UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement | ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||
x | Definitive Proxy Statement | |||||
¨ | Definitive Additional Materials | |||||
¨ | Soliciting Material Pursuant to §167; 240.14a-12 |
North Pittsburgh Systems, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
IT WILL ASSIST MATERIALLY IN THE PREPARATION FOR THE ANNUAL MEETING IF SHAREHOLDERS RETURN THEIR PROXIES PROMPTLY.
NORTH PITTSBURGH SYSTEMS, INC.
4008 GIBSONIA ROAD
GIBSONIA, PENNSYLVANIA 15044-9311
TELEPHONE NO. 724-443-9600
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD May 20, 2005
The Annual Meeting of Shareholders of North Pittsburgh Systems, Inc. will be held on Friday, May 20, 2005 at 2:00 p.m., Eastern Daylight Saving Time, atthe Four Points by Sheraton Pittsburgh North (Warrendale), 910 Sheraton Drive, Mars, Pennsylvania, for the purpose of considering and acting upon the following matters, as described in the accompanying Proxy Statement:
1. To elect Directors.
2. To transact such other business as may properly come before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 12, 2005 as the record date for the determination of Shareholders entitled to notice of and to vote at the meeting.
You are cordially invited to attend the meeting. If you are unable to do so, please sign and date the enclosed proxy card and return it promptly by mail in the enclosed envelope. No postage is required if mailed in the United States.
By Order of the Board of Directors
N. William Barthlow
Secretary
Dated: | Gibsonia, PA |
April 22, 2005 |
NORTH PITTSBURGH SYSTEMS, INC.
4008 Gibsonia Road
Gibsonia, Pennsylvania 15044-9311
Telephone No. 724-443-9600
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MAY 20, 2005
GENERAL
This Statement is furnished in connection with the solicitation by and on behalf of the Board of Directors of North Pittsburgh Systems, Inc. (North Pittsburgh or Company) of proxies to be used at the Annual Meeting of Shareholders of the Company to be held atthe Four Points by Sheraton Pittsburgh North (Warrendale), 910 Sheraton Drive, Mars, Pennsylvania on May 20, 2005 at 2:00 p.m., Eastern Daylight Saving Time, and any adjournments thereof, (Annual Meeting) for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
The Board of Directors has fixed the close of business on April 12, 2005 as the record date for the determination of shareholders of the Company (Shareholders) entitled to notice of and to vote at the Annual Meeting. It is anticipated that this Proxy Statement and accompanying proxy card (Proxy) will be mailed to Shareholders for the first time on or about April 22, 2005.
Shares represented by a valid Proxy received in time for voting will be voted in accordance with the Shareholder’s instructions. If no such instructions are specified, the Proxy will be voted FOR each of the nominees for election as a Director. The presence of a Shareholder at the Annual Meeting will not automatically revoke such Shareholder’s Proxy. Shareholders may revoke their Proxies prior to commencement of the Annual Meeting by delivering notice of the revocation as described in the following sentence. Proxies and notices of revocation of Proxies should be mailed or delivered to the Company’s transfer agent, Wells Fargo Bank, N.A., Shareowner Services, P. O. Box 64854, St. Paul, MN 55164-0854, for receipt by Wells Fargo Bank, N.A., Shareowner Services, no later than two (2) business days prior to the Annual Meeting—that is, no later than May 18, 2005—or should be deposited with the Chairman or the Secretary of the Company immediately prior to the commencement of the Annual Meeting.
The Company will bear the cost of solicitation of Proxies. In addition to the use of the mails, the Company may use its officers and its regular employees, who will receive no compensation in addition to regular salary or pay, to solicit Proxies from Shareholders, either personally or by telephone, facsimile or letters. Arrangements will be made by the Company with brokers and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the shares held of record by such brokers, custodians, nominees and fiduciaries, and the Company will reimburse these brokers, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred.
VOTING
Only Shareholders of record at the close of business on April 12, 2005 are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. At that date, the Company had outstanding and entitled to vote 15,005,000 shares of its Common Stock (Common Stock). Holders of Common Stock are
1
entitled to one vote for each share held in respect to the election of each of the Directors. Proxies will be received and tabulated by Wells Fargo Bank, N.A., Shareowner Services, with the results thereof reported to the three (3) Judges of Election appointed by the Company’s Board of Directors under the authority of the Bylaws of the Company and the Pennsylvania Business Corporation Law.
The seven (7) candidates for Directors of the Company who receive the highest number of affirmative votes in the election of Directors at the Annual Meeting will be elected the Directors of the Company. To constitute Shareholder action on any other matter that properly comes before the Annual Meeting, the affirmative vote of a majority of the votes cast by the Shareholders on the matter is required. The total votes cast shall be deemed to include abstentions and withheld votes. Broker nonvotes will have no impact because they are not considered “shares present” for quorum or voting purposes.
STOCK OWNERSHIP
As of March 30, 2005, NPT Holdings, LLC (NPT Holdings), a limited liability company and wholly-owned indirect subsidiary of Armstrong Holdings, Inc., held of record 914,665 shares, or 6.10%, of the 15,005,000 outstanding shares of the Company’s Common Stock. As of that date, no other entity or individual held of record more than 5% of such stock. A Schedule 13D with amendments thereto through March 30, 2005 (collectively, the Schedule 13D) has been filed with the Securities and Exchange Commission on the joint behalf of (i) Armstrong Holdings, Inc. (holder of 297,996 shares of Common Stock as of March 30, 2005), (ii) NPT Holdings (holder of 914,665 shares of Common Stock as of March 30, 2005), (iii) the Sedwick Foundation (holder of 65,713 shares of Common Stock as of March 30, 2005), (iv) the Jud L. Sedwick Family Trust No. 2 (holder of 400 shares of Common Stock as of March 30, 2005), (v) the Jay L. Sedwick 1998 Trust (holder of 23,933 shares of Common Stock as of March 30, 2005), (vi) the Dru A. Sedwick 2001 Trust (holder of 21,027 shares of Common Stock as of March 30, 2005), (vii) the Joy L. Moon 2001 Separate Trust (holder of 6,200 shares of Common Stock as of March 30, 2005), (viii) the Jay L. Sedwick, Jr. 2001 Separate Trust (holder of 6,200 shares of Common Stock as of March 30, 2005), (ix) the Cyd K. Johnston 2001 Separate Trust (holder of 6,200 shares of Common Stock as of March 30, 2005) and (x) Jay L. Sedwick (a Director of the Company), Dru A. Sedwick, son of Jay L. Sedwick, Jay L. Sedwick’s brother-in-law and his spouse, an unrelated officer of Armstrong Holdings, Inc. and his spouse, and certain other persons, both individually and in respect of certain of their capacities as officers of Armstrong Holdings, Inc. The aggregate beneficial ownership at March 30, 2005 of those filing the Amendment No. 5 to Restatement, dated March 30, 2005, to the Schedule 13D (2005 Schedule 13D Amendment) was 1,419,398 shares, or 9.46%, of the Company’s outstanding Common Stock. Each of such persons named in the 2005 Schedule 13D Amendment disclaimed any membership in any “group” as such term is defined in Rule 13d-5 under the Securities Exchange Act of 1934, and each has indicated that the Common Stock has been acquired for investment. The information provided in this paragraph and in Table 1 below is based on the information set forth in the 2005 Schedule 13D Amendment and on information provided to the Company by Jay L. Sedwick, representatives of Jay L. Sedwick and/or Armstrong Holdings, Inc.
2
The following table sets forth information with respect to all persons known to the Company to be beneficial owners of more than 5% of the Company’s voting securities as of March 30, 2005 and those persons known to the Company who might be deemed to be beneficial owners of more than 5% of the Company’s voting securities by virtue of their relationship to Armstrong Holdings, Inc. and/or NPT Holdings and/or their position as a trustee of one or more of the trusts named in the 2005 Schedule 13D Amendment:
Table I
Beneficial Owners of More Than 5%
of Outstanding Voting Securities
Title of Class | Name and Business Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||||
Common Stock | NPT Holdings, LLC 3411 Silverside Road 103 Springer Building Wilmington, DE 19810 | 914,665 | Direct | 6.10% | ||||
Common Stock | Jay L. Sedwick One Armstrong Place Butler, PA 16001 | 24,891 1,278,774 1,303,665 | Direct Indirect (1) Total | 0.17% 8.52% 8.69% | ||||
Common Stock | Kirby J. Campbell One Armstrong Place Butler, PA 16001 | 10,600 1,342,334 1,352,934 | Direct (2) Indirect (3) Total | 0.07% 8.95% 9.02% | ||||
Common Stock | Dru A. Sedwick One Armstrong Place Butler, PA 16001 | 30,023 1,236,594 1,266,617 | Direct Indirect (4) Total | 0.20% 8.24% 8.44% | ||||
Common Stock | William C. Stewart One Armstrong Place Butler, PA 16001 | 3,100 1,283,374 1,286,474 | Direct (5) Indirect (6) Total | 0.02% 8.55% 8.57% |
(1) | Jay L. Sedwick, a Director of the Company, is Chairman of Armstrong Holdings, Inc. If he were deemed the beneficial owner of the 297,996 shares held by Armstrong Holdings, Inc., the 914,665 shares held by NPT Holdings, the 65,713 shares held by the Sedwick Foundation, of which Jay L. Sedwick is a Co-Trustee, and the 400 shares held by the Jud L. Sedwick Family Trust Fund No. 2, of which Jay L. Sedwick is a Co-Trustee, his indirect beneficial ownership would total 1,278,774 shares of Common Stock. |
(2) | The 10,600 shares of Common Stock directly owned by Kirby J. Campbell are held jointly with his wife. |
(3) | Kirby J. Campbell is a Director, Chief Executive Officer, Chief Financial Officer and Treasurer of Armstrong Holdings, Inc. If he were deemed the beneficial owner of the 297,996 shares held by Armstrong Holdings, Inc., the 914,665 shares held by NPT Holdings, the 65,713 shares held by the Sedwick Foundation, of which Kirby J. Campbell is a Co-Trustee, the 400 shares held by the Jud L. Sedwick Family Trust Fund No. 2, of which Kirby J. Campbell is a Co-Trustee, the 23,933 shares held by the Jay L. Sedwick 1998 Trust, of which Kirby J. Campbell is a Co-Trustee, the 21,027 shares held by the Dru A. Sedwick 2001 Trust, of which Kirby J. Campbell is a Co-Trustee, the 6,200 shares held by the Joy L. Moon 2001 Separate Trust, of which Kirby J. Campbell is a Co-Trustee, the 6,200 shares held by the Jay L. Sedwick, Jr. 2001 Separate Trust, of which Kirby J. Campbell is a Co-Trustee, and |
3
the 6,200 shares held by the Cyd K. Johnston 2001 Separate Trust, of which Kirby J. Campbell is a Co-Trustee, his indirect beneficial ownership would total 1,342,334 shares of Common Stock. |
(4) | Dru A. Sedwick is a Director and President of Armstrong Holdings, Inc. If he were deemed the beneficial owner of the 297,996 shares held by Armstrong Holdings, Inc., the 914,665 shares held by NPT Holdings, and the 23,933 shares held by the Jay L. Sedwick 1998 Trust, of which Dru A. Sedwick is a Co-Trustee, his indirect beneficial ownership would total 1,236,594 shares of Common Stock. |
(5) | The 3,100 shares of Common Stock directly owned by William C. Stewart are held jointly with his wife. |
(6) | William C. Stewart is a Director of Armstrong Holdings, Inc. If he were deemed the beneficial owner of the 297,996 shares held by Armstrong Holdings, Inc., the 914,665 shares held by NPT Holdings, the 5,000 shares held individually by his wife, and the 65,713 shares held by the Sedwick Foundation, of which William C. Stewart is a Co-Trustee, his indirect beneficial ownership would total 1,283,374 shares of Common Stock. |
The following table sets forth information with respect to the beneficial ownership as of March 23, 2005 of each current Director of the Company, each of the nominees for election as a Director of the Company (Nominees) and each executive officer of the Company named below in the Summary Compensation Table under “Compensation of Executive Officers,” and of all Directors, Nominees and officers of the Company as a Group.
Table II
Security Ownership of Management
Title of Class | Name of Beneficial Owner | Amount and Nature of | Percent of Class | |||||
Common Stock | Harry R. Brown | 17,278 16,812 34,090 | Direct (2) Indirect (3) Total | 0.12% 0.11% 0.23% | ||||
Common Stock | N. William Barthlow | 1,250 300 1,550 | Direct (4) Indirect (5) Total | .008% .002% .010% | ||||
Common Stock | Charles E. Cole | 41,392 32,608 74,000 | Direct Indirect (6) Total | 0.28% 0.22% 0.49% | ||||
Common Stock | Frederick J. Crowley | 1,000 -0- 1,000 | Direct Indirect Total | .007% -0-% .007% | ||||
Common Stock | Allen P. Kimble | 1,129 -0- 1,129 | Direct (7) Indirect Total | .008% -0-% .008% | ||||
Common Stock | Stephen G. Kraskin | 3,000 -0- 3,000 | Direct Indirect Total | 0.02% -0-% 0.02% | ||||
Common Stock | Frank A. Macefe | 760 600 1,360 | Direct (8) Indirect (9) Total | .005% .004% .009% |
4
Title of Class | Name of Beneficial Owner | Amount and Nature of | Percent of Class | |||||
Common Stock | David E. Nelsen | 2,500 -0- 2,500 | Direct (10) Indirect Total | 0.02% -0-% 0.02% | ||||
Common Stock | Jay L. Sedwick | 24,891 1,278,774 1,303,665 | Direct Indirect (11) Total | 0.17% 8.52% 8.69% | ||||
Common Stock | Charles E. Thomas, Jr. | 35,710 31,000 66,710 | Direct (12) Indirect (13) Total | 0.24% 0.21% 0.44% | ||||
Common Stock | Albert W. Weigand | 870 -0- 870 | Direct (14) Indirect Total | .006% -0-% .006% | ||||
Common Stock | All Directors, Nominees and officers as a Group (13 persons) | 130,280 1,360,094 1,490,374 | Direct Indirect (15) Total | 0.87% 9.06% 9.93% |
(1) | Included in the shares set forth in the table above are (a) shares beneficially owned by the Director/Nominee/officer and shares beneficially owned by his or her spouse, minor children and others living in his or her house, which are includable in such table under rules of the Securities and Exchange Commission, and (b) shares which are deemed to be beneficially owned because the Director/Nominee/officer has voting power or power of disposition with respect to the shares. |
Share amounts are reported as of March 23, 2005, and percentages of share ownership are calculated based upon the 15,005,000 shares of Common Stock outstanding as of that date.
(2) | Of the 17,278 shares directly owned by Harry R. Brown, 1,354 shares are held jointly with his wife. |
(3) | The 16,812 shares indirectly beneficially owned by Harry R. Brown are held individually by his wife. |
(4) | Of the 1,250 shares directly owned by N. William Barthlow, 400 shares are held jointly with his wife. |
(5) | The 300 shares indirectly beneficially owned by N. William Barthlow are held by him under the Pennsylvania Uniform Transfers to Minors Act as custodian for three children. |
(6) | The 32,608 shares indirectly beneficially owned by Charles E. Cole are held individually by his wife. |
(7) | The 1,129 shares directly owned by Allen P. Kimble are held jointly with his wife. |
(8) | The 760 shares directly owned by Frank A. Macefe are held jointly with his wife. |
(9) | The 600 shares indirectly beneficially owned by Frank A. Macefe are held by him as custodian for two daughters. |
(10) | The 2,500 shares directly owned by David E. Nelsen are held jointly with his wife. |
(11) | For information with respect to the 1,278,774 shares indirectly beneficially owned by Jay L. Sedwick, please refer to Note 1 to Table I above. |
(12) | Of the 35,710 shares directly owned by Charles E. Thomas, Jr., 9,800 shares are held jointly with his wife. |
(13) | Of the 31,000 shares indirectly beneficially owned by Charles E. Thomas, Jr., 25,000 shares are held by him under the Pennsylvania Uniform Transfers to Minors Act as custodian for five children and 6,000 shares are held individually by three of his children. |
(14) | The 870 shares directly owned by Albert W. Weigand are held jointly with his wife. |
(15) | The 1,360,094 shares indirectly beneficially owned by all Directors, Nominees and officers as a Group include the 1,278,774 shares indirectly beneficially owned by Jay L. Sedwick as described in Note 1 to Table I above. |
5
No Director, Nominee, officer of the Company or “group” as defined in Rule 13d-5 under the Securities Exchange Act of 1934 is a beneficial owner of more than 5% of the Company’s Common Stock by virtue of any voting trust or similar arrangement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Directors and Executive Officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and NASDAQ. Directors, Executive Officers and 10 percent shareholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file.
Solely on the basis of its review of the copies it received of such forms and written representations from certain reporting persons and/or their attorneys, the Company believes that all filing requirements under Section 16(a) applicable to its Directors and Executive Officers were timely met during 2004.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Company shall be managed by a Board of Directors of not less than seven (7) nor more than nine (9) members and that the number of Directors to be elected shall be determined by the Board of Directors prior to the annual meeting of Shareholders at which such Directors are to be elected. Upon the recommendation of its Corporate Governance and Nominating Committee, the Board of Directors has established at seven (7) the number of Directors to be elected at the Annual Meeting.
The Corporate Governance and Nominating Committee of the Board of Directors has recommended to the Board of Directors, and the Board of Directors has nominated, the persons named below (Nominees) for election as Directors of the Company to serve until the 2006 annual meeting of Shareholders and until their successors are elected and qualify. Current Director Jay L. Sedwick is Chairman of Armstrong Holdings, Inc. Throughout his 25 years of service on the North Pittsburgh Board, Mr. Sedwick has conducted himself in an exemplary manner. The Corporate Governance and Nominating Committee did not, however, recommend Mr. Sedwick for re-nomination as a Director because competition between the North Pittsburgh family of companies and the Armstrong companies has been increasing in recent years. The competition is largely a byproduct of changes in technology and applicable laws. The Company very much appreciates and thanks Mr. Sedwick for his quarter of a century of service to the Company, its shareholders, its employees and the communities it serves.
The Nominees are present Directors of the Company and were elected at the 2004 annual meeting of Shareholders. The number of shares of Common Stock represented at the 2004 annual meeting of Shareholders, held May 21, 2004, was 13,250,324 shares represented by proxy and none in person, constituting 88.31% of the 15,005,000 shares of such stock outstanding on April 13, 2004, the record date for determining Shareholders entitled to vote at that meeting.
It is the intention of the proxies to vote for the election of seven (7) Directors and, unless authority to vote for any or all of the Nominees is withheld, it is the intention of the proxies to vote for the election of the Nominees. If any of the Nominees should become unavailable as a candidate for any reason, which is not anticipated, the Board of Directors in its discretion may designate a substitute nominee, in which event votes will be cast for such substitute nominee pursuant to the accompanying Proxy.
6
There are no arrangements or understandings between or among any Director, Nominee, the Company, any of the Company’s subsidiaries, or any other person, pursuant to which a Director or Nominee was or is to be nominated or elected a Director of the Company.
The information which follows includes as to each Nominee, the Nominee’s age, the year in which the Nominee’s service as a Director of the Company or its predecessor commenced, the Nominee’s current position and offices held with the Company, the Nominee’s business experience during the past five (5) years, and certain other information. Individual shareholdings of each Nominee may be found above in Table II, Security Ownership of Management.
NOMINEES FOR ELECTION AS DIRECTORS
AND INFORMATION CONCERNING THEM
Biographical Summaries of Nominees1
Unless otherwise specified, “North Pittsburgh” as used in this “Biographical Summaries of Nominees” section means North Pittsburgh Systems, Inc. since May 31, 1985 and North Pittsburgh Telephone Company, its predecessor, before that date. Positions and experience related to only North Pittsburgh Telephone Company, the Company’s predecessor and since May 31, 1985 a subsidiary of the Company, are also presented.
HARRY R. BROWN | Director of North Pittsburgh since 1989 |
President and Chief Executive Officerof North Pittsburgh Systems, Inc. andPresident and General Manager of North Pittsburgh Telephone Company
Mr. Brown, 68, has been President since 1998 and Chief Executive Officer since October 23, 2002 of North Pittsburgh Systems, Inc. and President and General Manager of North Pittsburgh Telephone Company since 1998. He was Vice President of North Pittsburgh Systems, Inc. from 1992 to 1998. Mr. Brown also held the following North Pittsburgh positions: Vice President—Operations from 1987 to 1998, Assistant Vice President—Operations from 1986 to 1987, Network Engineering Manager from 1984 to 1986, and Equipment Supervisor from 1975 to 1984.
DR. CHARLES E. COLE | Director of North Pittsburgh since 1968 |
Retired Physician
Dr. Cole, 74, is a retired physician. Before retiring, Dr. Cole practiced with the Cole-Lechmanick division of Genesis Medical Associates in McCandless, PA.
FREDERICK J. CROWLEY | Director of North Pittsburgh since January 1, 2003 |
Certified Public Accountant
Mr. Crowley, 60, is a licensed certified public accountant, presently retired. From 1998 to 2001, he served as the Chief Financial Officer at Lutheran Affiliated Services, a not-for-profit company that manages
1 | Unless otherwise indicated, a Nominee has had the same principal occupation for the past five (5) years. None of the Nominees is a director of any other company with a class of equity securities registered pursuant to the Securities Exchange Act of 1934 or otherwise subject to the periodic reporting requirements of that Act, or any company registered as an investment company under the Investment Company Act of 1940. With the exception of North Pittsburgh Telephone Company, no corporation or organization listed herein is a parent, subsidiary or other affiliate of North Pittsburgh Systems, Inc. or its subsidiaries. |
7
long-term elderly care facilities. Prior thereto, Mr. Crowley was employed by or a partner in KPMG LLP, a public accounting and tax firm, for 29 years. During his tenure at KPMG LLP, Mr. Crowley held various positions with responsibilities in auditing and financial reporting, including 21 years as an audit partner.
ALLEN P. KIMBLE | Director of North Pittsburgh since 1998 |
Vice President, Treasurer and Chief Financial and Accounting Officer of North Pittsburgh Systems, Inc. andVice President andTreasurer of North Pittsburgh Telephone Company
Mr. Kimble, 58, has been Vice President since 1989, Treasurer since 1985, and Chief Financial and Accounting Officer since October 23, 2002 of North Pittsburgh Systems, Inc. and Vice President since 1989 and Treasurer since 1979 of North Pittsburgh Telephone Company. Mr. Kimble also held the following North Pittsburgh positions: Secretary from 1993 to 1998, Assistant Vice President from 1987 to 1989, Assistant Secretary from 1979 to 1993, Assistant Secretary-Treasurer from 1977 to 1979, and Assistant to Vice President—Finance from 1976 to 1977.
STEPHEN G. KRASKIN | Director of North Pittsburgh since 1999 |
Member of Kraskin, Moorman & Cosson, LLC
Mr. Kraskin, 54, is an attorney and managing member in the legal and consulting firm of Kraskin, Moorman & Cosson, LLC, which he founded in 2004. Mr. Kraskin was an attorney and managing partner in the legal and consulting firm of Kraskin, Lesse & Cosson, LLP from 1992 to 2004. Mr. Kraskin’s professional practice is concentrated in the provision of legal, regulatory and business planning services to a wide variety of telecommunications companies. Prior to entering private practice, Mr. Kraskin was General Counsel to a telecommunications consulting firm, and he served as Deputy General Counsel of the National Association of Regulatory Utility Commissioners.
DAVID E. NELSEN | Director of North Pittsburgh since 1999 |
Chief Executive Officer of CoManage Corporation
Mr. Nelsen, 44, has been Chief Executive Officer of CoManage Corporation, a telecom operations software company, since 1998. From 1996 to 1998, Mr. Nelsen was Senior Director at FORE Systems, a Pittsburgh area high technology manufacturing company, with responsibility for product management and marketing of FORE’s service provider products, business planning, and strategy. Prior thereto, Mr. Nelsen served as FORE’s Director of Marketing from 1994 to 1996, with responsibility for video and telco product management and marketing. Before joining FORE, Mr. Nelsen held a variety of positions during almost 12 years at AT&T, including ATM Service Product Manager at AT&T Business Communication Services (1991-1994) and Private Packet Network Services Technical Manager at AT&T Bell Laboratories (1988-1991).
CHARLES E. THOMAS, JR. | Director of North Pittsburgh since 1993 |
Chairman of Board of Directors of North Pittsburgh;
Partner of Thomas, Thomas, Armstrong & Niesen
Mr. Thomas, Jr., 62, has been Chairman of the Board of Directors of North Pittsburgh since 1998. Mr. Thomas also has been a partner in the law firm of Thomas, Thomas, Armstrong & Niesen, Harrisburg, PA, since the formation of the firm in 1991. Before that, Mr. Thomas was a partner in the law firm of Thomas & Thomas from 1977 to 1990. Mr. Thomas’s law practice concentrates in the areas of public utility, securities regulation and corporate law.
8
Independence of Directors
The Board of Directors has determined in connection with their nomination for election as Directors in 2004 and again in connection with their nomination for election as Directors at the Annual Meeting that Charles E. Cole, Frederick J. Crowley, Stephen G. Kraskin and David E. Nelsen are independent directors, as that term is defined in Rule 4200 of the listing standards of NASDAQ (Independent Directors). The Board of Directors also determined in connection with his nomination for election as a Director in 2004 that Jay L. Sedwick also was an Independent Director. The Board of Directors has determined, further, that Charles E Cole, Frederick J. Crowley and David E. Nelsen also meet the additional criteria of independence required of audit committee members by the listing standards of NASDAQ.
Committees of the Board; Meetings of the Board and Committees
The Board of Directors held eleven (11) Regular Meetings and one (1) Special Meeting during 2004.
Each Director attended 75% or more of all Board of Directors’ meetings, and 75% or more of all meetings of each committee on which he served, during 2004 (or, in the case of Mr. Kraskin, who served as a member of the Audit Committee for only part of the year, of the meetings of the Audit Committee held while he served on the Audit Committee).
The Independent Directors met separately from the other Directors during a recess in or following each non-telephonic meeting of the Board of Directors held during 2004.
The Company urges all Directors of the Company to attend the annual meetings of the Shareholders. All of the current Directors of the Company attended the 2004 annual meeting of Shareholders, held May 21, 2004.
The Board of Directors has a standing Audit Committee, a Compensation Committee, a Corporate Governance and Nominating Committee and a Retirement Board Committee. The Compensation Committee and Corporate Governance and Nominating Committee are composed entirely of Independent Directors. All current members of the Audit Committee are Independent Directors who also meet the additional criteria of independence required of audit committee members by the listing standards of NASDAQ.
Audit Committee. The members of the standing Audit Committee throughout 2004 were Frederick J. Crowley, Chairman, Charles E. Cole and David E. Nelsen, all of whom are Independent Directors. Mr. Kraskin, also an Independent Director, was a member of the Audit Committee until March 25, 2004. Mr. Kraskin resigned from the Audit Committee on that date because the Company pays Mr. Kraskin’s law firm for legal services rendered by it from time to time and Mr. Kraskin therefore did not meet all of the additional criteria of independence required of audit committee members by the listing standards of NASDAQ. Mr. Crowley, Dr. Cole and Mr. Nelsen meet those additional criteria of independence. The Audit Committee during 2004 held five (5) meetings on days when the Board of Directors was not meeting and also two (2) meetings on days when the whole Board of Directors met. In addition, Audit Committee matters were considered during regularly scheduled meetings of the Board; these matters included monthly review of unaudited financial reports and discussions with the Company’s Chief Financial and Accounting Officer regarding those reports. The Chairman of the Audit Committee also met with representatives of the Company’s independent auditors once during 2004, at the auditors’ request. In addition, the Audit Committee met during March of 2005 to consider matters related to the audit of the financial statements of the Company for the year ended December 31, 2004 (see Audit Committee Report below).
9
A copy of the Audit Committee’s Charter was included as Exhibit A to the proxy statement relating to the annual meeting of Shareholders held on May 21, 2004 and is available at the Company’s website atwww.northpittsburgh.com.
Audit Committee financial expert. The Board of Directors has determined that Frederick J. Crowley is an audit committee financial expert, as that term is used in the rules of the Securities and Exchange Commission. In reaching this determination, the Board made a qualitative assessment of Mr. Crowley’s level of knowledge and experience based on a number of factors, including his formal education, the ongoing maintenance of his license as a certified public accountant, his experience in public accounting, including responsibilities in auditing and financial reporting during his 29 years with KPMG LLP, and his experience as a chief financial officer.
Compensation Committee. The members of the Compensation Committee throughout 2004 were David E. Nelsen, Chairman, Charles E. Cole, Frederick J. Crowley and Stephen G. Kraskin, all of whom are Independent Directors. The Compensation Committee held three (3) separate meetings during 2004 (see Compensation Committee Report on Executive Compensation below).
Corporate Governance and Nominating Committee. The members of the Corporate Governance and Nominating Committee are Stephen G. Kraskin, Chairman, Charles E. Cole, Frederick J. Crowley and Jay L. Sedwick, all of whom are Independent Directors. The Corporate Governance and Nominating Committee held one (1) meeting in 2004. When creating it, the Board of Directors charged the Corporate Governance and Nominating Committee with the responsibility of identifying and evaluating potential candidates for consideration for election as Directors of the Company and recommending to the Board of Directors nominees for election as Directors of the Company. The Board of Directors also directed that the Corporate Governance and Nominating Committee shall consider for recommendation for nomination for election as Directors of the Company potential candidates recommended by Shareholders and shall consider and evaluate those potential candidates in the same manner as the Committee considers and evaluates other potential candidates for recommendation for nomination for election as Directors of the Company. The Corporate Governance and Nominating Committee has not set specific minimum qualifications for a potential candidate to be considered or to be recommended to the Board of Directors, other than that at least one of the Directors of the Company must qualify as an audit committee financial expert as that term is used in the rules of the Securities and Exchange Commission. The Corporate Governance and Nominating Committee has not established formal procedures for identifying and evaluating potential candidates for recommendation for nomination for election as Directors of the Company.
The Corporate Governance and Nominating Committee’s Charter, adopted in 2004, specifies that Shareholders’ recommendations for consideration for nomination to serve as Directors of the Company must be in writing, must include appropriate biographical information about the person(s) being recommended, and must be accompanied by a signed statement of each person being recommended to the effect that the biographical information about that person submitted with the recommendation is correct and that he or she consents to being considered and perhaps nominated for election as a Director of the Company and to serve as a Director of the Company if elected. Shareholders’ recommendations for consideration for nomination to serve as Directors of the Company should be sent to the Corporate Governance and Nominating Committee, c/o Secretary, North Pittsburgh Systems, Inc. 4008 Gibsonia Road, Gibsonia, PA 15044-9311. Any such recommendation that a Shareholder wishes to be considered by the Corporate Governance and Nominating Committee in connection with the 2006 annual meeting of Shareholders must be received by the Secretary of the Company by the same deadline that applies to Shareholder proposals for inclusion in the Company’s Proxy Statement and proxy card for that meeting, as set forth under “Shareholder Proposals” below—that is, not later than December 23, 2005.
10
The Charter of the Corporate Governance and Nominating Committee provides also that the Corporate Governance and Nominating Committee shall, among other things: consider committee member qualifications, appointment and removal; provide oversight in the evaluation of the Board of the Directors and each committee of the Board of Directors; in consultation with the Audit Committee, develop and recommend procedures for monitoring and enforcing compliance with the Company’s Code of Ethics; at the request of the Audit Committee, review and investigate conduct alleged to be in violation of the Company’s Code of Ethics; monitor the independence of the Directors and review any potential conflict of interests between a Director and the Company; review and recommend changes to the Company’s Articles of Incorporation and By-Laws as the Committee shall deem advisable; and develop a policy regarding continuing education for Directors.
A copy of the Corporate Governance and Nominating Committee’s Charter is available on the Company’s website atwww.northpittsburgh.com.
Retirement Board Committee. The members of the Retirement Board Committee throughout 2004 were Harry R. Brown, Charles E. Cole, Allen P. Kimble, Jay L. Sedwick and Charles E. Thomas, Jr. The Retirement Board Committee during 2004 held three (3) separate meetings and also one (1) meeting on a day when the whole Board of Directors met.
Directors’ Compensation
From January through May 2004: the Directors of the Company other than Messrs. Brown, Kimble and Thomas each received a retainer of $1,200 per month and $720 for each Regular Meeting of the Board of Directors that the Director attended, other than the organizational meeting of the Board of Directors following the annual meeting of Shareholders, and for each Special Meeting of the Board of Directors that he attended for which attendance by the Directors in person had been requested; for his services as both a Director and Chairman of the Board, Mr. Thomas received $3,600 per month and $1,100 for each Regular Meeting of the Board of Directors he attended, other than the organizational meeting of the Board of Directors following the annual meeting of Shareholders, and for each Special Meeting of the Board of Directors he attended for which attendance by the Directors in person had been requested. Effective June 1, 2004, Director compensation was increased 4%, such that thereafter the Directors other than Messrs. Brown, Kimble and Thomas each received a retainer of $1,248 per month and $749 for each Regular Meeting of the Board of Directors that the Director attended and for each Special Meeting of the Board of Directors that he attended for which attendance by the Directors in person had been requested and Mr. Thomas received $3,744 per month and $1,144 for each Regular Meeting of the Board of Directors he attended and for each Special Meeting of the Board of Directors he attended for which attendance by the Directors in person had been requested. No Director receives payment for attending the organizational meeting of the Board of Directors following the annual meeting of Shareholders. No Director receives payment for participating in any Special Meeting of the Board of Directors that is conducted only telephonically.
From January through May 2004: (1) each member of the Audit Committee received $1,000 for each Audit Committee meeting he attended; (2) the Chairman of the Audit Committee also received $1,000 for each meeting he had with the Company’s independent auditors at the request of the Audit Committee or of the independent auditors; (3) Mr. Crowley also received $500 per month for his services as Chairman of the Audit Committee; (4) each member of the Compensation Committee received $500 for each Compensation Committee meeting he attended and each member of the Corporate Governance and Nominating Committee received $500 for each Corporate Governance and Nominating Committee meeting he attended, except that no member of either such Committee received compensation for attending a Compensation Committee or Corporate Governance and Nominating Committee meeting that was held on the same day that the full
11
Board of Directors met; and (5) each member of the Retirement Board Committee other than Messrs. Brown and Kimble received $500 for each Retirement Board Committee meeting he attended. Effective June 1, 2004, all committee fees were increased 4%, such that thereafter the $1,000 fees described above in this paragraph were increased to $1,040 and the $500 fees described above in this paragraph were increased to $520.
Messrs. Brown and Kimble receive no compensation as Directors of the Company, because they are full-time employees of the Company.
Shareholder Communications with the Board
The Board of Directors of the Company has not established a formal process or formal procedures for Shareholders to send communications to the Board of Directors. When the President, Secretary or any Vice President of the Company receives a written communication from a Shareholder that is directed to the Board of Directors or any specific Director or Directors, and when any Director of the Company receives any written communication from a Shareholder that is directed to the whole Board of Directors or any other Director or Directors of the Company, the recipient of that communication promptly delivers the communication (or a copy of it) to each of the Directors or to such specific Directors, respectively. The Board of Directors deems its current practices with respect to such communications satisfactory and knows of no problem or dissatisfaction of any Shareholder with those practices. The Board of Directors of the Company recommends that all Shareholder communications to the Board of Directors, any committee of the Board of Directors or any specific Director of the Company be in writing and be sent c/o Secretary, North Pittsburgh Systems, Inc., 4008 Gibsonia Road, Gibsonia, PA 15044-9311. The Board of Directors requests that the Shareholder include in each such communication a statement that he or she owns shares of the Company’s Common Stock and, if his or her shares are held of record by a broker or other nominee rather than in the Shareholder’s name, the name of the broker or other nominee in whose name the shares are registered.
CODE OF ETHICS
The Board of Directors has adopted a Code of Ethics for the Company’s chief executive officer, chief financial officer and chief accounting officer and all other members of management, all Directors and all employees and agents of the Company. The Code is intended to promote the highest standards of honest and ethical conduct throughout the Company, full, accurate and timely reporting, and compliance with law, among other things. A copy of the Company’s Code of Ethics is posted on the Company’s website atwww.northpittsburgh.com.
The Code of Ethics prohibits any waiver from the principles of the Code of Ethics without the prior written consent of the Board of Directors of the Company. The Company intends to post on the Company’s website,www.northpittsburgh.com, in accordance with the rules of the Securities and Exchange Commission any amendment of, and any waiver from, the Code of Ethics that applies to the Company’s chief executive officer, chief financial officer, chief accounting officer, or any person performing similar functions.
12
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table.The following Summary Compensation Table shows the total compensation of the Company’s President and the four (4) other most highly compensated executive officers of the Company. All of the Company’s executive officers served in such offices throughout 2004.
Summary Compensation Table (A)
Annual Compensation | All Other Compensation(B) | ||||||||||
Name and Principal Position | Year | Salary | Bonus | ||||||||
Harry R. Brown (1) | 2004 2003 2002 | $ | 271,000 260,000 235,130 | $ | 31,237 37,522 23,109 | $ | 17,919 11,264 9,138 | ||||
Allen P. Kimble (2) | 2004 2003 2002 | $ | 223,600 215,000 186,200 | $ | 31,237 37,522 23,109 | $ | 10,978 10,573 9,363 | ||||
N. William Barthlow (3) | 2004 2003 2002 | $ | 201,400 193,650 186,200 | $ | 31,237 37,522 23,109 | $ | 10,401 9,637 9,223 | ||||
Frank A. Macefe (4) | 2004 2003 2002 | $ | 201,400 193,650 186,200 | $ | 31,237 37,522 23,109 | $ | 10,480 9,637 9,285 | ||||
Albert W. Weigand (5) | 2004 2003 2002 | $ | 188,280 181,030 167,630 | $ | 31,237 37,522 23,109 | $ | 8,822 9,391 8,863 |
(1) | President since 1998, Chief Executive Officer since October 23, 2002 and Vice President from 1992 to 1998 of North Pittsburgh Systems, Inc.; President and General Manager since 1998 and Vice President—Operations from 1987 to 1998 of North Pittsburgh Telephone Company. Mr. Brown was also a Director of both companies in all three years. |
(2) | Vice President since 1989, Treasurer since 1985 and Chief Financial and Accounting Officer since October 23, 2002 of North Pittsburgh Systems, Inc.; Vice President since 1989 and Treasurer since 1979 of North Pittsburgh Telephone Company. Mr. Kimble was also a Director of both companies in all three years. |
(3) | President since 1999 of Pinnatech, Inc. d/b/a Nauticom, a subsidiary of North Pittsburgh Systems, Inc.; Vice President since 1994, Secretary since 1998 and Assistant Secretary from 1993 to 1998 of North Pittsburgh Systems, Inc.; Vice President—Marketing and Service since 1999, Vice President—Marketing and Revenues from 1994 to 1999, Secretary since 1998 and Assistant Secretary from 1993 to 1998 of North Pittsburgh Telephone Company. |
(4) | President since 1998 of Penn Telecom, Inc., a subsidiary of North Pittsburgh Systems, Inc.; Vice President since 1999 and Assistant Vice President from 1989 to 1999 of North Pittsburgh Systems, Inc.; Vice President—Sales since 1999, Assistant Vice President—Marketing from 1989 to 1998 and Marketing Manager from 1979 to 1989 of North Pittsburgh Telephone Company. |
(5) | Vice President since 1999 and Assistant Vice President from 1997 to 1999 of North Pittsburgh Systems, Inc.; Vice President—Operations since 1999, Assistant Vice President—Operations from 1997 to 1998, Senior Planning Engineer from 1995 to 1997 and Planning Engineer from 1986 to 1995 of North Pittsburgh Telephone Company. |
13
General Notes to Summary Compensation Table:
(A) | The Summary Compensation Table reflects salaries, bonuses, Company contributions to a defined contribution plan and the costs of providing group term life insurance. Since 1998, inside Directors receive no additional compensation for serving on the Board of Directors. Each executive officer of the Company also receives the right to use a Company-owned vehicle for personal use; the value of such personal use of a vehicle and of any other perquisites made available to any executive officer of the Company during any of the years reported was significantly less than 10% of the officer’s annual compensation for the year. No other forms of compensation, such as Restricted Stock Awards, Stock Appreciation Rights, Options and Long Term Incentive Payments, were in effect during the years reported. In addition, during the years reported, no one participated in North Pittsburgh Telephone Company’s Deferred Compensation Plan. |
(B) | The “All Other Compensation” amounts consist of (a) the annual contributions made to the North Pittsburgh Telephone Company Employees’ Savings and Retirement Plan (401-k) (Savings Plan) for the benefit of Messrs. Brown, Kimble, Barthlow, Macefe and Weigand during the years reported and (b) the cost of providing group term life insurance to Messrs. Brown, Kimble, Barthlow, Macefe and Weigand during the years reported. The amounts reported under “All Other Compensation” for 2004 consist of those two components as follows: the amounts contributed to the Savings Plan during 2004 for Messrs. Brown, Kimble, Barthlow, Macefe and Weigand were $7,175, $7,175, $7,049, $7,049 and $5,687, respectively; the costs during 2004 of providing group life insurance to Messrs. Brown, Kimble, Barthlow, Macefe and Weigand were $10,744, $3,803, $3,352, $3,431 and $3,135, respectively. |
Employment | Agreements |
North Pittsburgh Telephone Company, the Company’s predecessor and now a subsidiary of the Company, has employment agreements (the Agreements) with the officers named in the Summary Compensation Table and also with its Vice President—Regulatory Affairs. The Agreements provide for certain payments should certain prescribed conditions occur. If prior to the expiration of the Executive Officer’s term of employment, North Pittsburgh Telephone Company terminates the officer’s employment other than for just or good cause, then North Pittsburgh Telephone Company shall be obligated to pay to the officer a severance amount equal to the base salary which would be payable to the officer for the balance of the present term of the Agreement. In no event shall the severance amount to be paid to the officer exceed two hundred and fifty percent (250%) of the officer’s annual base salary or be less than one hundred twenty-five percent (125%) of the officer’s annual base salary.
The Agreements provide that if, after a Change of Control (as defined in the Agreements) of North Pittsburgh Telephone Company or North Pittsburgh Systems, Inc., North Pittsburgh Telephone Company or its successor terminates the officer’s employment other than for Cause (as defined in the Agreements), or the officer terminates his employment after North Pittsburgh Telephone Company or its successor seeks to terminate or substantially breach the officer’s Agreement, seeks to terminate the officer’s employment, seeks to substantially change the officer’s duties or privileges or limit the officer’s managerial duties and control, or seeks to geographically relocate the officer, then North Pittsburgh Telephone Company shall be obligated to pay to the officer an amount equal to two times the officer’s then current annual base salary. (This payment would be in lieu of, and not in addition to, the severance payment described in the preceding paragraph above.) In that circumstance, the officer shall be deemed to have remained employed through the term of the officer’s Agreement for purposes of calculating the officer’s retirement benefits.
North Pittsburgh Telephone Company has adopted a Retention Payment Program (Program) pursuant to which the officers named in the Summary Compensation Table, the Company’s Vice President—
14
Regulatory Affairs and two (2) other employees would be entitled to receive a payment from North Pittsburgh Telephone Company on the six-month anniversary of a Change of Control (as defined in the Program letters to the affected participants (Letters)) of North Pittsburgh Systems, Inc. or North Pittsburgh Telephone Company if the participant has continued in active employment with North Pittsburgh Telephone Company to such six-month anniversary date. The participant (or his or her beneficiary or estate) would be entitled to the payment if the participant is not employed by North Pittsburgh Telephone Company on the six-month anniversary date because the participant has died or become disabled or because his or her employment has been terminated either (i) by North Pittsburgh Telephone Company without Cause (as defined in the Letters) or (ii) by the participant if after the Change of Control North Pittsburgh Telephone Company or its successor seeks to terminate the participant’s employment, to substantially change the participant’s duties or privileges or limit the participant’s managerial duties and control, to geographically relocate the participant or, in the cases of the participants who are officers, to terminate or substantially breach the participant’s employment Agreement described in the paragraphs above. The amount of the payment would be equal to 35% of the participant’s base salary in effect when the Change of Control occurs.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors during 2004 met on three (3) occasions with respect to matters impacting executive compensation for 2004. The Compensation Committee met on January 12, 2004, and again on April 2, 2004, on both occasions for the purpose of approving calculated 2003 bonus payouts and developing a 2004 Executive Bonus Plan. A Plan was then prepared and approved by the Committee for recommendation at the meeting of the Board of Directors held on April 22, 2004. As in the case of the 2003 Executive Bonus Plan, the components of the 2004 Plan consisted of criteria closely tied to the Company’s Business Plan that could be objectively measured. These included specific earnings’ metrics and, for selected services, new service growth measured on a net adds basis. The bonuses for the chief executive officer and other members of the executive team covered by the 2004 Plan were based upon the same criteria and equal in amount. After discussion and with Messrs. Brown and Kimble abstaining, the Board of Directors approved and adopted the 2004 Executive Bonus Plan as recommended by the Committee.
At the Organizational Meeting of the Board of Directors held on May 21, 2004 following the 2004 annual meeting of Shareholders, the following Directors were reelected to serve as a Compensation Committee of the Board of Directors until such time as their successors are elected: David E. Nelsen, who serves as Chairman, Charles E. Cole, Frederick J. Crowley and Stephen G. Kraskin.
In August and September of 2004, the Compensation Committee held a number of conference calls to identify, request proposals from, and ultimately select a corporate compensation specialist to produce an independent study of NPSI executive compensation. The Committee selected Peter R. Johnson & Company based on their experience and based on the specifics of their proposal.
In the resulting Executive Compensation Review, Peter R. Johnson & Company documented their methodology. They developed a list of comparable companies and positions for which to assess compensation structures, levels, and ranges. They compared each NPSI executive’s compensation structure and level to the comparable data. Finally, they produced a set of recommendations, concluding that the NPSI Bonus Plan is sound and is designed with competitive features along with appropriate safeguards to avoid excessive compensation for its participants.
In reviewing the report, the Compensation Committee members also considered (i) information summarizing reported executive compensation levels for other mid-sized telecom companies in the mid-Atlantic region, (ii) the extent of the offers and inquiries made to Company executives by other companies
15
and executive recruiters, (iii) previous salary increases for the Company’s executive team, (iv) the performance of each of the executives and their importance to various projects which have been undertaken and (v) information on executive-level salary increases in the local market.
At its final meeting of the year, held November 23, 2004, the Compensation Committee considered whether adjustments to executive compensation levels were advisable. After considering this information, the Compensation Committee adopted a motion recommending to the full Board specific increases in salary for each executive officer, including the Company’s chief executive officer, that kept the officer’s salary around mid-range relative to comparable and competitive positions. At a meeting held on December 2, 2004, the Board of Directors approved and adopted the Compensation Committee’s recommendations.
Submitted by the Compensation Committee:
David E. Nelsen, Chairman
Charles E. Cole
Frederick J. Crowley
Stephen G. Kraskin
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee, namely Messrs. Cole, Crowley, Kraskin and Nelsen, was an employee of the Company or any of its subsidiaries during the Company’s last fiscal year, and none of them ever has been an officer of the Company or any of its subsidiaries.
Stephen G. Kraskin, a Director of the Company, is a member in the law firm of Kraskin, Moorman & Cosson, LLC, Washington, DC, and was a partner in its predecessor, Kraskin, Lessee & Cosson, LLP. Kraskin, Moorman & Cosson, LLC and such predecessor firm have been retained by the Company for legal services relating to federal regulation of telecommunications companies from time to time since before 2004 and may be retained by the Company in the future. The Company and its subsidiaries paid Kraskin, Moorman & Cosson, LLC and Kraskin, Lesse & Cosson, LPP a total of approximately $22,000 in fees during 2004 and at December 31, 2004 owed Kraskin, Moorman & Cosson, LLC approximately $7,000 for services rendered before, but not billed until after, December 31, 2004.
16
Retirement Benefits Table
The following table illustrates estimated annual benefits (average annual earnings multiplied by a benefit factor of 1.46% multiplied by years of service) payable to Participants at their respective retirement dates under North Pittsburgh Telephone Company’s Retirement Plan (Retirement Plan) and Income Restoration Plan (Restoration Plan).
Retirement Benefits Table
Average Annual | Years of Service | |||||||||||
20 | 30 | 40 | 50 | |||||||||
180,000 | $ | 52,560 | $ | 78,840 | $ | 105,120 | $ | 131,400 | ||||
200,000 | 58,400 | 87,600 | 116,800 | 146,000 | ||||||||
220,000 | 64,240 | 96,360 | 128,480 | 160,600 | ||||||||
240,000 | 70,080 | 105,120 | 140,160 | 175,200 | ||||||||
260,000 | 75,920 | 113,880 | 151,840 | 189,800 | ||||||||
280,000 | 81,760 | 122,640 | 163,520 | 204,400 | ||||||||
300,000 | 87,600 | 131,400 | 175,200 | 219,000 | ||||||||
320,000 | 93,440 | 140,160 | 186,880 | 233,600 | ||||||||
340,000 | 99,280 | 148,920 | 198,560 | 248,200 | ||||||||
360,000 | 105,120 | 157,680 | 210,240 | 262,800 | ||||||||
380,000 | 110,960 | 166,440 | 221,920 | 277,400 | ||||||||
400,000 | 116,800 | 175,200 | 233,600 | 292,000 |
Notes to Retirement Benefits Table:
(1) | The Retirement Plan provides retirement benefits to all full-time employees, age 21 and over, of North Pittsburgh Telephone Company other than employees hired on or after November 1, 2004, generally based on average basic monthly compensation, excluding overtime earnings, bonuses and compensation exceeding legislative limits (currently $205,000, but increased to $210,000 for plan years beginning on and after January 1, 2005), during the highest paid sixty (60) months of employment. The Restoration Plan is an unfunded supplemental plan that provides an amount equal to the difference between the amount that would have been payable under the Retirement Plan, in the absence of legislative limits on earnings that may be considered in calculating pension benefits, and the amount actually payable under the Retirement Plan. Bonuses, which are excluded from qualified earnings in the Retirement Plan, are included in the earnings calculation for the Restoration Plan. |
(2) | Messrs. Brown, Kimble, Barthlow, Macefe and Weigand as of December 31, 2004 had accumulated 44.28, 28.65, 27.44, 29.27 and 26.00 years of credited service, respectively, under the Retirement Plan. The amount of contribution or accrual applicable to an individual cannot be calculated readily. However, the aggregate cash contribution (determined without regard to the Plan’s Funding Standard Account for minimum funding purposes) required for the Retirement Plan year ended October 31, 2004 was equal to 7.09% of the total covered compensation of all participants in the Retirement Plan. |
(3) | Compensation covered by the Retirement Plan and the related Restoration Plan for Messrs. Brown, Kimble, Barthlow, Macefe and Weigand for 2004 equals the sum of the amounts set forth opposite their respective names in the “Salary” and “Bonus” columns of the Summary Compensation Table. |
(3) | Benefits listed in the Table are not subject to any deduction for Social Security or other offset amounts. |
17
PERFORMANCE GRAPH
The following Performance Graph provides an indication of cumulative total shareholder returns over a five-year period for the Company (North Pittsburgh Systems, Inc. (NPSI)) as compared with the National Association of Security Dealers Automated Quotation Systems (NASDAQ) US Index and the Standard and Poor’s (S&P) 500 Telecom Service Index. “Total shareholder returns” assumes the reinvestment of dividends. The Graph also assumes that $100 was invested on December 31, 1999 in NPSI, the NASDAQ US Index and the S&P 500 Telecom Service Index. For example, NPSI’s base of $100 at the beginning of the period, on a total return basis, is calculated to be approximately $209.70 at the end of the five-year period.
TRANSACTIONS WITH RELATED PARTIES
The Company and its subsidiaries paid approximately $2,613,000 to JUDCO Management, Inc., a subsidiary of Armstrong Holdings, Inc., for data processing functions during 2004. The Company and its subsidiaries also had approximately $438,000 outstanding to JUDCO Management, Inc. as of December 31, 2004. In addition, in the ordinary course of business, the Company and its subsidiaries both provide and receive telecommunication transport services from Boulevard Communications, L.L.P. (Boulevard), a competitive access provider jointly owned by the Company and a company in the Armstrong Holdings, Inc. group of companies (Armstrong Group). Total revenues recognized from providing services to Boulevard were approximately $26,000, and total expenses incurred from receiving services from Boulevard were approximately $191,000 for 2004. The Company and its subsidiaries also provide in the ordinary course of
18
business telecommunication and transport services to other member companies of the Armstrong Group, with total revenues recognized for such telecommunication and transport services of approximately $98,000 for 2004. The amounts outstanding between the Company and its subsidiaries, on the one hand, and Boulevard and the companies in the Armstrong Group, on the other hand, as of December 31, 2004 were negligible. Jay L. Sedwick, a Director of the Company, is the Chairman of Armstrong Holdings, Inc.
Charles E. Thomas, Jr., Chairman of the Board of the Company, is a partner in the law firm of Thomas, Thomas, Armstrong & Niesen, Harrisburg, PA. Thomas, Thomas, Armstrong & Niesen has been retained as general counsel to the Company since before 2004 and may be retained by the Company in the future. The Company and its subsidiaries paid Thomas, Thomas, Armstrong & Niesen a total of approximately $202,000 in fees during 2004 and at December 31, 2004 owed Thomas, Thomas, Armstrong & Niesen approximately $51,000 for services rendered before, but not billed until after, December 31, 2004.
Albert W. Weigand is an executive officer of the Company. A brother of Mr. Weigand was employed by a subsidiary of the Company during 2004 and continues to be employed by such subsidiary as of the date of this Proxy Statement. The Company’s subsidiary has paid to or for the benefit of Mr. Weigand’s brother compensation (salary and a contribution to a defined contribution retirement plan) aggregating $67,064 for his services rendered during 2004. At December 31, 2004, the subsidiary did not owe Mr. Weigand’s brother any other compensation for services rendered during 2004.
Stephen G. Kraskin is a Director of the Company and a member of the Compensation Committee of the Board of Directors of the Company. A description of transactions between the Company and the law firm of which Mr. Kraskin is a member is provided under the heading Compensation Committee Interlocks and Insider Participation above in this Proxy Statement.
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Under the Company’s Bylaws, the Board of Directors has the authority to appoint a firm of accountants to conduct an annual examination of the financial statements of the Company. In accordance with such authority, the Audit Committee’s Charter delegates to the Audit Committee “the sole authority and responsibility to select, retain, evaluate and, where appropriate, replace” the Company’s independent auditors. As a consequence, no recommendations will be made at the Annual Meeting in respect to accountants and this matter will not be submitted for a vote at the meeting.
KPMG Fees
The following table presents the aggregate fees billed to the Company by KPMG LLP (KPMG) for services in 2004 and 2003:
2004 | 2003 | |||||
Audit Fees | $ | 464,000 | $ | 126,000 | ||
Audit Related Fees | 75,525 | 0 | ||||
Tax Fees | 26,500 | 36,447 | ||||
All Other Fees | 0 | 0 | ||||
TOTAL FEES | $ | 566,025 | $ | 162,447 | ||
In the above table, in accordance with the definitions and rules of the Securities and Exchange Commission, “Audit Fees” are fees the Company paid KPMG for professional services for the audit of the Company’s consolidated financial statements included in its Form 10-K and review of financial statements
19
included in the Company’s Form 10-Qs, for the audit of the Company’s internal control over financial reporting, for the attestation of management’s report on the effectiveness of internal control over financial reporting, and fees for services that are normally provided by independent accountants in connection with statutory and regulatory filings or engagements, such as audit services related to the issuance of compliance audit reports to the Rural Utilities Service for a subsidiary of the Company as required by the subsidiary’s debt covenants. For 2004, the $464,000 of Audit Fees consists of $354,000 in actual fees incurred through March 31, 2005, the last practical date for incorporation of such information into this proxy statement, and $110,000 of estimated fees for services to be rendered from that date through May 2, 2005, the regulatory filing deadline for the 2004 Section 404 Sarbanes-Oxley reports. “Audit Related Fees” pertained to services rendered by KPMG in connection with assisting the Company in its compliance with its obligations under Section 404 of the Sarbanes-Oxley Act. “Tax Fees” consist of fees for services rendered by KPMG in association with the preparation of the Company’s income tax returns and tax consultation.
Pre-Approval of Services of Independent Auditors
The Audit Committee adopted during 2003 policies and procedures for pre-approving all non-audit work performed by KPMG. All additional work outside the scope of the audit and tax engagement letters (which are annually reviewed and approved by the Audit Committee) must be pre-approved by the Audit Committee. The Audit Committee also considers whether the providing of non-audit services is compatible with maintaining KPMG’s independence and concluded during 2004 and 2003 that it was.
No fees paid to KPMG during 2004 were paid under the de minimis exception to the general requirement for Audit Committee pre-approval of certain non-audit services.
Availability at Annual Meeting
Representatives of KPMG will be present at the Annual Meeting, will be given an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions by Shareholders.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible primarily to assist the Board in fulfilling its responsibility for providing oversight of the Company’s financial reporting process. The Committee’s responsibilities and functions are more fully described in its written Charter approved by the Board of Directors. The Charter was revised by the Board on January 22, 2004 to encompass additional and changed practices adopted by the Committee as a result of new Corporate Governance Rules of the NASDAQ Stock Market and the Sarbanes-Oxley Act of 2002. The revised Charter was attached as Exhibit A to the proxy statement for the Company’s annual meeting of Shareholders held on May 21, 2004 and is available on the Company’s website,www.northpittsburgh.com.
Management is responsible for the Company’s financial statements, system of internal controls and financial accounting and reporting processes. The independent auditors are responsible for performing an audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing a report thereon. The Audit Committee’s responsibility is to assist the Board of Directors in monitoring and overseeing these processes. In addition, the Audit Committee has the sole authority to appoint, determine the compensation of, evaluate and, where appropriate, replace the independent auditors.
20
In connection with these responsibilities, the Audit Committee met with management and the Company’s independent auditors to review and discuss the Company’s audited December 31, 2004 financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Audit Committee discussed with the independent auditors the matters required to be discussed with them by Statement on Auditing Standards No. 61,Communication with Audit Committees. The Audit Committee also received the written disclosures from the Company’s independent auditors required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees, as amended, and the Audit Committee discussed with the independent auditors that firm’s independence.
Based on the Audit Committee’s discussions with management and the independent auditors, and the Audit Committee’s review of the representations of management and the independent auditors, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee:
Frederick J. Crowley, Chairman
Charles E. Cole
Stephen G. Kraskin (until March 25, 2004)
David E. Nelsen
SHAREHOLDER PROPOSALS
To be eligible to be included in the Company’s Proxy Statement and proxy card for the 2006 annual meeting of Shareholders, Shareholder proposals intended for presentation at the 2006 annual meeting must be received at the office of the Secretary, North Pittsburgh Systems, Inc., 4008 Gibsonia Road, Gibsonia, PA 15044-9311 not later than December 23, 2005. The rules of the Securities and Exchange Commission contain requirements for submitting proposals for inclusion in the Company’s 2006 Proxy Statement and permit the Company to exclude proposals from its Proxy Statement in specified circumstances.
Pursuant to the Company’s Bylaws, any Shareholder who does not submit a proposal for inclusion in the Company’s Proxy Statement and proxy card for the 2006 annual meeting of Shareholders, as described in the paragraph immediately above, but who intends to present a proposal, nomination or other business for consideration at the 2006 annual meeting of Shareholders must notify the Secretary of the Company in writing of such intended proposal, nomination or other business on or before December 23, 2005. The Company’s Bylaws contain requirements that the Shareholder’s notification to the Secretary of the Company must satisfy. If a Shareholder does not comply with those notice requirements, including the deadline of December 23, 2005, the Shareholder’s proposal will be untimely and the persons named as proxies in the proxy card for the 2006 annual meeting of Shareholders may use their discretion in voting the proxies on any such matters that come before the 2006 meeting. Any such Shareholder notice and any request for a copy of the Company’s Bylaws should be in writing and sent to the Secretary, North Pittsburgh Systems, Inc., 4008 Gibsonia Road, Gibsonia, PA 15044-9311.
It is recommended that Shareholder proposals be sent to the Company by Certified Mail, Return-Receipt Requested.
21
OTHER MATTERS
The Board of Directors knows of no business which will be presented for consideration at the Annual Meeting other than that stated in the Notice of Meeting, except items incident to the conduct of the Annual Meeting, including a motion to dispense with the reading of the minutes of the 2004 annual meeting of Shareholders and approval of the minutes of that meeting as recorded. Approval of the minutes of the 2004 annual meeting of Shareholders will not constitute approval or disapproval of any of the matters referred to in those minutes. If such incidental or any other business shall properly come before the Annual Meeting, votes may be cast pursuant to the Proxies solicited hereby in respect to such business in accordance with the best judgment of the person or persons acting under the Proxies.
Accompanying this Proxy solicitation material is a copy of the Company’s Annual Report for the year 2004, which includes the following audited financial statements: Consolidated Balance Sheets as of December 31, 2004 and 2003, and Consolidated Statements of Income, Consolidated Statements of Shareholders’ Equity and Comprehensive Income and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2004. The Annual Report is submitted for the general information of the Company’s Shareholders and is not intended to induce, or for use in connection with, any sale or purchase of securities of the Company, nor should it be regarded as Proxy soliciting material or as a communication by means of which any solicitation is made.
By Order of the Board of Directors
N. William Barthlow
Secretary
Dated: April 22, 2005
22
[GRAPHIC APPEARS HERE]
4008 Gibsonia Road, Gibsonia, PA 15044-9311 proxy
This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 20, 2005.
The shares of stock you hold in your account will be voted as you specify below.
If no choice is specified, the proxy will be voted “FOR” Item 1.
By signing the proxy, you revoke all prior proxies and appoint Harry R. Brown, Allen P. Kimble, and Charles E. Cole, and each of them, with full power of substitution, to vote your shares on the matters shown on the reverse side and on all other matters that may come before the Annual Meeting or any adjournment thereof.
See reverse for voting instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided or return it to North Pittsburgh Systems, Inc., c/o Shareowner ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873.
Please detach here
The Board of Directors Recommends a Vote FOR Item 1.
1. Election of directors:
01 Harry R. Brown
02 Charles E. Cole
03 Frederick J. Crowley
04 Allen P. Kimble
05 Stephen G. Kraskin
06 David E. Nelsen
07 Charles E. Thomas, Jr.
` Vote FOR all nominees (except as marked)
` Vote WITHHELD from all nominees
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR ALL NOMINEES IN ITEM 1.
Address Change? Mark Box ` Indicate changes below:
Date
Signature(s) in Box
Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.