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
PERFORMANCE TECHNOLOGIES, INCORPORATED
--------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement)
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[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
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(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):
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[ ] Fee previously paid 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 No.:
(3) Filing Party:
(4) Dated Filed:
April 28, 2006
To Our Stockholders:
You are cordially invited to attend the 2006 Annual Meeting of the
Stockholders of Performance Technologies, Incorporated at our headquarters
located at 205 Indigo Creek Drive, Rochester, New York 14626, on Thursday, May
25, 2006 at 10 a.m. local time.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement. Our 2005 Annual Report, which sets forth important financial
information concerning the Company, is enclosed with this mailing.
A brief report will be made at the meeting about our performance for
the year 2005, and you will have an opportunity to ask questions of our
management.
We sincerely hope you will be able to attend the Annual Meeting, but if
you cannot do so, it is important that your shares be represented. Please sign,
date and return the proxy card in the enclosed return envelope, which requires
no postage if mailed in the United States. For some stockholders, information
regarding telephone and internet voting is included in the proxy card
instructions.
On behalf of our officers and directors, I wish to thank you for your
interest in the Company and your confidence in its future.
Very truly yours,
/s/ John M. Slusser
-----------------------
John M. Slusser
Chairman of the Board
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2006
The Annual Meeting of Stockholders (the "Meeting") of PERFORMANCE
TECHNOLOGIES, INCORPORATED (the "Company") will be held at our headquarters
located at 205 Indigo Creek Drive, Rochester, New York 14626, on Thursday, May
25, 2006 at 10 a.m., local time, for the following purposes, which are more
fully described in the accompanying Proxy Statement:
1. To elect two nominees to our Board of Directors for a three-year term.
2. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2006.
3. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
Our Board of Directors has fixed the close of business on March 29, 2006 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting.
A Proxy Statement and Proxy Card are enclosed.
By Order of the Board of Directors,
/s/ Stuart B. Meisenzahl
---------------------------
Stuart B. Meisenzahl
Secretary to the Board
Dated at Rochester, New York
April 28, 2006
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE PROMPTLY SIGN AND RETURN THE ENCLOSED PROXY CARD. FOR SOME STOCKHOLDERS,
INFORMATION REGARDING TELEPHONE AND INTERNET VOTING IS INCLUDED IN THE PROXY
CARD INSTRUCTIONS.
PERFORMANCE TECHNOLOGIES, INCORPORATED
205 Indigo Creek Drive
Rochester, New York 14626
April 28, 2006
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2006
GENERAL INFORMATION
This proxy statement is furnished to our stockholders in connection with
the solicitation of proxies by the Board of Directors of PERFORMANCE
TECHNOLOGIES, INCORPORATED (the "Company") to be used at our Annual Meeting of
Stockholders, which will be held on Thursday, May 25, 2006 (the "Meeting"), and
at any adjournments thereof. This proxy statement and accompanying form of proxy
are first being mailed to our stockholders on or about April 28, 2006. The
proxy, when properly executed and received by our Secretary prior to the
Meeting, will be voted as therein specified unless revoked by filing a written
revocation or a duly executed proxy bearing a later date with our Secretary
prior to the Meeting. A stockholder may also revoke his or her proxy in person
at the Meeting. Unless authority to vote for one or more of the director
nominees is specifically withheld, a signed proxy will be voted FOR the election
of the director nominees named herein and, unless otherwise indicated, FOR the
ratification of the selection of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2006.
The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by use of the mails, directors, officers or our regular
employees, without extra compensation, may solicit proxies personally, by
telephone, e-mail or facsimile transmission. We requested persons holding stock
for others in their names or in the names of nominees to forward soliciting
material to the beneficial owners of such shares and will, if requested,
reimburse such persons for their reasonable expenses in so doing.
VOTES REQUIRED
Stockholders may vote by mail, telephone or the Internet. For some
stockholders, information regarding telephone and Internet voting is included in
the proxy card instructions. Our total outstanding shares of capital stock as of
March 29, 2006, the record date for the Meeting (the "Record Date"), consisted
of 13,134,920 shares of Common Stock, par value $.01 per share (the "Common
Stock"). Only our holders of Common Stock of record on the books at the close of
business on the Record Date are entitled to notice of and to vote at the Meeting
and at any adjournments thereof. Each holder of Common Stock is entitled to one
vote for each share of Common Stock registered in his or her name. A majority of
the outstanding shares of Common Stock, represented in person or by proxy at the
Meeting, will constitute a quorum for the transaction of all business.
Pursuant to the provisions of the Delaware General Corporation Law,
directors shall be elected by a plurality of the votes cast by the holders of
shares of our Common Stock present in person or represented by proxy at the
Meeting and entitled to vote at the Meeting. Because directors are elected by a
plurality of the votes cast, withholding authority to vote with respect to one
or more nominees will have no effect on the outcome of the election, although
such shares would be counted as present for purposes of determining the
existence of a quorum.
The affirmative vote of a majority of the votes cast is required to
ratify the selection of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2006. Abstentions
are treated as shares present and voting, so abstaining has the same effect as a
negative vote. Regarding broker non-votes, which occur when brokers hold shares
for clients, have not received voting instructions from those clients, and do
not have discretionary authority under applicable law to vote the shares on a
particular proposal absent client instructions, such shares would be deemed
present for quorum purposes and entitled to vote for voting purposes with
respect to the proposal to ratify the selection of PricewaterhouseCoopers LLP,
because that is a proposal over which brokers have discretionary authority.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, with notes thereto, sets forth as of March 29,
2006 certain information regarding the Common Stock held by (i) persons known to
us who own beneficially more than 5% of our Common Stock, (ii) each of our
directors, (iii) each of our Named Executives and (iv) all of our directors and
executive officers as a group. Unless otherwise indicated immediately beneath
the beneficial owner's name, the address of each beneficial owner listed in the
table below is c/o Performance Technologies, Incorporated, 205 Indigo Creek
Drive, Rochester, New York 14626.
Shares Beneficially Owned
-------------------------
Name of Beneficial Amount and Nature
------------------ -----------------
Owner of Beneficial Ownership Percent of Class(1)
----- ----------------------- -------------------
Bank of America Corporation 1,494,896(2) 11.3%
1 Tryon St., Floor 25,
Bank of America Corporate Center
Charlotte, NC 28255
SunTrust Banks, Inc. 849,120(3) 6.5%
303 Peachtree Street, Suite 1500,
Atlanta, GA 30308
FMR Corp. 675,819(4) 5.1%
82 Devonshire Street
Boston, MA 02109
Charles E. Maginness 649,642(5) 4.9%
John M. Slusser 320,761(6) 2.4%
William E. Mahuson 249,960(7) 1.9%
Bernard Kozel 224,144(8) 1.7%
Dorrance W. Lamb 190,832(9) 1.4%
John J. Peters 115,302(10) *
John J. Grana 75,300(11) *
Stuart B. Meisenzahl 43,250(12) *
Robert L. Tillman 39,000(13) *
E. Mark Rajkowski 20,350(14) *
Michael P. Skarzynski - *
All Directors and Executive
Officers as a Group (11 persons) 1,928,541(15) 14.1%
-------------------------
* Less than 1%.
(1) Percentage based upon 13,134,920 shares of Common Stock outstanding as of
March 29, 2006 plus respective rights to receive shares within 60 days of
the date of record.
(2) The following information is derived from Amendment No. 6 to Schedule 13G
dated February 8, 2006 filed by Bank of America Corporation. NB Holdings
Corporation, Bank of America, NA, Columbia Management Group, LLC and
Columbia Management Advisors, LLC are the listed subsidiaries which
acquired the security being reported by the parent holding company. Bank
of America Corporation has shared dispositive power over 1,494,896 shares
and shared power to vote or to direct the voting of 1,075,958 shares. NB
Holdings Corporation has shared dispositive power over 1,494,896 shares,
and shared voting power over 1,075,958 shares. Bank of America, NA has
sole voting power over 205,658 shares, shared voting power over 870,300
shares, sole dispositive power over 232,796 shares and shared dispositive
power over 1,262,100 shares. Columbia Management Group, LLC has shared
dispositive power over 1,259,000 shares and shared voting power over
870,300 shares. Columbia Management Advisors, LLC has sole dispositive
power over 1,259,100 shares and sole voting power over 870,300 shares.
(3) The following information is derived from Amendment No. 1 to Schedule 13G
dated February 13, 2006 filed by SunTrust Banks, Inc. as parent holding
company for Trusco Capital Management and for SunTrust Bank Holding
Company as parent company for SunTrust Bank in various fiduciary
capacities. SunTrust Banks, Inc. has sole voting power over 849,120
shares and sole dispositive power over 849,120 shares.
(4) The following information is derived from Amendment No. 9 to Schedule 13G
dated January 10, 2006 filed by FMR Corp. The amount shown consists of
675,819 shares beneficially owned by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR Corp., as a result of its
acting as investment advisor to various investment companies (the
"Funds") registered under Section 8 of the Investment Company Act of
1940. Fidelity Low Priced Stock Fund, one of the investment companies,
owns 675,819 of such shares. Edward C. Johnson 3d, Chairman of FMR
Corp., and FMR Corp., through its control of Fidelity Management &
Research Company and the Funds, each has sole dispositive power with
respect to the shares owned by the Funds. Sole power to vote or direct
the voting of these shares resides with the Funds' Boards of Trustees.
(5) Includes (a) 40,000 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 93,247 shares of Common Stock
owned of record by Mr. Maginness' wife. Mr. Maginness disclaims
beneficial ownership of the shares owned by his wife. Excludes 10,000
shares of Common Stock issuable upon exercise of options not yet vested.
(6) Includes (a) 20,000 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 15,000 shares of Common Stock
owned of record by Mr. Slusser as custodian for his minor children
living in his household. Excludes 10,000 shares of Common Stock issuable
upon exercise of options not yet vested.
(7) Includes 104,000 shares of Common Stock issuable upon exercise of
options currently exercisable. Excludes 14,500 shares of Common Stock
issuable upon exercise of stock options not yet vested.
(8) Includes (a) 30,000 shares of Common Stock issuable upon exercise of
options currently exercisable and (b) 189,144 shares of Common Stock
owned of record by The Kozel Holding Company, LLC, over which Mr. Kozel
has voting and investment power. Excludes 10,000 shares of Common Stock
issuable upon exercise of options not yet vested.
(9) Includes 128,500 shares of Common Stock issuable upon exercise of options
currently exercisable. Excludes 29,000 shares of Common Stock issuable
upon exercise of options not yet vested.
(10) Includes 113,000 shares of Common Stock issuable upon exercise of options
currently exercisable. Excludes 39,000 shares of Common Stock issuable
upon exercise of stock options not yet vested.
(11) Includes (a) 73,000 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 150 shares of Common Stock owned
of record by Mr. Grana's wife as custodian for their child living in
their household. Excludes 39,000 shares of Common Stock issuable upon
exercise of options not yet vested.
(12) Includes 40,000 shares of Common Stock issuable upon exercise of options
currently exercisable. Excludes 10,000 shares of Common Stock issuable
upon exercise of options not yet vested.
(13) Includes 20,000 shares of Common Stock issuable upon exercise of options
currently exercisable. Excludes 10,000 shares of Common Stock issuable
upon exercise of options not yet vested.
(14) Includes 20,000 shares of Common Stock issuable upon exercise of options
currently exercisable. Excludes 10,000 shares of Common Stock issuable
upon exercise of options not yet vested.
(15) Includes 588,500 shares of Common Stock issuable upon exercise of stock
options currently exercisable. Excludes 181,500 shares of Common Stock
issuable upon exercise of stock options not yet vested.
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes. We currently have
seven directors, three in two classes and two in one class, a majority of whom
are independent under the Nasdaq listing standards. Terms are staggered so that
only one class is elected at each Annual Meeting of Stockholders. Each director
so elected serves for a three-year term and until his or her successor is
elected and qualified, subject to such director's earlier death, resignation or
removal.
Our Board of Directors recommends the election of the two nominees
named below, each of whom is currently a director. Our Board of Directors does
not contemplate that any of the nominees will be unable to serve as a director,
but if that should occur prior to the voting of the proxies, the persons named
in the enclosed proxy reserve the right to vote for such substitute nominee or
nominees as they, in their discretion, shall determine.
Information about the Directors
The following table sets forth certain information with respect to our
directors who are nominated for re-election at the Meeting for a three-year term
expiring in 2009.
PROPOSED FOR ELECTION AS DIRECTORS AT THE 2006 ANNUAL MEETING
FOR A THREE-YEAR TERM EXPIRING IN 2009
Director
Name and Background Since
Michael P. Skarzynski, age 49, has served as President and Chief 2005
Executive Officer since November 2005. Prior to joining Performance
Technologies, he served as a senior advisor to Hudson Abel Partners,
LLP, an investment bank in New York. For the previous six years, Mr.
Skarzynski led two ventures as CEO - Xebeo, an IP broadband switch
venture acquired by UTStarcom, Inc., and Predictive Networks, an
application service provider offering a business intelligence and
analytics overlay network. From 1992 to 1999, he held various executive
roles at AT&T, Bell Labs and Lucent Technologies. Mr. Skarzynski served
as U.S. Assistant Secretary for Trade Development in the Department of
Commerce from 1989-1991, and held business development and international
sales and marketing roles at Motorola, Inc. from 1985 to 1989. He holds a
Masters in Business Administration degree from Northwestern University
and a B.S. degree in foreign service from Georgetown University.
Robert L. Tillman, age 58, has been an independent business consultant 2003
since 2002. From 2000 to 2002, he served as General Manager in Intel's
Embedded Intel Architecture Division, where he was responsible for the
operations of Ziatech Corporation. From 1997 to 2000 he held the
position of President of Ziatech Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1
The following table sets forth certain information with respect to each
director whose term in office does not expire at the Meeting.
DIRECTORS WHOSE TERMS DO NOT EXPIRE
AT THE 2006 ANNUAL MEETING
Director
Name and Background Since
Bernard Kozel, age 84, has served as a director of the Company since 1983
1983. He is the former Chairman of the Board of J. Kozel & Son, a
Rochester, New York-based structural steel company. He is President of
K.G. Capital Corporation.
Charles E. Maginness, age 73, served as Chairman of our Board of 1983
Directors from 1986 to 2001 and served as our Chief Executive Officer
from 1995 to 1997. From 1984 through 1986, he held the position of
President and from 1984 through 1995 was also Chief Financial Officer.
From 1970 to 1983, Mr. Maginness was employed by Kayex Corporation where
he held several positions, including President and Chief Executive
Officer, and President of its Hamco Division. He is currently a partner
in Vortex LLC.
Stuart B. Meisenzahl, age 64, has served as a director of the Company 2001
since 2001. He is a former partner in the law firm of Harter, Secrest &
Emery LLP, which continues to serve as general counsel to the Company.
He was affiliated with the firm for 36 years, retiring in 1999, and he
practiced principally in the areas of federal securities law and
biotechnology licensing. Following his retirement, Mr. Meisenzahl has
acted as a business consultant to a number of biotechnology companies
and is Acting General Counsel to Vaccinex, Inc., a biotechnology
company in Rochester, New York. In addition, he has served as director
or trustee of a number of charitable organizations in Rochester, New
York.
E. Mark Rajkowski, age 47, has been Senior Vice President and Chief 2003
Financial Officer of MeadWestvaco Corporation since 2004 and has served
as director of the Company since 2003. From December 2003 to August 2004,
Mr. Rajkowski was Vice President and General Manager, Worldwide
Operations, Digital Film and Imaging Systems Business, for Eastman Kodak
Company. From January 2003 to December 2003, he held the position of
Chief Operating Officer of Kodak's Digital and Applied Imaging Division.
From 2001 to 2003, he held the position of Vice President of Finance for
Eastman Kodak and from 1998 until 2001, he held the position of
Corporate Controller for Eastman Kodak.
John M. Slusser, age 53, a founder of the Company, has served as 1981
Chairman of our Board of Directors since June 2001, as a director since
our formation in 1981 and as our Chief Strategic Officer from January
2003 to May 2005. From 1981 through 1995, he held various positions
within the Company, including President and Chief Executive Officer.
From 1995 until 2000, he served as Chairman of the Board of
InformationView Solutions Corporation and from 1995 to 1999 he served as
that company's Chief Executive Officer. Since 2000, he has served as
President of Radio Daze LLC.
CORPORATE GOVERNANCE
Committees of the Board of Directors
Our Board has a Compensation Committee to evaluate executive
compensation and to determine grants pursuant to our stock-based incentive
plans. Messrs. Maginness, Meisenzahl and Tillman currently comprise the
Compensation Committee. All members of the Compensation Committee qualify as
being "independent" under the independence standards of the Nasdaq listing
standards. For purposes of complying with Securities Exchange Act Rule 16b-3, we
have at least two non-employee directors administer our stock-based incentive
plans.
Our Board has an Audit Committee for the purpose of reviewing our
financial reporting procedures and attending to related matters, as discussed in
the committee's charter. Messrs. Meisenzahl, Rajkowski and Tillman currently
comprise the Audit Committee. The updated written charter for the Audit
Committee, which was adopted by the Board of Directors, more specifically sets
forth the duties of the Audit Committee and is attached as Appendix A. All of
the members of the Audit Committee are financially literate and qualify as being
"independent" under the independence standards of the Nasdaq listing standards
and applicable SEC rules. In addition, the Board has determined that Mr.
Rajkowski qualifies as an "audit committee financial expert" under applicable
SEC rules.
Our Board of Directors has a Nominating Committee to identify potential
candidates for nomination to our Board of Directors. The Nominating Committee
has a written charter, which is available in the Investors section of our Web
site at www.pt.com, and it specifically sets forth the duties of the Nominating
Committee. Messrs. Kozel, Maginness and Tillman currently comprise the
Nominating Committee. Each member is "independent," as independence is defined
under the Nasdaq listing standards.
The Nominating Committee believes that director candidates should have
certain minimum qualifications including the ability to read and understand
basic financial statements and each should possess the highest personal
integrity and ethics.
The Nominating Committee also considers such factors as:
o possessing relevant expertise to offer advice and guidance to
management;
o having sufficient time to devote to our affairs;
o demonstrating excellence in his or her field;
o having sound business judgment; and
o having the commitment to support the long-term interests of our
stockholders.
New candidates for director nominees are reviewed in the context of the
current composition of the Board, our operating requirements and the long-term
interests of our stockholders. In conducting this assessment, the Nominating
Committee considers diversity, maturity, skills and such other factors as it
deems appropriate given our current needs and the needs of our Board to maintain
a balance of knowledge, experience and capability. In the case of incumbent
directors whose terms of office are set to expire, the Nominating Committee
reviews such directors' overall service to us during their terms, including the
number of meetings attended, level of participation, quality of performance and
any other relationships and transactions that might impair such directors'
independence. In the case of new director candidates, the Nominating Committee
also determines whether the nominee is independent, which determination is based
upon applicable Nasdaq listing standards, applicable SEC rules and regulations
and the advice of counsel, if necessary. The Nominating Committee uses its
network of contacts to compile a list of potential candidates, but may also
engage, if it deems appropriate, a professional search firm. The Nominating
Committee conducts inquiries into the backgrounds and qualifications of possible
candidates after considering the function and needs of the Board.
The Nominating Committee meets to discuss and consider such candidates'
qualifications and then selects nominees for recommendation to the Board by
majority vote. To date, the Nominating Committee has not paid a fee to any third
party to assist in the process of identifying or evaluating director candidates.
To date, the Nominating Committee has not received, and therefore has not
rejected, a timely director nominee from a stockholder or stockholders holding
more than 5% of our voting stock.
The Nominating Committee will consider director candidates recommended
by stockholders. The Committee does not intend to alter the manner in which it
evaluates candidates, including the minimum criteria set forth above, based on
whether the candidate was recommended by a stockholder. Stockholders who wish to
recommend individuals for consideration by the Nominating Committee to become
nominees for election to the Board may do so by delivering a written
recommendation to the attention of the Nominating Committee at the address set
forth on the cover of this Proxy Statement. Submissions must include the full
name of the proposed nominee, a description of the proposed nominee's business
experience for at least the previous five years, complete biographical
information, a description of the proposed nominee's qualifications as a
director and a representation that the nominating stockholder is a beneficial or
record owner of our stock. In addition, any such submission must be accompanied
by the written consent of the proposed nominee to be named as a nominee and to
serve as a director if elected.
The Compensation Committee, Audit Committee and Nominating Committee
met four, eight and one time, respectively, in 2005. Our Board of Directors held
eleven meetings in 2005. All of the directors attended at least 75 percent of
the Board of Directors' meetings and committee meetings that required their
attendance. As required by the Nasdaq listing standards, it is the policy of the
Board of Directors that the independent members of the Board meet regularly in
executive (private) sessions at which only independent directors are present.
The independent directors select from among their number a single director to
serve as the presiding director during their executive sessions. We believe that
it is important for our directors to attend the Annual Meeting of Stockholders
and expect them to do so each year, barring unforeseen circumstances. All of our
directors attended the 2005 Annual Meeting of Stockholders.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not our employees receive
$1,000 for each meeting attended, and the secretary to the Board of Directors
receives an additional $500 for each meeting attended. Each Board member also
receives $15,000 per year if he attends at least 75 percent of the scheduled
Board of Director meetings. In addition, each committee member receives $500 for
each committee meeting attended. Annual retainers are also paid to committee
members acting in various capacities as follows: Audit Committee chairman
$5,000, Audit Committee member $2,500; Compensation Committee chairman $2,500,
Compensation Committee member $1,250; Nominating Committee chairman $1,500,
Nominating Committee member $750; Board Secretary, if non-employee, $1,000; and
Board Chairman, if outside Director, $10,000. In 2005, a Succession Committee
comprised of Messrs. Maginness, Slusser and Tillman were paid $5,000, $7,500 and
$5,000, respectively, upon the hiring of our new Chief Executive Officer in
recognition of their efforts during the search. Our 2001 Stock Option Plan
currently provides that on the day of our Annual Meeting of Stockholders, each
individual elected, re-elected or continuing as an Outside Participating
Director will automatically receive a non-statutory option for 10,000 shares of
Common Stock. The exercise price for these options will be the fair market value
of our Common Stock on the date of the option grant. Options vest on the first
anniversary of the grant date and expire five years from the date of grant. From
time to time, we may grant restricted stock or additional options to directors.
At the 2005 Annual Meeting of Stockholders, Messrs. Kozel, Maginness,
Meisenzahl, Rajkowski, Slusser and Tillman each received a non-qualified option
to purchase 10,000 shares at an exercise price of $6.78 per share.
EXECUTIVE OFFICERS
We are currently served by the following executive officers, who are
appointed annually by the Board of Directors and serve until their successors
are appointed.
Executive
Name and Background Officer Since
John J. Grana, age 50, has served as Senior Vice President of 2000
Systems Engineering since November 2005. From 2000 to 2005 he
served as Vice President of Software Engineering. From 1997 to
2000, he held the position of Vice President and General Manager
of the Controller Products Group. From 1994 to 1997, he held the
position of Vice President of Software Engineering. From 1990 to
1994, he held the position of Technical Director of the
Workstation Products business unit, and from 1986 to 1990, he
served in various engineering positions. Prior to joining the
Company, he held various engineering positions with Computer
Consoles, Inc.(now a division of Nortel Networks). Mr. Grana holds
a BS degree in computer science from Rochester Institute of
Technology.
Dorrance W. Lamb, age 58, has served as Chief Financial Officer of 1992
the Company since 1995 and as Senior Vice President since November
2005. From 1992 to 2005 he served as Vice President of Finance.
Prior to joining the Company, he was Senior Vice President for
Finance and Administration at Infodata Systems, Inc. based in Fairfax,
Virginia. Mr. Lamb is a certified public accountant and holds a BS
degree in accounting from Benjamin Franklin University.
William E. Mahuson, age 55, has served as Vice President of Business 1987
Development since November 2005. From 1987 to 2005 he served as Vice
President. From 1992 to 1995 he served as General Manager of the
UconX business unit of the Company. From 1987 to 1990, he served as
Vice President, Engineering. Prior to joining the Company, he held
various technical and technical management positions with Computer
Consoles, Inc.(now a division of Nortel Networks) and Xerox
Corporation. Mr. Mahuson holds a BS degree in electrical engineering
from Rensselaer Polytechnic Institute.
John J. Peters, age 47, has served as Chief Technical Officer and 2000
Senior Vice President of Platform Engineering since November 2005.
From 2000 to 2005, he served as Vice President of Engineering. From
1997 to 2000, he held the position of Vice President of Development,
Network Switching Products. From 1994 to 1997, he held the position
of Vice President of Hardware Engineering. From 1990 to 1994, he
served as Technical Director of the Hardware Products business unit,
and from 1986 to 1990, he served in various engineering positions.
Prior to joining the Company, he held various engineering positions
with Computer Consoles, Inc.(now a division of Nortel Networks). Mr.
Peters holds a BS degree in engineering from the Rochester Institute
of Technology.
Michael P. Skarzynski, age 49, has served as our Chief Executive 2005
Officer since November 2005. Further information about Mr. Skarzynski
is set forth under "DIRECTORS PROPOSED FOR ELECTION AT THE 2006
ANNUAL MEETING" above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors
and persons who own more than 10% of a registered class of our equity securities
to file certain reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission (the "SEC"). Such
officers, directors and 10% stockholders are also required by SEC rules to
furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of such reports furnished to us and written
representations from certain reporting persons, we believe that our executive
officers, directors and more than 10% stockholders timely filed all Section
16(a) reports required to be filed by them during the most recent fiscal year.
REPORT OF THE COMPENSATION COMMITTEE WITH RESPECT TO THE EXECUTIVE COMPENSATION
General
-------
The Compensation Committee of the Board of Directors is responsible for
setting the Company's executive compensation policy. The Committee is currently
comprised of three outside directors, Charles E. Maginness, who serves as
Chairman, Stuart B. Meisenzahl and Robert L. Tillman, all of whom are not
employees and are not eligible to participate in the executive compensation
program. All members of the Committee qualify as being "independent" under the
independence standards of the Nasdaq listing standards.
The Company's executive compensation program is designed to serve the
broader strategic goals of profitable growth and the creation of long-term
stockholder value. The program is fundamentally a pay-for-performance program
designed to:
o ensure our ability to attract and retain executives;
o strongly align the interests of our executives with those of our
stockholders; and
o provide a compensation package that balances individual
contributions and overall business results.
From time to time, the Committee selects, and when it deems appropriate
is advised by, an independent executive compensation consultant to assist in
evaluating the components of the executive compensation program. In 2005, the
Committee engaged an executive compensation consultant. The competitive analysis
developed by this firm was helpful in constructing the compensation package for
the new Chief Executive Officer and will be useful in supporting our continuing
efforts to provide a fair and equitable compensation plan.
The three key components of the executive compensation program are base
salary, short-term incentive awards (cash bonus) and long-term incentive awards
(stock-based awards).
Base Salary. Annually, the Committee assesses a number of factors in
fixing the salary of the Chief Executive Officer and for all of our executives.
The salary plan considers a number of factors including the individual's
position, job responsibilities and performance.
Annual Short-term Incentive Awards. The annual short-term incentive
awards program is intended to be variable and is directly related to the
Company's financial performance. Annual incentive goals are established for
executives and key employees at the beginning of the year. The amounts
contributed to the short-term incentive program is directly related to financial
performance.
Long-term Incentive Awards. The Committee believes that the Company's
long-term incentive awards, which are primarily stock-based compensation, align
the interest of executives and employees with that of the Company's
stockholders, as any appreciation in the price of the stock will benefit all
stockholders commensurately. Historically, stock-based compensation has
primarily been in the form of stock options. Stock options provide executives
and employees with the opportunity to purchase our Common Stock, increase their
equity in the Company and to share in the appreciation in the value of our
stock. Under our 2001 Stock Option Plan and 2003 Omnibus Incentive Plan, which
have been approved by the stockholders, the Committee may grant stock options to
executives and employees. The size of stock option awards has been based
primarily on the individual's position, job responsibilities and performance.
Stock option awards are granted at an exercise price equal to the market price
of our Common Stock on the date of grant and generally vest in up to five years.
Stock option awards generally have a term of up to ten years. The actual value
of any stock options granted will depend entirely on the extent to which our
Common Stock has appreciated in value at the time the options are exercised.
This provides an incentive for executives and employees to create wealth for the
stockholders and provides rewards in proportion to the gain received by other
stockholders. We have not repriced outstanding stock options at any time in the
past.
The Company's stock price closed at $7.18 on March 24, 2005. On March
25, 2005, the Compensation Committee amended the terms of certain stock option
award agreements by accelerating the vesting of certain employee stock options,
with an option price greater than $15.11 per share. The stock option agreements
amended were awarded under the 2001 Stock Option Plan and under the 2003 Omnibus
Incentive Plan. These options were accelerated because the Committee believed
that there was only a remote possibility that these stock options would be
exercised before termination and in order to reduce the Company's exposure to
the effects of Statement of Financial Accounting Standards No. 123 (Revised),
"Share-Based Payment". This statement requires companies to recognize
stock-based compensation expense associated with a stock option award based on
the fair value of the award at the grant date. This statement became effective
on January 1, 2006.
Executive Officer Compensation
------------------------------
All of our executive officers received an increase in their base
salaries, effective January 1, 2005. Those increases are reflected in the
Summary Compensation Table in the Executive Compensation section of this report.
The Company did not meet the annual profitability measurements established in
the Short-term Incentive Program, and therefore, no cash incentive bonuses were
paid to executives for 2005. Stock options were granted to certain executive
officers in May 2005 and to the new CEO in November 2005. The individual grants
are detailed in the table titled Option Grants in Last Fiscal Year.
President and Chief Executive Officer
-------------------------------------
During 2005, Donald Turrell served as our Chief Executive Officer until
his resignation on November 3, 2005. Mr. Turrell's base salary, short-term
incentive and long-term incentive awards in 2005 were determined by the
Compensation Committee based upon the same general factors as those employed by
the Compensation Committee for executive officers. Mr. Turrell's base salary for
2005 was $237,000. Mr. Turrell was not granted stock options in 2005.
On November 3, 2005, we hired Michael Skarzynski to serve as our Chief
Executive Officer. The Company is a party to an employment agreement with Mr.
Skarzynski that was executed on November 3, 2005. Under the terms of the
employment agreement, Mr. Skarzynski's base salary was fixed at an annual rate
of $300,000 for the remainder of 2005 and for 2006. Mr. Skarzynski is also
eligible to earn an operating bonus of $150,000 if he is employed by us on
December 31, 2006. The employment agreement also includes certain allowances for
relocation expenses for Mr. Skarzynski and his family during 2006.
Upon his hiring, Mr. Skarzynski was granted a non-statutory stock
option to purchase 225,000 shares of our common stock. The option was granted at
an exercise price of $7.94 per share and vests over a six-year period. The
vesting will accelerate upon our achievement of certain levels of earnings per
share or upon a change in control, as defined in the employment agreement.
Compensation Committee:
Charles E. Maginness, Chairman
Stuart B. Meisenzahl
Robert L. Tillman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Chief Executive Officer, Michael Skarzynski, consults with the
Compensation Committee and makes recommendations. He participates in discussions
with the Compensation Committee but does not vote or otherwise participate in
the Compensation Committee's determinations. None of the executive officers has
served as a member of a compensation committee of a board of directors of any
other entity which has an executive officer serving as a member of the Company's
Board of Directors, and there are no other matters regarding interlocks or
insider participation that the Company is required to report.
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to the Company in all capacities for the
fiscal years ended December 31, 2005, 2004 and 2003, paid to those persons who
were, during the fiscal year ended December 31, 2005 (i) our Chief Executive
Officer and (ii) each of our other executive officers who earned more than
$100,000 during the fiscal year ended December 31, 2005 (the "Named
Executives"):
SUMMARY COMPENSATION TABLE
Name and Long-Term
Principal Position Annual Compensation(1) Compensation
------------------ ------------------- ------------
Securities
Other Annual Underlying
Compensation Options Restricted
Year Salary Bonus ($)(1) (#)(2) Stock(3)
---- ------ ----- ------ ------ --------
Michael P. Skarzynski 2005 $42,692 $7,390 225,000
Chief Executive Officer
and President (as of
11/3/05)
Donald L. Turrell 2005 $236,865 -
Chief Executive Officer 2004 $230,000 - 35,000
and President (to 2003 $219,693 $150,000 50,000 2,900
11/3/05)
Dorrance W. Lamb 2005 $197,723 - 12,000
Senior Vice President 2004 $190,000 - 25,000
and Chief Financial 2003 $179,724 $135,000 40,000 2,180
Officer
William E. Mahuson 2005 $141,154 - 6,000
Vice President of 2004 $136,250 - 10,000
Business Development 2003 $129,900 $90,000 25,000 1,960
John J. Grana 2005 $162,894 - 12,000
Senior Vice President 2004 $157,500 - 17,500
of Systems Engineering 2003 $149,885 $90,000 25,000 1,740
John J. Peters 2005 $162,849 - 12,000
Senior Vice President 2004 $157,500 - 17,500
of Platform Engineering 2003 $149,885 $90,000 25,000 1,740
and Chief Technical
Officer
------------------
(1) Other annual compensation to Mr. Skarzynski in 2005 included benefits
related to a life insurance expense reimbursement and an automobile
allowance. During 2005, we provided certain perquisites and benefits to
certain other executive officers listed above. These included automobile
allowances and expenses, 401(k) allowances and life insurance. The aggregate
value of those perquisites and personal benefits provided to these
executives did not exceed the lesser of $50,000 or 10% of the executive
officer's annual salary and bonus for a given year.
(2) Excluding Mr. Skarzynski, stock options granted in 2005 were issued to
certain executive officers in May 2005. A stock option was granted to Mr.
Skarzynski in November 2005. Stock options granted in 2004 were issued to
executive officers in April 2004, while options granted for 2003 were issued
to executive officers in April 2003.
(3) Restricted stock was granted to the executive officers in June 2003. The
restricted stock was earned and issued in January 2004. The fair market
value of our common stock on the date of issuance was $17.50.
EMPLOYMENT AGREEMENTS
We executed an employment agreement with Mr. Skarzynski on November 3,
2005 ("Employment Agreement") pursuant to which Mr. Skarzynski serves as our
President and Chief Executive Officer.
The following is a brief description of the terms and conditions of the
Employment Agreement that are material to the Company:
o Mr. Skarzynski receives a base salary of $300,000 per year and is
eligible to receive an annual performance bonus, which is earned and
payable in accordance with our bonus policies for our executive
officers.
o If Mr. Skarzynski remains employed by us as our President and Chief
Executive Officer between November 3, 2005 and December 31, 2006, his
operating bonus for fiscal year 2006 will be not less than $150,000.
o Mr. Skarzynski received a non-qualified stock option to purchase
225,000 shares of our common stock under our 2003 Omnibus Incentive
Plan. Subject to certain conditions, the option shall vest and become
exercisable pro rata with respect to 37,500 of the shares subject to
the option on each of the first, second, third, fourth, fifth and sixth
anniversaries of the granting of the option.
o Vesting of Mr. Skarzynski's option will be accelerated if the Company
meets certain year-end earnings per share milestones during the life of
the option. If the Company's audited after tax earnings per share for
the fiscal year ended (i) December 31, 2006, (ii) December 31, 2007 or
(iii) December 31, 2008, are equal to or exceed $0.75 per share (as
adjusted to reflect any stock splits, recapitalizations or the like),
then 50% of the as yet unvested shares subject to the stock option
shall immediately vest and become exercisable, provided Mr. Skarzynski
is a full-time employee of the Company at that time. If the Company's
audited after tax earnings per share for the fiscal year ended (i)
December 31, 2006, (ii) December 31, 2007, (iii) December 31, 2008,
(iv) December 31, 2009, (v) December 31, 2010, or (vi) December 31,
2011, are equal to or exceed $1.20 per share (as adjusted to reflect
any stock splits, recapitalizations or the like), then 100% of the as
yet unvested shares subject to the stock option shall immediately vest
and become exercisable, provided Mr. Skarzynski is a full-time
employee of the Company at that time.
o In exchange for using his best efforts to permanently relocate from New
Jersey to the Rochester, New York area by July 31, 2006, Mr. Skarzynski
shall receive certain relocation benefits, including the reimbursement
of up to an aggregate of $150,000 in relocation and moving expenses
actually incurred by him, as well as additional reimbursements for
temporary housing and travel expenses.
o If Mr. Skarzynski resigns from his employment, without good reason, at
any time within the first year of the Employment Agreement, he must
reimburse us for the value of all relocation benefits that he has
received.
o Mr. Skarzynski is subject to confidentiality, non-competition and
non-solicitation obligations.
o The Employment Agreement shall continue in existence until it is
terminated in accordance with its terms.
o If Mr. Skarzynski's employment is terminated without cause, if he
resigns for good reason, or if the Company experiences a change of
control and Mr. Skarzynski no longer continues as its President and
Chief Executive Officer, subject to certain conditions, Mr. Skarzynski
shall: (i) continue to receive his base salary for 12 months, (ii)
continue to receive health and medical insurance benefits for 12
months, (iii) receive a pro rata portion of his operating bonus
actually earned (including, if applicable, a pro rata portion of the
minimum operating bonus guaranteed for 2006), and (iv) be eligible to
immediately exercise that portion of his option that would have been
vested and exercisable had he continued in his employment with the
Company for a further 12 months (during the first year of the
Employment Agreement, up to an aggregate of 75,000 shares shall be
subject to such accelerated vesting).
o We maintain a directors' and officers' liability insurance policy
covering liabilities that may be incurred by Mr. Skarzynski in his
capacity as a director and an officer, and we would indemnify Mr.
Skarzynski, to the fullest extent permitted by law, if he is made a
party to any threatened, pending or contemplated lawsuit by reason of
his service as a director and an officer and incurs any costs, losses,
damages, judgments, liabilities and expenses (including reasonable
attorneys' fees), unless Mr. Skarzynski is adjudged to have been guilty
of fraud or bad faith or he breaches the terms of the Employment
Agreement.
On November 3, 2005, the Board of Directors adopted guidelines regarding
the severance benefits that we will provide to certain executive employees in
the event that their employment with us is terminated without cause (the
"Guidelines").
The Guidelines provide the following severance benefits:
o Subject to our regular payroll policies and practices, the continuation
of salary, automobile, and health insurance benefits for six months
after the date the executive employee's employment ends;
o Accelerated vesting of all outstanding stock options that would have
vested within one year from the date of termination; and
o The payment of any earned but unpaid bonus for the prior year.
These Guidelines currently cover the following Named Executives:
o Dorrance W. Lamb;
o John J. Grana;
o William E. Mahuson; and
o John J. Peters.
For the purpose of the Guidelines, the Board of Directors determined that
"cause" means (i) continually and willfully failing to perform the lawful
responsibilities assigned to the executive employee; (ii) engaging in conduct
that is demonstrably and materially harmful to the Company, including, but not
limited to, engaging in inappropriate conduct toward other personnel or
customers of the Company, being under the influence of alcohol or
non-prescription drugs while at work, failing to comply with the provisions of a
confidentiality agreement; (iii) misappropriating the Company's property; (iv)
being convicted of a felony or other crimes of moral turpitude; or (v)
mishandling material, nonpublic information.
The Guidelines are effective as of November 3, 2005.
STOCK OPTION GRANTS AND EXERCISES
The following sets forth information with respect to stock options
granted to the Named Executives during the fiscal year ended December 31, 2005
pursuant to our 2001 Stock Option Plan and our 2003 Omnibus Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential
Realizable Value
% of Total at Assumed Annual
Number of Options Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term(3)
Options in Fiscal Price Expiration -------------------
Name Granted Year ($/Share) Date 5%($) 10%($)
---- ------- ---- --------- ---- ----- -----
Michael P. Skarzynski 225,000(1) 52.4% $7.94 11/3/13 $493,610 $1,090,658
Dorrance W. Lamb 12,000(2) 2.8% $5.78 5/17/13 $19,164 $42,344
William E. Mahuson 6,000(2) 1.4% $5.78 5/17/13 $9,582 $21,172
John J. Grana 12,000(2) 2.8% $5.78 5/17/13 $19,164 $42,344
John J. Peters 12,000(2) 2.8% $5.78 5/17/13 $19,164 $42,344
(1) This stock option is non-statutory option and will vest in six equal annual
installments of 37,500 per year commencing on the first anniversary of the
grant date. Certain accelerated vesting of the shares will occur if certain
company earnings milestones are realized.
(2) These options are non-qualified options which have a four year vesting
period. These options vest in four annual installments of twenty-five
percent per year commencing on the first anniversary of the grant date.
(3) Amounts represent potential gains that could be achieved for the options
granted in 2005 based on assumed annual growth rates of 5% and 10% in the
price of our Common Stock over the five-year life of the option (which would
equal a total increase in stock price of 28% and 61%, respectively). Actual
gains, if any, will depend upon market conditions and our future performance
and prospects.
The following table sets forth information with respect to the exercise
of stock options by the Named Executives, if any, during the year ended December
31, 2005, and it also sets forth information with respect to status of
unexercised stock options as of December 31, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of
Shares Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
FY-End (#) FY-End ($) (1)
Shares Value ----------- --------------
Acquired on Realized
Name Exercise (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
Donald L. Turrell 97,100 $330,368 189,075 8,925 $365,565 $0
Michael P. Skarzynski 0 $0 0 225,000 $0 $56,250
Dorrance W. Lamb 14,723 $60,986 131,249 18,251 $247,133 $28,920
William E. Mahuson 0 $0 102,500 6,000 $308,693 $14,460
John J. Grana 65,000 $226,491 65,000 17,000 $53,625 $28,920
John J. Peters 7,550 $35,426 113,750 18,250 $189,105 $28,920
(1) Represents the difference between the fair market value of our Common Stock
as of December 31, 2005 and the exercise price of the option. Options that
are not in-the-money have been excluded from the computation.
(2) Represents the difference between the fair market value of our Common Stock
underlying the options as of the exercise date and the exercise price of the
options.
REPORT OF THE AUDIT COMMITTEE TO STOCKHOLDERS
The Audit Committee of the Board of Directors is currently comprised of
three members of our Board of Directors, each of whom possesses the necessary
qualifications pursuant to Nasdaq rules and regulations and is independent
pursuant to the Nasdaq National Market's listing standards and in accordance
with SEC rules. The Audit Committee operates under a written charter, a copy of
which is included as Appendix A to this proxy statement. Among other things, the
Audit Committee recommends to the Board that our audited financial statements be
included in the Annual Report on Form 10-K and recommends the selection of the
independent registered public accounting firm to audit our books and records.
The Audit Committee met eight times during 2005 and held five private sessions
with PricewaterhouseCoopers LLP, our independent registered public accounting
firm. The Audit Committee has:
o reviewed and discussed, with us, regulatory changes occurring during
the past year including subsequent requirements related to the
Sarbanes-Oxley Act of 2002 and new Securities and Exchange Commission
and NASD requirements;
o reviewed and discussed our audited financial statements for 2005 with
management and with PricewaterhouseCoopers LLP;
o reviewed and discussed management's selection, application and
disclosure of critical accounting policies;
o reviewed and discussed the adequacy of our internal control over
financial reporting and accounting and financial personnel;
o discussed with PricewaterhouseCoopers LLP the matters required to be
discussed by SAS 61, as amended (Codification for Statements on
Auditing Standards);
o discussed the process used by management in formulating accounting
estimates and the basis for the registered public accounting firm's
conclusions regarding the reasonableness of those estimates; and
o received and discussed the written disclosures and the letter from the
independent registered public accounting firm required by Independence
Standards Board Statement No. 1 (Independence Discussions with Audit
Committees) and has discussed with the independent registered public
accounting firm the independent registered public accounting firm's
independence.
Based on such review and discussions with management and the
independent registered public accounting firm, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
our Annual Report on Form 10-K for 2005 for filing with the SEC.
Prior to approving PricewaterhouseCoopers LLP as our independent
registered public accounting firm for 2006, the Audit Committee considered
whether PricewaterhouseCoopers LLP's provision of other than audit services is
compatible with maintaining the registered public accounting firm's independence
and has concluded that PricewaterhouseCoopers LLP meets the independence
standards.
Audit Committee:
E. Mark Rajkowski, Chairman
Stuart B. Meisenzahl
Robert L. Tillman
AUDIT FEES AND ALL OTHER FEES
Fees Billed by PricewaterhouseCoopers LLP during 2005 and 2004
During 2005 and 2004, PricewaterhouseCoopers, LLP billed us the following fees
for the services discussed below:
2005 2004
-----------------------------
Audit Fees $301,000 $251,000
Audit-Related Fees 0 21,000
Tax Fees 69,000 38,000
All Other Fees 0 0
-----------------------------
Total $370,000 $310,000
=============================
Audit Fees: Fees relating to the audit of the Company's annual
financial statements, including services required under the Sarbanes-
Oxley Act of 2002 and review of Quarterly Reports on Form 10-Q and fees
related to assistance with regulatory reviews of Company filings.
Audit-Related Fees: There were no audit related fees billed in 2005.
Fees in 2004 relate to certain regulatory filings and accounting
consulting services.
Tax-Related Fees: These are fees for compliance services, tax advice
and tax planning services.
All Other Fees: No other fees were billed by PricewaterhouseCoopers in
2005 and 2004.
All audit, audit-related and tax fees paid in 2005 and 2004 were approved by the
Audit Committee.
Effective in 2003, the Audit Committee established the following guidelines for
securing non-audit services.
o The Chairperson for the Committee can authorize management, in
advance, to secure non-audit services up to $25,000 provided the
Committee is informed on a timely basis of such commitment.
o The Committee must pre-approve each non-audit service in excess of
$25,000.
CODE OF BUSINESS CONDUCT AND ETHICS
Our complete Code of Business Conduct and Ethics is available in the
Investors section of our Web site at www.pt.com.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return of our Common
Stock at the end of each calendar year since December 31, 2000 to the Nasdaq
Stock Market (U.S.) Index, and the Nasdaq Computer Manufacturer Index. The stock
performance shown in the graph below is not intended to forecast or be
indicative of future performance.
[GRAPHIC OMITTED]
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of PricewaterhouseCoopers LLP served as our independent
registered public accounting firm for the fiscal year ended December 31, 2005,
and the Board of Directors has again selected PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2006. This selection will be presented to the stockholders for
their ratification at the Meeting. The Board of Directors recommends a vote in
favor of the proposal to ratify this selection and (unless otherwise directed
therein) it is intended that the shares represented by the enclosed properly
executed proxy will be voted FOR such proposal. If the stockholders do not
ratify this selection, the Board of Directors may reconsider its choice.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Meeting. The representative will be given an opportunity to make
a statement if he so desires and will be available to respond to appropriate
questions concerning the audit of our financial statements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
STOCKHOLDER COMMUNICATIONS
The Board of Directors has established a process for stockholders to
communicate with members of the Board. To communicate with the entire Board, or
a member of the Board, stockholders should send their communications, in
writing, to the attention of our Corporate Secretary at the address shown on the
cover of this Proxy Statement. The Corporate Secretary will forward stockholder
communications to the Board or Board members, as appropriate, unless it is
determined by the Corporate Secretary that a communication is frivolous or has
been made by a stockholder in bad faith.
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
In order for any stockholder proposal to be included in our Proxy
Statement to be issued in connection with the 2007 Annual Meeting of
Stockholders, such proposal must be delivered to us no later than December 29,
2006. If the proposal is in compliance with all of the requirements of Rule
14a-8 under the Securities Exchange Act, we will include the stockholder
proposal in its proxy statement and place it on the form of proxy issued for the
2007 Annual Meeting of Stockholders. Stockholder proposals that are not
submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the
Securities Exchange Act may be brought before the 2007 Annual Meeting of
Stockholders only if written notice of the proposal is delivered to our
Secretary no earlier than March 4, 2007 and no later than April 3, 2007, and if
the stockholder complies with all of the other provisions of Article II, Section
12 of our By-laws. All such notices should be delivered to Stuart B. Meisenzahl,
Secretary of Performance Technologies, Incorporated, 205 Indigo Creek Drive,
Rochester, New York 14626.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present, and has not been informed that any other person intends to
present, any matter other than those specifically referred to in this Proxy
Statement. If any other matters properly come before the Meeting, it is intended
that the holders of the proxies will act in respect thereto in accordance with
their best judgment.
By Order of the Board of Directors,
/s/ Stuart B. Meisenzahl
-----------------------------
Stuart B. Meisenzahl
Secretary to the Board
Dated at Rochester, New York
April 28, 2006
Appendix A
PERFORMANCE TECHNOLOGIES, INC.
AUDIT COMMITTEE CHARTER
Mission Statement
The Audit Committee (the "Committee") will, on behalf of the Board of Directors
(the "Board"), have responsibility for oversight of reliable financial
reporting, effective internal control over financial reporting, compliance with
regulatory matters, and compliance with appropriate ethical conduct.
In performing its duties, the Committee will maintain effective working
relationships with the Board, management and the independent registered public
accounting firm. To effectively perform his or her role, each Committee member
will obtain an understanding of the detailed responsibilities of Committee
membership as well as the business, operations, and risks of Performance
Technologies, Inc. (the "Company").
Organization
The Committee will be comprised of three or more directors as
determined from time to time by the Board, each of whom will be independent as
determined by the Board in accordance with the applicable rules of Nasdaq, the
Securities and Exchange Commission ("SEC") and the Sarbanes-Oxley Act.
The Board may, under exceptional and limited circumstances, act in the
best interests of the Company and its stockholders by appointing a Committee
member who is not an independent director; provided, however, the member shall
not be a current employee of the Company or a family member of an employee of
the Company. In such an instance, the Board shall disclose in its annual proxy
statement the nature of the relationship and the reason(s) for appointing such
individual as a Committee member. However, a member appointed under this
exception may not serve more than two years and may not chair the Committee.
All members of the Committee must be able to read and understand
fundamentalfinancial statements, including the Company's balance sheet, income
statement and cash flow statement. The Committee has, and will continue to have,
at least one member who has accounting or related financial management expertise
such as that gained from past employment in finance or accounting, professional
certification in accounting, or other comparable experience or background such
as being, or having been, a chief executive officer, chief financial officer or
other senior officer with financial oversight responsibilities, and who shall be
an "audit committee financial expert" as defined by the SEC.
Meetings
Committee meetings will generally coincide with regular Board meetings. Topics
at scheduled meetings will generally include:
o Review of the Annual and Quarterly Reports to be submitted to the SEC;
and
o Meetings with the independent registered public accounting firm to
discuss the scope of the annual audit and to review the financial
statements for the year and the results of the audit.
Roles and Responsibilities
Internal Control Over Financial Reporting
-----------------------------------------
o Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of internal control over financial
reporting and ensuring that all individuals possess an understanding of
their roles and responsibilities;
o Establish procedures for (i) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters;
o Focus on the extent to which the independent registered public
accounting firm reviews computer systems and applications, and the
security of such systems and applications;
o Gain an understanding of whether internal control recommendations made
by the independent registered public accounting firm have been
implemented by management; and
o Ensure that the independent registered public accounting firm keeps the
Committee informed about fraud, illegal acts, deficiencies in internal
control over financial reporting and certain other matters that came to
their attention during the conduct of their audit.
Financial Reporting
General
-------
o Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact
on the financial statements; and
o Ask management and the external registered public accounting firm about
significant risks and exposures and the plans to minimize such risks.
o Discuss earnings press releases and financial information and earnings
guidance provided to analysts and rating agencies.
Annual Financial Statements
---------------------------
o Review the annual consolidated financial statements and determine
whether they are complete and consistent with the information known to
Committee members, and assess whether the financial statements reflect
appropriate accounting principles;
o Pay particular attention to complex and/or unusual transactions such as
restructuring charges and derivative disclosures;
o Focus on judgmental areas such as those involving valuation of assets
and liabilities, including, for example, the accounting and disclosure
of obsolete or slow-moving inventory; receivable losses; software
capitalization and amortization; warranty liability; litigation
reserves; and other commitments and contingencies;
o Meet with management and independent registered public accounting firm
to review the financial statements and the results of the audit;
o Consider management's handling of proposed audit adjustments identified
by the independent registered public accounting firm;
o Review the MD&A and other sections of the Annual Report before its
release and consider whether the information is adequate and consistent
with members' knowledge about the Company and its operations; and
o Ensure that the independent registered public accounting firm
communicates certain required matters to the Committee.
Interim Financial Statements
----------------------------
o Be briefed on how management develops and summarizes quarterly
financial information, the extent to which the independent registered
public accounting firm reviews quarterly financial information, and
whether that review is performed on a pre- or post-issuance basis;
o Meet with management to review the interim financial statements and the
results of the review. (This may be done by the Committee chairperson
or the entire Committee);
o To gain insight into the fairness of the interim statements and
disclosures, obtain explanations from management on whether:
o Actual financial results for the quarter varied significantly from
projected results;
o Generally accepted accounting principles have been consistently
applied;
o There are any actual or proposed changes in accounting or
financial reporting practices;
o There are any significant or unusual events or transactions;
o The Company's financial and operating controls are functioning
effectively;
o The Company has complied with the terms of loan agreements or
security indentures; and
o The interim financial statements contain adequate and appropriate
disclosures.
o Ensure that the independent registered public accounting firm
communicates certain required matters to the Committee, as is
necessary.
Compliance with Laws and Regulations
------------------------------------
o Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and
follow-up (including disciplinary action) on any fraudulent acts or
accounting irregularities;
o Periodically obtain updates from management, general counsel, and tax
advisors regarding compliance;
o Be satisfied that all regulatory compliance matters have been
considered in the preparation of the financial statements; and
o Review the findings of any examinations by regulatory agencies such as
the SEC.
Compliance with Ethical Conduct
-------------------------------
o Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of ethical conduct to the organization;
and
o Periodically obtain updates from management regarding compliance.
External Audit
--------------
o Be directly responsible for the appointment, compensation, retention
and oversight of the work of any public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company, with the
understanding that each public accounting firm must report directly to
the Committee;
o Understand the independent registered public accounting firm's proposed
audit scope and approach;
o Review the performance of the independent registered public accounting
firm; and
o Review and confirm the independence of the independent registered
public accounting firm by reviewing the non-audit services provided and
the registered public accounting firm's assertion of their independence
in accordance with professional standards.
Non-Audit Services
------------------
o The Chairperson for the Committee can authorize the Company in advance
to secure non-audit services costing up to $25,000 provided the
Committee is informed on a timely basis of such commitment.
o The Committee must pre-approve each non-audit service that is expected
to cost in excess of $25,000.
Other Responsibilities
----------------------
o Meet with the independent registered public accounting firm, and
management in separate executive sessions to discuss any matters that
the Committee or these groups believe should be discussed privately;
o Ensure that significant findings and recommendations made by the
independent registered public accounting firm are received and
discussed on a timely basis;
o Review, with the Company's counsel, any legal matters that could have a
significant impact on the Company's financial statements;
o If necessary, institute special investigations and, if appropriate,
hire special counsel or experts to assist;
o Authorize, when deemed necessary to carry out the duty of the
Committee, the engagement of independent counsel and other advisors.
o Ensure that appropriate funding is made available for payment of (i)
compensation to any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report, or performing other
audit, review or attest services for the Company, (ii) compensation to
any advisors employed by the Committee, and (iii) ordinary
administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
o Perform other oversight functions as requested by the full Board; and
o Review, reassess the adequacy of, and update the charter on an annual
basis; receive approval of changes from the Board.
Reporting Responsibilities
--------------------------
o Regularly update the Board about Committee activities and make
appropriate recommendations.