeited if the exercisable portion, or any part thereof, of the
underlying Option is exercised, and vice versa.
A naked SAR may be granted irrespective of whether the recipient holds,
is being granted or has been granted any Options under any stock plan of the
Company. A naked SAR may be granted irrespective of whether the recipient holds,
is being granted or has been granted any tandem SARs. A naked SAR may be made
exercisable without regard to the exercisability of any Option.
Units. The Stock Plan provides that performance awards in the form of
Units may be granted either independently of or in tandem with a Stock Right,
except that such Units shall not be granted in tandem with ISOs. Units granted
shall be based on various performance factors and have such other terms and
conditions at the discretion of the Administrator. As of September 24, 2004, the
Company had not granted any Units under the Stock Plan.
18
Termination and Amendment of the Stock Plan. The Board of Directors may
terminate or amend the Stock Plan in any respect or at any time, except that no
amendment requiring stockholder approval under the provisions of the Code and
related regulations relating to ISOs or under Rule16b-3 will be effective
without approval of stockholders as required and within the times set by such
rules.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Dr. Burton J.
Kunik on December 11, 2002 and (effective January 1, 2003). This agreement
provides for a two-year term, unless terminated as provided therein, an annual
salary of $200,000 and an incentive bonus at the discretion of the Compensation
Committee. In conjunction with the execution of the Agreement in December 2002,
Mr. Kunik received a cash bonus in the amount of $80,000.
The employment agreement with Dr. Kunik provides that if he is
terminated without "cause" (as defined in the employment agreement) or if he
resigns his employment for "good reason" (as defined in the employment
agreement), he will be entitled to, at his election, either (i) a lump-sum
payment in the amount equal to his base salary for the unexpired term of the
agreement or (ii) continuation of his base salary and benefits through the
unexpired term of the employment agreement.
Dr. Kunik's employment agreement is subject to early termination as
provided therein, including termination by the Company for "cause" (as defined
in the employment agreement) or termination by the employee for "good reason"
(as defined in the employment agreement). The employment agreement also provides
that if, at any time within 12 months of a change of control (as defined), the
employee ceases to be an employee by reason of (i) termination by the employer
without "cause" (as defined in the employment agreement) or (ii) voluntary
termination by the employee for "good reason upon change of control" (as defined
in the employment agreement), in addition to the severance stated above, he
shall receive an additional payment that, when added to all other payments
received in connection with a change of control, will result in the maximum
amount allowed to be paid to an employee without triggering an excess parachute
payment (as defined by the Internal Revenue Code), and all benefits (as defined
by the employment agreement) shall continue throughout the remainder of the term
of the agreement. In the event the employer is merged or acquires a company in a
field outside of the current product alignment, the employer and the employee
could consider the assignment of existing product lines and technology to the
employee or his assignee as part of or in lieu of the above severance pay.
On June 14, 2004, the Company provided Mr. Ronald E. Pierce, its then
current Chief Operating Officer ("Mr. Pierce"), with notice of non-renewal of
his employment agreement. As such, July 14, 2004 was Mr. Pierce's last day of
employment the Company has advised Mr. Pierce that under the terms of the
employment contract no further compensation (including services) was due. The
Company then received various letters from Mr. Pierce's attorney advising that
Mr. Pierce is taking the position that the non-renewal of the employment
agreement was not timely and, therefore, Mr. Pierce was terminated without
cause. Additionally, Mr. Pierce claims that the Company had no right to
terminate him on the anniversary date of his Agreement without the obligation of
paying Mr. Pierce as if he were terminated without cause. Mr. Pierce has
demanded severance related payments totaling approximately $280,000 (including a
$80,000 bonus) along with the full accelerated vesting of 500,000 stock options
previously awarded to Mr. Pierce. The Company believes that notice of such
non-renewal was timely, and that in accordance with Mr. Pierce's employment
agreement, the company was entitled to provide notice thirty (30) days prior to
the anniversary of its intent to terminate the agreement, and no severance would
therefore be due to Mr. Pierce. On July 30, 2004, the Company received notice
from Mr. Pierce's attorney requesting commencement of arbitration to resolve the
claim. The Company believes it has meritorious defenses against Mr. Pierce's
claims and has not recorded a liability related to this matter.
19
The Company originally entered into an employment agreement with its
Senior Vice President and Chief Financial Officer, David P. Tusa on July 14,
2003. The employment agreement was automatically renewed on July 14, 2004. The
agreement expires one year from its effective date, subject to automatic annual
extensions, unless the Company notifies employee of its intent to terminate the
employment agreement at least thirty (30) days prior to the anniversary date.
The employment agreement further provides that if the Company terminates the
employment without cause during the term, Mr. Tusa would be entitled to nine
month's salary, plus a pro-rata portion of any earned bonus. Additionally, Mr.
Tusa would be entitled to continuation of benefits until the earlier of the end
of the severance period or employment with another organization. Mr. Tusa is
also entitled to participate in a Board of Director approved incentive
compensation plan.
The Company originally entered into an employment agreement with its
Senior Vice President of Sales and Marketing, Michael D. Archer on July 14,
2003. The employment agreement was automatically renewed on July 14, 2004. The
agreement expires one year from its effective date, subject to automatic annual
extensions, unless the Company notifies employee of its intent to terminate the
employment agreement at least thirty (30) days prior to the anniversary date.
The employment agreement further provides that if the Company terminates the
employment without cause during the term, Mr. Archer would be entitled to six
month's salary, plus a pro-rata portion of any earned bonus. Additionally, Mr.
Archer would be entitled to continuation of benefits until the earlier of the
end of the severance period or employment with another organization. Mr. Archer
is also entitled to participate in a Board of Director approved incentive
compensation plan.
As stated above, one of the issues in the Company's dispute with Mr.
Pierce is whether the Company's decisions not to renew his contract and
terminate same constitutes a termination without cause. If the arbitrators
disagree with the Company's position, and determines that termination of the
contract upon the anniversary date is the same as termination without cause
during the term, then Mr. Tusa and Mr. Archer who have similar provisions in
each of their respective employee agreements would likewise be entitled to such
severance compensation if, in the future, it was determined that either or both
of them was terminated in the same manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Burton J. Kunik, a director of the Company and nominee for
election as a director of the Company, Chairman of the Board, Chief Executive
Officer and President of the Company, owns 2,572,000 shares of Common Stock of
the Company and holds options to acquire 330,000 additional shares of Common
Stock of the Company. Parris H. Holmes, Jr., a director of the Company, a
nominee for election as a director of the Company beneficially owns 955,446
shares of Common Stock of the Company and beneficially holds options to acquire
414,902 additional shares of Common Stock of the Company. John W. Dalton owns
1,100,000 shares of Common Stock of the Company and holds options to acquire
270,000 additional shares of Common Stock of the Company. Mr. Dalton was issued
125,000 fully vested non-Stock Plan options with an exercise price of $0.80 per
share, for services performed in conjunction with the September 24, 2003 Private
Placement of 625,000 common shares of the Company.
The Chief Financial Officer ("CFO") of the Company served as the CFO of
New Century from August 1999 thru June 2004, a 3.56% shareholder in the Company.
The Company reimbursed New Century for certain expenses incurred by the CFO
including a portion of the CFO's salary and benefits. The Company also
reimbursed New Century for temporary living and relocation expenses incurred by
Mr. Tusa. At June 30, 2004, $8,987 was payable by the Company to New Century for
the unpaid portion of the above noted expenses. Such amount was paid to New
Century in July 2004.
20
On September 24, 2003, the Company completed a Private Placement of
625,000 shares of common stock at a price of $0.80 per share. Certain members of
the Board of Directors of the Company participated in the financing as follows:
(i) Ramsay Gillman (150,000 shares), (ii) Parris H. Holmes, Jr. (62,500 shares),
(iii) F. Gardner Parker (50,000 shares) and (iv) Philip C. Zerrillo (5,000
shares).
SECTION 16(A) REPORTING
Paragraph 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's directors, executive officers and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities file with the Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and greater than 10% stockholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on a review of the copies of
the Section 16(a) reports furnished to the Company during the fiscal year ended
June 30, 2004, all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than 10% beneficial owners were
complied with.
STOCKHOLDERS' PROPOSALS FOR 2005 ANNUAL MEETING
Any proposals of holders of Common Stock intended to be presented
pursuant to Rule 14a-8 under the Exchange Act ("Rule 14a-8") at the Annual
Meeting of Stockholders to be held in 2005 must be received by the Company,
addressed to the Corporate Secretary of the Company at 9350 Kirby Drive, Suite
300, Houston, Texas 77054, by June 7, 2005 to be considered for inclusion in the
Company's proxy statement and form of proxy related to such meeting. After June
7, 2005, notice to the Company of a stockholder proposal submitted otherwise
than pursuant to Rule 14a-8 will be considered untimely, and the person named in
proxies solicited by the Board of Directors of the Company for its 2005 Annual
Meeting of Stockholders may exercise discretionary authority voting power with
respect to any such proposal as to which the Company does not receive timely
notice.
OTHER MATTERS
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than those described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying Proxy Card to vote
in accordance with their best judgment on such matters.
21
EXPENSES OF SOLICITATION
The cost of preparing, assembling and mailing this proxy-soliciting
material is paid by the Company. In addition to solicitation by mail, the
Company's directors, officers and employees may solicit proxies by telephone or
other means of communication. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries that hold the voting
securities of record, for the forwarding of solicitation materials to be
beneficial owners thereof. The Company will reimburse such brokers, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith.
By order of the Board of Directors
/S/
-----------------------------------
David P. Tusa
Corporate Secretary
Houston, Texas
October 8, 2004
22
-----------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO
NOT EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE
URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY OR PROXIES IN THE
SELF-ADDRESSED ENVELOPE.
23
ANNEX A
SHARPS COMPLIANCE CORP.
AUDIT COMMITTEE CHARTER
1. MEMBERS. The Board of Directors of Sharps Compliance Corp. ("Sharps" or
"the Company") shall appoint an Audit Committee of at least three members,
consisting entirely of independent directors of the Board, and shall designate
one member as chairperson or delegate the authority to designate a chairperson
to the Audit Committee. Members of the Audit Committee shall be appointed by the
Board of Directors of the Company. For purposes hereof, the term "independent"
shall mean a director who meets the independence requirements of the Securities
and Exchange Commission ("SEC").
Each member of the Audit Committee must be financially literate and at
least one member must have accounting or related financial management expertise,
as determined by the Board. In addition, at least one member of the Audit
Committee shall be an "audit committee financial expert," as determined by the
Board in accordance with the then effective SEC rules and regulations.
2. PURPOSES, DUTIES, AND RESPONSIBILITIES.
The purposes of the Audit Committee shall be to:
o represent and assist the Board of Directors in discharging
its oversight responsibility relating to: (i) the
accounting, reporting, and financial practices of the
Company and its subsidiaries, including the integrity of the
Company's financial statements; (ii) the surveillance of
administration and financial controls and the Company's
compliance with legal and regulatory requirements; (iii) the
outside auditor's qualifications and independence; and (iv)
the performance of the Company's outside auditor; and
o review the report required by the rules of the SEC to be
included in the Company's annual proxy statement.
Among its specific duties and responsibilities, the Audit Committee shall:
(i) Be directly responsible, in its capacity as a committee
of the Board, for the appointment, compensation and
oversight of the work of the outside auditor. In this
regard, the Audit Committee shall appoint and retain,
compensate, evaluate, and terminate, when appropriate,
the outside auditor, which shall report directly to the
Audit Committee.
(ii) Obtain and review, at least annually, a report by the
outside auditor describing: the outside auditor's
internal quality-control procedures; and any material
issues raised by the most recent internal
quality-control review, or peer review, 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 outside auditing firm, and any steps
taken to deal with any such issues.
(iii) Approve in advance all audit services to be provided
by the outside auditor. By approving the audit
engagement, an audit service within the scope of the
engagement shall be deemed to have been pre-approved.
24
(iv) Establish policies and procedures for the engagement of
the outside auditor to provide audit and permissible
non-audit services, which shall include pre-approval of
all permissible non-audit services to be provided by
the outside auditor. (v) Consider, at least annually,
the independence of the outside auditor, including
whether the outside auditor's performance of
permissible non-audit services is compatible with the
auditor's independence, and obtain and review a report
by the outside auditor describing any relationships
between the outside auditor and the Company or any
other relationships that may adversely affect the
independence of the auditor.
(vi) Review and discuss with the outside auditor: (A) the
scope of the audit, the results of the annual audit
examination by the auditor, and any difficulties the
auditor encountered in the course of their audit work,
including any restrictions on the scope of the outside
auditor's activities or on access to requested
information, and any significant disagreements with
management; and (B) any reports of the outside auditor
with respect to interim periods.]
(vii) Review and discuss with management and the outside
auditor the annual audited and quarterly reviewed
financial statements of the Company, including: (A) an
analysis of the auditor's judgment as to the quality of
the Company's accounting principles, setting forth
significant financial reporting issues and judgments
made in connection with the preparation of the
financial statements; (B) the Company's disclosures
under "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"
including accounting policies that may be regarded as
critical; and (C) major issues regarding the Company's
accounting principles and financial statement
presentations, including any significant changes in the
Company's selection or application of accounting
principles and financial statement presentations; and
receive reports from the outside auditor as required by
SEC rules.
(viii) Recommend to the Board based on the review and
discussion described in paragraphs (v) - (vii) above,
whether the financial statements should be included in
the Annual Report on Form 10-KSB.
(ix) Review and discuss the adequacy and effectiveness of
the Company's internal controls, including any
significant deficiencies in internal controls and
significant changes in such controls reported to the
Audit Committee by the outside auditor or management.
(x) Review and discuss the adequacy and effectiveness of
the Company's disclosure controls and procedures and
management reports thereon.
(xi) Review and discuss with the principal internal auditor
of the Company the scope and results of the internal
audit program.
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(xii) Review and discuss corporate policies with respect to
earnings press releases, as well as financial
information and earnings guidance provided to analysts
and ratings agencies.
(xiii) Review and discuss the Company's policies with
respect to risk assessment and risk management.
(xiv) Oversee the Company's compliance systems with respect
to legal and regulatory requirements.
(xv) Establish procedures for handling complaints regarding
accounting, internal accounting controls and auditing
matters, including procedures for confidential,
anonymous submission of concerns by employees regarding
accounting and auditing matters.
(xvi) Establish policies for the hiring of employees and
former employees of the outside auditor.
(xvii) Annually evaluate the performance of the Audit
Committee and assess the adequacy of the Audit
Committee charter.
3. OUTSIDE ADVISORS. The Audit Committee shall have the authority to retain
such outside counsel, accountants, experts and other advisors as it determines
appropriate to assist it in the performance of its functions and shall receive
appropriate funding, as determined by the Audit Committee, from the Company for
payment of compensation to any such advisors.
4. MEETINGS. The Audit Committee shall meet at least four times per year,
either in person or telephonically, and at such times and places as the Audit
Committee shall determine. The Audit Committee shall meet separately in
executive session as deemed appropriate. The Audit Committee shall report
regularly to the full Board of Directors with respect to its activities. The
majority of the members of the Audit Committee shall constitute a quorum.
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