SCHEDULE 14A INFORMATION
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 Rule 14a-11(c) or Rule 14a-12
PROVIDENCE AND WORCESTER RAILROAD COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party
4) Date Filed:
PROVIDENCE AND WORCESTER RAILROAD COMPANY
75 Hammond Street
Worcester, Massachusetts 01610
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 25, 2007
PLEASE TAKE NOTICE that the 2007 annual meeting of the shareholders of
Providence and Worcester Railroad Company (the "Company") will be held at the
Crowne Plaza, 10 Lincoln Square, Worcester, Massachusetts, on Wednesday, April
25, 2007 at 10:00 o'clock A.M., local time, for the following purposes:
(1) To elect three directors (by the holders of Common Stock only) and six
directors (by the holders of Preferred Stock only) to serve for terms of
one year and until their successors are elected and qualified;
(2)To approve an amendment extending the term of the Company's Employee
Stock Purchase Plan for an additional ten (10) years (by the holders of
Common Stock and Preferred Stock, voting as separate classes); and
(3) To transact such other business, if any, as may properly come before
the meeting or any adjournment or adjournments thereof (by the holders of
Common Stock and Preferred Stock, voting as separate classes).
Holders of record of the Common Stock or Preferred Stock on the books of
the Company as of the close of business on March 2, 2007 will be entitled to
vote.
By Order of the Board of Directors
MARY A. TANONA
Secretary and General Counsel
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Worcester, Massachusetts
March 23, 2007
If you are the holder of record of only one class of the Company's capital
stock, only one proxy card is enclosed. If you are the holder of record of both
Common Stock and Preferred Stock, two proxy cards are enclosed. Kindly fill in,
date and sign the enclosed proxy card(s) and promptly return the same in the
enclosed addressed envelope, which requires no postage if mailed in the United
States. If you are personally present at the meeting, the proxy or proxies will
not be used without your consent.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
PROXY STATEMENT
Annual Meeting of Shareholders
April 25, 2007
SOLICITATION AND REVOCATION OF PROXIES
The accompanying proxy or proxies are solicited by the Board of Directors
of Providence and Worcester Railroad Company (herein called the "Company") in
connection with the annual meeting of the shareholders to be held April 25,
2007; the Company will bear the cost of such solicitation. It is expected that
the solicitation of proxies will be primarily by mail. Proxies may also be
solicited personally by regular employees of the Company at nominal cost. The
Company may reimburse brokerage houses and other custodians, nominees and
fiduciaries holding stock for others in their names, or in those of their
nominees, for their reasonable out-of-pocket expenses in sending proxy materials
to their principals or beneficial owners and obtaining their proxies. Any
shareholder giving a proxy has the power to revoke it at any time prior to its
exercise, but the revocation of a proxy will not be effective until notice
thereof has been given to the Secretary of the Company. Notice of revocation may
be delivered in writing to the Secretary prior to the meeting or may be
transmitted orally to the Secretary at the meeting. Every properly signed proxy
will be voted in accordance with the specifications made thereon.
The Company's Annual Report for 2006, including financial statements, this
proxy statement and the accompanying proxy or proxies are expected to be first
sent to shareholders on or about March 23, 2007. Neither the Annual Report nor
the financial statements therein are incorporated in this Proxy Statement and do
not form any part of the material for the solicitation of proxies.
VOTING AT MEETING
Only shareholders of record at the close of business on March 2, 2007 will
be entitled to vote at the meeting. Under the Company's charter, the holders of
the Company's Common Stock, voting separately as a class, are entitled to one
vote for each share held in the election of one-third (1/3) of the Board of
Directors of the Company proposed to be elected at the meeting (or the nearest
larger whole number, if such fraction is not a whole number). The holders of the
Company's Preferred Stock, voting separately as a class, are entitled to one
vote for each share held in the election of the balance of the Board of
Directors proposed to be elected at the meeting. The holders of the Company's
Common Stock and the holders of the Company's Preferred Stock are entitled to
one vote per share, voting as separate classes and not together, upon all other
matters presented to the shareholders for their approval.
Common Stock directors will be elected in each case by vote of the holders
of a majority of the Common Stock present or represented at the meeting, and the
Preferred Stock directors will be similarly elected by vote of the holders of a
majority of the Preferred Stock.
Shares represented by proxies which are marked "withhold authority" with
respect to the election of any particular nominee for director, "abstain" with
respect to the approval of the amendment to the Company's Employee Stock
Purchase Plan or any other matters, or to deny discretionary authority on any
other matters will be counted as shares present and entitled to vote, and,
accordingly, any such marking of a proxy will have the same effect as a vote
against the proposal to which it relates.
Brokers who hold shares in street name may lack authority to vote such
shares on certain items, absent specific instructions from their customers.
Shares subject to such "broker non-votes" will not be treated as shares entitled
to vote on the matters to which they relate and therefore will be treated as not
present at the meeting for those purposes, but otherwise will have no effect on
the outcome of the voting on such matters. It is not currently anticipated that
any matter that might be the subject of a "broker non-vote" will come before the
annual meeting.
On the record date, there were 4,534,056 shares of the Company's Common
Stock and 640 shares of the Company's Preferred Stock outstanding and entitled
to vote at the meeting.
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors has determined that all of the current directors of
the Company, which include each of the nominees standing for election at the
2007 annual meeting, other than Robert H. Eder and P. Scott Conti, are
independent of the Company in that such nominees have no material relationship
with the Company either directly, or as a partner, shareholder or affiliate of
an organization that has a relationship with the Company. The Board of Directors
has made this determination based on the following:
o Other than Messrs. Eder and Conti, no nominee for director is an
officer or employee of the Company or its subsidiaries or affiliates;
o No nominee for director has an immediate family member who is an
officer of the Company or its subsidiaries or has any current or past
material relationship with the Company;
o No nominee for director, other than Messrs. Eder and Conti, has worked
for, consulted with, been retained by, or received anything of
substantial value from the Company aside from his compensation as a
director;
o No nominee for director is, or was within the past three years,
employed by the independent auditors for the Company;
o No executive officer of the Company serves on the Stock Option &
Compensation Committee or the Audit Committee of the Company. Other
than Mr. Eder, no executive officer of the Company serves on the Board
of Directors of any corporation that employs a nominee for director or
a member of the immediate family of any nominee for director;
o No nominee for director is an executive officer of any entity which
the Company's annual sales to or purchases from exceeded one percent
of either entity's annual revenues for the last fiscal year; and
o No nominee for director serves as a director, trustee, executive
officer or similar position of a charitable or non-profit organization
to which the Company or its subsidiaries made charitable contributions
or payments in fiscal year 2006 in excess of five percent of the
organization's consolidated gross revenues, or $200,000, whichever is
more, at any time during the past three years.
2
ELECTION OF DIRECTORS
At the annual meeting, three Common Stock directors and six Preferred Stock
directors are to be elected, and each will hold office until the next annual
meeting and until his successor is elected and qualified. The proxies named in
the accompanying proxy or proxies, who have been designated by the Board of
Directors, intend to vote, unless otherwise instructed, for the election to the
Board of Directors of the persons named below, all of whom are now directors of
the Company. Certain information concerning such nominees is set forth below:
Principal Occupation Director
Name and Age During Past Five Years Since(a)
- ------------ ---------------------- --------
Common Stock Director Nominees:
-------------------------------
Richard W. Anderson Senior Vice President of Massachusetts Capital 1998
(59) Resource Company
Robert H. Eder (74) Chairman of the Company 1965
John J. Healy (71) Director of Manufacturing Advancement Center and 1991
Director of Operations for the Massachusetts
Manufacturing Extension Partnership; President
of Worcester Affiliated Mfg. L.L.C. (manufacturing
consultant) from 1997 to 2003
Preferred Stock Director Nominees:
----------------------------------
Frank W. Barrett Retired; until April 2006 Executive Vice President 1995
(67) of TD Bank North, N.A. (formerly Banknorth
Massachusetts) (prior to January 2002, Executive
Vice President of First Massachusetts Bank, N.A.)
P. Scott Conti (49) President of the Company (prior to November 2005 2005
Vice President Engineering)
J. Joseph Garrahy President of J. Joseph Garrahy & Associates, Inc. 1992
(76) (business consultants)
James C. Garvey (50)President and CEO of Flagship Bank & Trust Company 2005
Charles M. President of Bertha M. McCollam, Inc. and Vice 1996
McCollam, Jr. (74) President and Secretary of Kronholm & McCollam
(insurance firms) and President of McCollam
Associates (consultant)
Craig M. Scott (43) Partner of Duffy, Sweeney & Scott, Ltd. 2004
(a) Dates of directorships include directorships of the Company's predecessors.
Brief Biographies
Richard W. Anderson, Director. Mr. Anderson has been a Director of the
Company since 1998. He is Senior Vice President of Massachusetts Capital
Resource Company ("MCRC"), a private investment firm funded by major
Massachusetts based life insurance companies providing high risk growth capital
to Massachusetts businesses. He began working at MCRC in 1981. Mr. Anderson is
also a director of Valpey Fisher Corporation, a company specializing in
frequency control devices, and Polar Beverages, Inc.
3
Frank W. Barrett, Director. Mr. Barrett has been a Director of the Company
since 1995. In April 2006 Mr. Barrett retired from TD Bank North, N.A. Effective
June 2000, he became Executive Vice President of First Massachusetts Bank, N.A.
Effective January 2002, First Massachusetts Bank, N.A. merged into Banknorth
Massachusetts. No change in Mr. Barrett's responsibility was effected as a
result of the merger. Effective March 2005, Banknorth Massachusetts was
purchased by Toronto Dominion Bank and changed its name to TD Banknorth, NA.
P. Scott Conti, President, Chief Operating Officer and Director. Mr. Conti
joined the Company in June 1988 as Engineering Manager, a position he held until
December 1997. He was promoted to Chief Engineer in January 1998, and to Vice
President Engineering in March 1999. In November 2005 the Company's Board of
Directors elected Mr. Conti to succeed the late Orville R. Harrold as President
and to fill the vacancy on the Board of Directors that resulted from Mr.
Harrold's death.
Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder
became President of the Company in 1966 and led the Company through its efforts
to become an independent operating company. He has been Chairman of the Board of
Directors since 1980. He is a graduate of Harvard College and Harvard Law
School. He is also Chairman of the Board, and (with his wife) beneficial or
direct owner of a majority of the stock, of Capital Properties, Inc., a real
estate holding company of which he is also a Director. Mr. Eder is admitted to
practice law in Rhode Island and New York.
J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company
since 1992. He is a former four term Governor of Rhode Island and, since 1990,
has been an independent business consultant in the State of Rhode Island.
James C. Garvey, Director. Mr. Garvey has been a Director of the Company
since 2005. Mr. Garvey has been President and CEO of the Worcester-based
Flagship Bank & Trust Company ("Flagship Bank") since 2001. He began working at
Flagship Bank in 1999 as Executive Vice President.
John J. Healy, Director. Mr. Healy has been a Director of the Company since
1991. Mr. Healy is Director of the Manufacturing Advancement Center and Director
of Operations for the Massachusetts Manufacturing Extension Partnership, an
independent consulting organization dedicated to assisting small manufacturing
enterprises in becoming globally competitive. He was President of Worcester
Affiliated Mfg. L.L.C. (manufacturing consultant) from 1997 to 2003.
Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the
Company since 1996. He is President of Bertha M. McCollam, Inc. and Vice
President and Secretary of Kronholm & McCollam (insurance firms), as well as
owner and President of McCollam Associates, a consulting firm in the State of
Connecticut. He was the Chief of Staff to a former governor of Connecticut.
Craig M. Scott, Director. Mr. Scott has been a Director of the Company
since 2004. He is partner of the Providence-based law firm of Duffy, Sweeney &
Scott, Ltd. and served as its Managing Partner in 2004 - 2005.
Recommendation of Board of Directors. The Board of Directors recommends that the
shareholders vote FOR approval of the slate of three (3) common stock director
nominees and six (6) preferred stock director nominees set forth above.
Committees of the Board of Directors
The Board of Directors has an Executive Committee, a Stock Option &
Compensation Committee and an Audit Committee. The Board of Directors does not
have a nominating committee. Each of the Executive, Stock Option & Compensation
and Audit Committees has a written charter approved by the Board of Directors. A
copy of the Stock Option & Compensation and Audit Committee Charters are
attached to this Proxy Statement.
4
In accordance with the By-laws of the Company, the Executive Committee,
currently comprising P. Scott Conti, Chairman, John J. Healy and James C.
Garvey, exercises the authority of the Board of Directors when formal Board
action is required between meetings, subject to the limitations imposed by law,
the By-laws or the Board of Directors. The Executive Committee acts on routine
matters such as authorizing the sale of surplus real estate and the execution of
government contracts for reimbursement for Company work on highway projects
adjacent to the railroad and grade crossing rehabilitation.
The Stock Option & Compensation Committee, currently comprising Charles M.
McCollam, Jr., Chairman, Craig M. Scott and James C. Garvey, each of whom are
independent (as defined by applicable American Stock Exchange ("AMEX") listing
standards and Securities and Exchange Commission ("SEC") rules), non-employee
directors. The Committee is charged with the broad responsibility of seeing that
executive officers are effectively compensated in a manner which is internally
equitable based on such officer's responsibilities and length of service to the
Company. Because the Company is a "controlled" company as defined in Section
801(a) of the AMEX Guide, the Company is not subject to the AMEX Guide
requirement that compensation of the chief executive officer and all other
officers be determined, or recommended to the Board of Directors for
determination, either by a compensation committee comprised of independent
directors or by a majority of the independent directors on its Board of
Directors. However, the Company's Stock Option & Compensation Committee charter
provides that the Stock Option & Compensation Committee shall approve and report
to the Board of Directors the executive compensation plan (including incentive
awards) of the Chairman of the Board and the President and any other officer who
is a member of the Board of Directors.
The Audit Committee of the Board of Directors, currently comprising J.
Joseph Garrahy, Chairman, Frank W. Barrett and Richard W. Anderson, all of whom
are independent as defined by the AMEX listing standards, is responsible for
providing independent, objective oversight of the Company's accounting functions
and internal controls. The Board of Directors has determined that all three
members of the Audit Committee satisfy the financial literacy requirements of
the AMEX listing standards and are independent as defined under the AMEX listing
requirements and applicable rules of the SEC. The Board of Directors has
determined that Frank W. Barrett meets the standards set forth in Item 401(h)(2)
of SEC Regulation S-K to qualify as an audit committee financial expert, as that
term is defined in Item 401(h)(2).
The Company does not have a written procedure for shareholders to make
nominations to the Board of Directors, but the Company does consider such
nominations. The holders of the Preferred Stock elect a majority of the members
of the Board of Directors. Mr. Eder, who owns a majority of the Preferred Stock
and who serves as the Chairman of the Board of Directors of the Company,
involves himself in the screening and selection of directors of the Company when
vacancies occur on the Board of Directors and the Board of Directors has voted
to sit as a committee of the whole to consider any recommendations made by
shareholders and/or other directors of persons to be directors of the Company
and in determining whether to nominate any such recommended person for election
by the shareholders. Thus, the Board of Directors has determined that (i) the
Company shall not have a nominating committee; and (ii) the Board of Directors
shall consider the competencies and experience of such recommended person as
they relate to the business of the Company, together with such person's age,
reputation and ability to carry out the requirements to serve as a director of
the Company. In addition, because the Company is a "controlled" company as
defined in Section 801(a) of the AMEX Company Guide, the Company is not subject
to the AMEX Company Guide requirement that a listed company adopt a formal
written charter or board resolution addressing the nominations process.
The Board of Directors held four meetings, the Audit Committee held four
meetings, the Stock Option & Compensation Committee held three meetings and the
Executive Committee held five meetings during the fiscal year ended December 31,
2006. All directors attended at least 75% of all meetings. The Board of
Directors has adopted a policy that requires members of the Board of Directors
to make every effort to attend each annual shareholders meeting. All then
current members of the Board of Directors attended the 2006 annual shareholders
meeting.
Code of Ethics
The Company has adopted a Code of Ethics applicable to all directors,
officers and employees, which meets the requirements of a "code of ethics" as
defined in Item 406 of Regulation S-K.
5
Shareholder Communications
Shareholders of the Company may communicate directly with the members of
the Board of Directors by writing directly to those individuals at the following
address: Providence and Worcester Railroad Company, 75 Hammond Street,
Worcester, Massachusetts 01610, and the Company shall forward, and not
intentionally screen, any mail received at the Company's corporate office that
is sent directly to an individual director or to the directors generally unless
the Corporation believes that the communication may pose a security risk. The
Board of Directors sits as a committee of the whole to address any inquiries
made by shareholders.
Audit Committee Report
Management is responsible for the Company's internal controls and financial
reporting process. The independent accountants are responsible for performing an
audit of the Company's consolidated financial statements in accordance with
generally accepted auditing standards and to issue a report thereon. The Audit
Committee's responsibility is to appoint, compensate, retain and oversee any
independent auditor engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services, and otherwise to
monitor and oversee these processes.
The responsibilities of the Audit Committee include engaging an accounting
firm as the Company's independent accountants. Additionally, and as appropriate,
the Audit Committee reviews and evaluates, and discusses and consults with the
Company's management and independent accountants regarding the scope of the
audit plan, the results of the audit, the Company's financial statement
disclosure documents, the adequacy and effectiveness of the Company's accounting
and financial controls and changes in accounting principles, and the auditor's
performance and independence. The Audit Committee also oversees the receipt and
processing of complaints by employees related to accounting, internal controls
or auditing-related matters and reviews related-party transactions.
In connection with these responsibilities, the Audit Committee reviewed and
discussed the audited financial statements with management and the Company's
independent accountants, Deloitte & Touche LLP. The Audit Committee also
discussed with Deloitte & Touche LLP the matters required by Statement on
Auditing Standards No. 61. The Audit Committee received from Deloitte & Touche
LLP written disclosures and the letter regarding its independence as required by
Independence Standards Board Standard No. 1. The Audit Committee discussed this
information with Deloitte & Touche LLP and also considered the compatibility of
non-audit services provided by Deloitte & Touche LLP with its independence.
Based on the review of the audited financial statements and these various
discussions, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K, to be filed with the SEC.
Audit Committee:
J. Joseph Garrahy, Chairman
Frank W. Barrett
Richard W. Anderson
Compensation of Directors
The Board of Directors, upon recommendation of the Stock Option &
Compensation Committee, is responsible for determining compensation of the
directors. During the fiscal year ended December 31, 2006, each director who was
not an employee of the Company received a base fee of $500 for each attended
meeting of the Board of Directors plus $50 per attended meeting for each year of
service as a director, and each member of the Audit Committee and the Stock
Option & Compensation Committee received $300 for each attended meeting of the
committee (other than the chairman of each Committee, who received $350).
During the month of January of each year, directors of the Company who were
serving as such on the preceding December 31 and who are not full time employees
of the Company are granted options for the purchase of 100 shares of the Common
Stock of the Company, plus options for an additional ten shares for each full
year of service to the Company. The exercise price is the last sale price of the
Common Stock on the last business day of the preceding year, and the term of
each option is ten years (subject to earlier termination if the grantee ceases
to serve as a director), provided, however, that no option is exercisable within
six months following the date of grant.
6
On January 3, 2006, each director of the Company who was serving as such on
December 31, 2005 and was not a full time employee of the Company was granted
options for the purchase of 100 shares of Common Stock of the Company, plus
options for an additional ten shares for each full year of service to the
Company. The exercise price for such options is $14.90.
The following table provides information regarding the compensation paid or
accrued by each individual who was a director during the 2006 fiscal year other
than the Chairman and the President.
- -------------- -------- ------------ ------ ------- -------------- -------------
Name Total Fees earned Stock Option Non-Stock All Other
($) or paid in Awards Awards Incentive Plan Compensation
cash ($) ($) ($) (a) Compensation ($)
- -------------- -------- ------------ ------ ------- -------------- -------------
Richard W. 6,769 4,950 N/A 1,819 N/A 0
Anderson
- -------------- -------- ------------ ------ ------- -------------- -------------
Frank W. 8,340 6,200 N/A 2,140 N/A 0
Barrett
- -------------- -------- ------------ ------ ------- -------------- -------------
P. Scott Conti (b), (c) (b) N/A N/A (c) N/A 0
- -------------- -------- ------------ ------ ------- -------------- -------------
Robert H. Eder (b) (b) N/A 0 N/A 0
- -------------- -------- ------------ ------ ------- -------------- -------------
J. Joseph 10,161 7,700 N/A 2,461 N/A 0
Garrahy
- -------------- -------- ------------ ------ ------- -------------- -------------
James C. 3,300 3,300 N/A 0 N/A 0
Garvey
- -------------- -------- ------------ ------ ------- -------------- -------------
John J. Healy 8,618 6,050 N/A 2,568 N/A 0
- -------------- -------- ------------ ------ ------- -------------- -------------
Charles M. 8,578 6,545 N/A 2,033 N/A 0
McCollam, Jr.
- -------------- -------- ------------ ------ ------- -------------- -------------
Craig M. Scott 4,677 3,500 N/A 1,177 N/A 0
- -------------- -------- ------------ ------ ------- -------------- -------------
(a) As of 12/31/06, each director had the following number of options
outstanding:
Richard W. Anderson - 1,080 shares
Frank Barrett - 1,440 shares
P. Scott Conti - 1,274 shares
J. Joseph Garrahy - 760 shares
James C. Garvey - 0 shares
John J. Healy - 1,800 shares
Charles M. McCollam, Jr. - 0 shares
Craig M. Scott - 110 shares
(b) The Company does not pay director fees to directors who are full-time
employees of the Company.
(c) Mr. Conti is awarded options in his capacity as President under the
Company's Non-Qualified Stock Option Plan, which options are disclosed
in the table under the section entitled Grants of Plan Based Awards
set forth herein.
7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below reflects the only persons (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who, to the best of the Company's knowledge, were on March 2, 2007 the
beneficial owners of more than five percent of the Company's outstanding Common
Stock, $.50 par value, or Preferred Stock, $50 par value. Each share of the
Company's outstanding Preferred Stock is convertible at any time, at the option
of the holder, into one hundred shares of Common Stock of the Company. The
footnote to the table below sets forth the percentages of the outstanding Common
Stock which would be held by the indicated owners if such owners' Preferred
Stock were converted in whole into Common Stock.
Percent
Name and Address Number of Shares Owned of Class
- ---------------- ---------------------- --------
Robert H. and Linda Eder 842,742 (Common) 18.6%(a)
120 Sunset Avenue 500 (Preferred) 92.6%
Palm Beach, Florida 33480
Steinberg Asset Management, LLC 468,040 (Common) 10.3%
Michael A. Steinberg
12 East 49th Street
Suite 1202
New York, New York 10017
Keeley Asset Management Corp. 379,675 (Common) 8.4%
Kamco Performance Limited Partnership
Kamco Limited Partnership No. 1
401 South LaSalle Street
Chicago, Illinois 60605
(a) Assuming no conversion of Preferred Stock. If their Preferred Stock
were converted in whole to Common Stock, Mr. and Mrs. Eder would own 19.5% of
the outstanding Common Stock.
Of the shares owned by Mr. and Mrs. Eder, 768,162 shares of Common Stock
and 500 shares of Preferred Stock were held directly by Mr. Eder, and 74,580
shares of Common Stock were held directly by Mrs. Eder. By reason of their
ownership, Mr. and Mrs. Eder may be deemed to be "control persons" with respect
to the Company.
8
The following table reflects, as of March 2, 2007, the beneficial ownership
of the Common Stock of the Company by directors, nominees for directors, Named
Executive Officers and all officers and directors as a group.
Name Number Percentage
- ---- ------ ----------
Richard W. Anderson(a) ........................ 201,780 4.4%
Frank W. Barrett(b) ........................... 2,050 *
P. Scott Conti(c) ............................. 6,989 *
Robert J. Easton(d) ........................... 7,190 *
Robert H. Eder(e) ............................. 892,742 19.4%
David F. Fitzgerald(f) ........................ 6,147 *
J. Joseph Garrahy(g) .......................... 1,160 *
James C. Garvey ............................... 300 *
John J. Healy(h) .............................. 2,640 *
Charles M. McCollam, Jr ....................... 3,750 *
Frank K. Rogers(i) ............................ 2,505 *
Craig M. Scott(j) ............................. 1,110 *
Mary A. Tanona(k) ............................. 2,784 *
All executive officers and directors as a group
(14 persons)(l)............................. 1,131,673 24.6%
* Less than one percent
(a) Includes 200,000 shares of common stock held by Massachusetts Capital
Resource Company of which Mr. Anderson disclaims beneficial ownership. Mr.
Anderson is Senior Vice President of Massachusetts Capital Resource
Company. Also includes 1,080 shares of Common Stock issuable under stock
options exercisable within 60 days.
(b) Includes 1,440 shares of Common Stock issuable under stock options
exercisable within 60 days.
(c) Includes 1,274 shares of Common Stock issuable under stock options
exercisable within 60 days.
(d) Includes 118 shares of Common Stock held by Mr. Easton's wife in her name
and 3,054 shares of Common Stock issuable under stock options exercisable
within 60 days.
(e) Includes 74,580 shares of Common Stock held by Mr. Eder's wife in her name
and assumes the conversion of the 500 shares of Preferred Stock owned by
Mr. Eder.
(f) Includes 20 shares of Common Stock held by Mr. Fitzgerald's wife in her
name and 3,256 shares of Common Stock issuable under stock options
exercisable within 60 days.
(g) Includes 760 shares of Common Stock issuable under stock options
exercisable within 60 days.
(h) Includes 1,800 shares of Common Stock issuable under stock options
exercisable within 60 days.
(i) Includes 1,195 shares of Common Stock issuable under stock options
exercisable within 60 days.
(j) Includes 110 shares of Common Stock issuable under stock options
exercisable within 60 days.
(k) Includes 802 shares of Common Stock issuable under stock options
exercisable within 60 days.
(l) Includes 526 shares of Common Stock owned by an officer of the Company who
is not a Named Executive Officer, 50,000 shares of Common Stock issuable
upon conversion of Preferred Stock and 14,771 shares of Common Stock
issuable under stock options exercisable within 60 days.
9
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities to file reports of securities ownership and changes in such
ownership with the Securities and Exchange Commission. Officers, directors and
greater than ten-percent beneficial owners also are required by rules
promulgated by the Securities and Exchange Commission to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company or written representations that no Form 5 filings were required, the
Company believes that during 2006 its officers, directors and greater than
ten-percent beneficial owners complied with all applicable Section 16(a) filing
requirements.
COMPENSATION DISCUSSION & ANALYSIS
The Stock Option & Compensation Committee is charged with the
responsibility of setting the compensation for each of the Chairman/Chief
Executive Officer (the "Chairman"), the President/Chief Operating Officer
("President") of the Company, and any other officer who is also a member of the
Board of Directors, and consulting with the Chairman and the President with
respect to the compensation of other executive officers. Our overall philosophy
in connection with compensation is to provide a compensation package which
attracts and retains qualified people. We also seek to obtain internal equity
within the compensation structure by providing appropriate salary levels to
reflect the responsibilities of individual executives. Historically, we have
adjusted executive compensation each year by the increase in cost of living,
which has the effect of rewarding executives for longevity with the Company. We
do not give significant weight to the compensation paid by comparable railroads
as there are few similar railroads in our region.
We have from time to time paid bonuses in connection with specific
situations requiring extraordinary effort. However, there is no formal plan. We
have not awarded a bonus to the Chairman since 1999 because we believe that his
stock ownership position sufficiently encourages him to perform in a way that
will maximize value to the Company.
To further align the interest of the executives of the Company, we have a
non-qualified stock option plan in which all of the executives, other than the
Chairman, may participate. The plan is designed to make awards based upon
compensation and longevity and, therefore, to encourage executives to remain
with the Company.
We have not had, and do not expect to have, employment contracts with any
of our executives. We do have change-in-control agreements, including a
severance policy, for all executives other than the Chairman. This plan
generally provides higher benefits for longer-tenured executives. In lieu of any
defined benefit or 401(k) plans, we contribute to each executive's Simplified
Employee Pension plan ("SEP") which is available to all non-union employees on a
non-discriminatory basis.
As the Chairman is not subject to a change-in-control agreement, we pay the
insurance premiums on a life insurance policy which provides a death benefit of
$1,600,000. With the exception of this policy, all other executive benefits are
made available to all non-union employees on a non-discriminatory basis.
Salaries
The Chairman's compensation was set many years ago and has been adjusted
from time to time to reflect increases in the cost of living. The President's
compensation was set in early 2006 and, in discussions between the Stock Option
& Compensation Committee and the President, he has expressed satisfaction with
the level of his compensation and the Stock Option & Compensation Committee has
seen no need to make any adjustments, other than the annual cost of living
increase. We consult with the Chairman and the President from time to time with
respect to the compensation of other executives. In general, their philosophy,
which is shared by us, is that the compensation of other executives should
relate to their responsibilities attendant to their offices and their lengths of
service with the Company. Accordingly, we believe that the Chairman's salary
should represent the highest salary paid and the salaries of other executive
officers should be less than the Chairman's salary and should be governed by
10
their levels of responsibility within the Company. The President of the Company,
therefore, is the next highest paid employee. Similarly, other employees are
paid in accordance with what the Chairman and the President perceive to be the
other executive officers' responsibilities and we concur with their assessment.
We reward length of service through annual cost of living increases.
Bonus Plan
We maintain no formal bonus plan. We do not anticipate paying a bonus to
the Chairman in the future for the reason that the Chairman has a substantial
equity interest in the Company and, therefore, exceptional performance by him is
likely to be translated into an increase in the value of his stock interest in
the Company. With respect to other individuals, the Chairman has from time to
time awarded bonuses on the occurrence of extraordinary events where executives
have put in an extraordinary amount of time and effort to achieve a goal. We
concur with this rationale.
Stock Option Plan
The Company maintains a Nonqualified Stock Option Plan (the "Plan") for its
directors and executives, other than the Chairman. Pursuant to the terms of the
Plan, all employees of the Company who are not subject to a collective
bargaining agreement and have been an employee of the Company for more than one
year are eligible to participate in the Plan. Historically, we have allotted
seven thousand shares per year to be allocated among eligible employee
participants. By keeping the number constant, we eliminate year to year swings
and provide for a consistent long-term incentive. Pursuant to the terms of the
Plan, each employee participant's compensation is multiplied by a longevity
factor which is 1.5 for executives with more than five years' service increasing
ratably, in five year increments, up to 3.5 for executives with more than 25
years' service. The sum of all of the products computed for all employee
participants then becomes the denominator. Each employee participant is then
awarded the number of options equal to the product of (a) the total shares
allocated for such year, and (b) the ratio that his/her compensation multiplied
by his/her longevity factor bears to the products for all employee participants.
Options are granted at fair market value as of the first business day of January
of each year for a ten-year term. Options may not be exercised for the first six
months following the grant date and, thereafter, are exercisable at any time. In
accordance with the Plan, options are granted in January of each year. Upon
termination for any reason, the options must be exercised within six months of
the date of termination. As with our other compensation, the option awards are
designed to encourage longevity with the Company.
Other Agreements
The Company has change-in-control agreements, including a severance policy,
with respect to all its executives other than the Chairman. The amount paid
under the severance provisions of a change-in-control agreement is a function of
salary and length of service. Accordingly, an executive is entitled to a
one-time payment equal to his/her annual base salary if at the time of the event
giving rise to the change-in-control he/she has been an employee of the Company
for zero to nine years. For the period of employment between ten and nineteen
years, the multiplier is one and one-half times salary; for twenty to
twenty-nine years, two times salary; and for thirty years or more, two and
one-half times salary. Additionally, if within two years following a
change-in-control the employer significantly reduces a management employee's
base salary and the management employee resigns as a result of such reduction,
he/she is also entitled to the severance benefit calculated above. For purposes
of a change-in-control and the severance paid thereunder, a management employee
does not include any employee who is a beneficial owner, directly or indirectly,
of securities which have the right to elect a majority of the Board of Directors
or 50% of the voting power of the entire capital stock of the Company.
In addition to the benefits outlined above, all management employees are
entitled to life and disability coverage under policies of insurance paid by the
Company. Life insurance benefits are in the amount of twice annual salary up to
$50,000 and disability benefits are equal to 60% of annual salary up to $8,000
per month.
Aside from the life insurance benefit due Mr. Eder's designated beneficiary
upon death, the above-described bonus plan, stock option plan, severance
payments upon a change-in-control, and life and disability insurance plans are
benefits available to both our executive employees and other non-union employees
on a non-discriminatory basis.
11
STOCK OPTION & COMPENSATION COMMITTEE REPORT
The Stock Option & Compensation Committee has reviewed and discussed with
management the Compensation Discussion & Analysis included above. Based on these
reviews and discussions, the Stock Option & Compensation Committee has
recommended to the Board of Directors that the Compensation Discussion &
Analysis contained herein be included in the Company's Proxy Statement for the
fiscal year ended December 31, 2006 for filing with the SEC.
Stock Option & Compensation Committee:
Charles M. McCollam, Jr., Chairman
Craig M. Scott
James C. Garvey
12
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table provides information regarding the
total compensation paid or accrued by the Company to each of its Chief Executive
Officer, Chief Financial Officer and the three most highly compensated executive
officers other than the CEO and CFO who earned more than $100,000 in total
compensation during the fiscal year ended December 31, 2006 and were employed by
the Company on December 31, 2006 (the "Named Executive Officers").
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
Name Year Salary Bonus Stock Option Non-Equity Change in All Total
and ($) ($) Awards Awards Incentive Pension Other ($)
Principal ($) ($) Plan Value and Compen-
Position (a) Compen- Non- sation
sation Qualified ($)
($) Deferred
Compen-
sation
Earnings
($)
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
Robert H. 2006 388,179 0 0 0(b) 0 0 87,442 475,621
Eder (c)
Chairman
and CEO
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
P. Scott 2006 175,949 0 0 4,098 0 0 12,120 192,167
Conti (d)
President
and Chief
Operating
Officer
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
Robert J. 2006 160,685 0 0 4,494 0 0 11,224 176,403
Easton (d)
Treasurer
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
David F. 2006 136,205 0 0 4,954 0 0 9,194 150,353
Fitzgerald (d)
Vice
President
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
Mary A. 2006 134,821 0 0 2,204 0 0 9,100 146,125
Tanona (d)
Secretary
and
General
Counsel
- ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ -------
(a) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006, in
accordance with SFAS 123R.
(b) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder
is not eligible to receive a grant of stock options.
(c) Includes $14,850 paid directly to Mr. Eder's retirement account under the
SEP, $27,433 in life insurance premiums for 2006, $40,918 for purchase of
vehicle for use by Mr. Eder and $4,241 in car insurance and parking paid on
Mr. Eder's behalf.
(d) Reflects amounts paid directly to officer's retirement account under the
Company's SEP.
13
Grants of Plan Based Awards
The following table provides information on all plan based awards by the
Company in 2006 to each Named Executive Officer.
- --------------------------------------------------------------------------------------------------------------------------
Name Grant Estimated Future Payouts Estimated Future Payouts All Other All Other Exercise Grant
Date Under Non-Equity Under Equity Incentive Stock Option or Base Date Fair
Incentive Plan Awards Plan Awards Awards: Awards: Price of Value of
Number of Number of Option Stock and
Shares of Securities Awards Option
Stock or Underlying ($/Sh) Awards
Units Options ($)
(#) (#) (a)
-----------------------------------------------------
Threshold Target Maximum Threshold Target Maximum
($) ($) ($) ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. N/A N/A N/A N/A N/A N/A N/A N/A 0 0 0
Eder (b)
- --------------------------------------------------------------------------------------------------------------------------
P. Scott 01/03/06 N/A N/A N/A N/A N/A N/A N/A 383 14.90 4,098
Conti
- --------------------------------------------------------------------------------------------------------------------------
Robert J. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 420 14.90 4,494
Easton
- --------------------------------------------------------------------------------------------------------------------------
David F. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 463 14.90 4,954
Fitzgerald
- --------------------------------------------------------------------------------------------------------------------------
Mary A. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 206 14.90 2,204
Tanona
- --------------------------------------------------------------------------------------------------------------------------
(a) Amounts represent fair value of options and were estimated to be $10.70 per
share as of the date of grant using Black-Scholes options-pricing model
with the following weighted average assumptions: expected volatility of
88.28%; expected life 7 years; and risk free interest rate of 4.32%.
Dividends at the rate of 1.07% per share were assumed for purposes of this
estimate.
(b) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder
is not eligible to receive a grant of stock options.
14
Outstanding Equity Awards at Fiscal Year End
The following table provides information on all outstanding equity awards
held by each of the Named Executive Officers as of December 31, 2006.
- ----------- ------------- --------------- --------------- ---------- -----------
Name Number of Number of Equity Incentive Option Option
securities securities Plan Awards: exercise expiration
underlying underlying Number of price date
unexercised unexercised securities ($)
options options underlying
exercisable unexercisable unexercised
(#) (#) unearned
options
(#)
- ----------- ------------- --------------- --------------- ---------- -----------
Robert H. 0 0 N/A 0 N/A
Eder
- ----------- ------------- --------------- --------------- ---------- -----------
P. Scott 132 0 N/A 18.375 01/02/08(a)
Conti 147 12.375 01/05/09(b)
296 8.890 01/02/14(c)
316 13.490 01/03/15(d)
383 14.900 01/03/16(e)
- ----------- ------------- --------------- --------------- ---------- -----------
Robert J. 310 0 N/A 18.375 01/02/08(a)
Easton 346 12.375 01/05/09(b)
301 8.000 01/03/10(f)
281 7.125 01/02/11(g)
356 6.750 01/02/12(h)
353 7.750 01/02/13(i)
333 8.890 01/02/14(c)
354 13.490 01/03/15(d)
420 14.900 01/03/16(e)
- ----------- ------------- --------------- --------------- ---------- -----------
David F. 343 0 N/A 18.375 01/02/08(a)
Fitzgerald 333 12.375 01/05/09(b)
379 8.000 01/03/10(f)
364 7.125 01/02/11(g)
271 6.750 01/02/12(h)
369 7.750 01/02/13(i)
357 8.890 01/02/14(c)
377 13.490 01/03/15(d)
463 14.900 01/03/16(e)
- ----------- ------------- --------------- --------------- ---------- -----------
Mary A. 90 0 N/A 7.125 01/02/11(g)
Tanona 112 6.750 01/02/12(h)
114 7.750 01/02/13(i)
108 8.890 01/02/14(c)
172 13.490 01/03/15(d)
206 14.900 01/03/16(e)
- ----------- ------------- --------------- --------------- ---------- -----------
(a) Vested January 2, 1998
(b) Vested January 5, 1999
(c) Vested January 2, 2004
(d) Vested January 3, 2005
(e) Vested January 3, 2006
(f) Vested January 3, 2000
(g) Vested January 2, 2001
(h) Vested January 2, 2002
(i) Vested January 2, 2003
15
Options Exercised and Stock Vested
The following table provides information on all exercises of options by the
Named Executive Officers during the Company's 2006 fiscal year.
- --------------------------------------------------------------------------------
Option Awards Stock Awards
- --------------------------------------------------------------------------------
Name Number of Value Realized Number of Value Realized
Shares on Exercise Shares on Vesting
Acquired ($) Acquired ($)
on Exercise on Vesting
(#) (#)
- --------------------------------------------------------------------------------
Robert H. Eder 0 0 N/A N/A
- --------------------------------------------------------------------------------
P. Scott Conti 232 2,366.40 N/A N/A
- --------------------------------------------------------------------------------
Robert J. Easton 210 2,756.25 N/A N/A
- --------------------------------------------------------------------------------
David F. Fitzgerald 405 4,780.13 N/A N/A
- --------------------------------------------------------------------------------
Mary A. Tanona 0 0 N/A N/A
- --------------------------------------------------------------------------------
Pension Benefits
The Company makes payments directly to the retirement accounts of
management staff (including the named executive officers) under the Company's
Simplified Employee Pension plan, a qualified defined contribution plan.
Nonqualified Deferred Compensation Plans
There are no nonqualified deferred compensation plans for the Company's
named executives.
Potential Payments Upon Termination or Change in Control
As of December 31, 2006, the Company was not obligated to any member of
management for any payments or benefits (including, without limitation,
insurance benefits for health, life (except with respect to Mr. Eder),
disability or any other matter, outplacement services, tax gross ups or any
other payment or benefit) upon the event of termination from the Company,
whether upon the basis of retirement (including voluntary retirement, early
retirement or retirement upon attaining the age on which full retirement
benefits are payable), involuntary termination (including termination for cause,
not for cause and for good reason, other than change-in-control), disability or
death.
In the event that a management employee's position with the Company is
terminated other than for cause as a result of the change-in-control of the
Company, such employee (with the exception of Mr. Eder) is eligible to receive a
payment, as detailed below. A change-in-control is deemed to have occurred upon
(1) the occurrence of a change in the beneficial ownership directly or
indirectly of securities representing more than 50% of the voting power of the
Company's stock, (2) the sale of all or substantially all of the Company's
assets, (3) a transaction in which the Company is not the surviving entity, or
(4) complete liquidation of the Company (each, a "Change-in-Control Event"). In
such case the management employee is entitled to a lump sum severance payment
16
within two years of the effective date of a Change-in-Control Event to be
determined as of the date of termination, as adjusted based on the
Change-in-Control Event and the date of termination, as follows:
Years of Service at
--------------------
Date of Termination Severance Benefit
------------------- -----------------
0-9 Years One (1) times Annual Base Salary
10-19 Years One and one-half (1-1/2) times Annual Base Salary
20-29 Years Two (2) times Annual Base Salary
30 Years or More Two and one-half (2-1/2) times Annual Base Salary
Annual Base Salary means the management employee's annual rate of base pay
in effect immediately prior to the effective date of the Change-in-Control
Event.
The management employee is entitled to a pro rata portion of the Severance
Benefit if the management employee is terminated other than for cause by the
Company at any time within the management employee's Severance Benefit time
period following a Change-in-Control Event.
In accordance with the terms set forth above, the following payments would
have been due the following management employees as of December 31, 2006 had a
Change-in-Control Event taken place.
P. Scott Conti - $263,924 (1.5 X Annual Base Salary)
Robert J. Easton - $321,370 (2 X Annual Base Salary)
Robert H. Eder - N/A
David F. Fitzgerald - $340,513 (2.5 X Annual Base Salary)
Mary A. Tanona - $134,821 (1 X Annual Base Salary)
Under the terms of the life insurance policy for the benefit of Mr. Eder,
Mr. Eder's designated beneficiary would have been entitled to receive $1,600,000
had a termination of his employment occurred on December 31, 2006 as a result of
his death.
TRANSACTIONS WITH MANAGEMENT
Potential conflicts of interest and related party transactions are referred
by the Board of Directors to the Audit Committee for review and approval. In
reviewing and evaluating potential conflicts of interest and related party
transactions, the Audit Committee uses applicable AMEX listing standards and SEC
rules as a guide.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has appointed Deloitte &
Touche LLP, who acted as independent auditors of the accounts of the Company for
2006, as independent auditors of the accounts of the Company for the year 2007.
The Company has recently been advised by Deloitte & Touche LLP that they have no
direct financial interest or any material indirect financial interest in the
Company, nor have they had any connection during the past four years with the
Company in the capacity of promoter, underwriter, voting trustee, director,
officer or employee.
It is expected that a representative of Deloitte & Touche LLP will be
present at the annual meeting with the opportunity to make a statement if he/she
so desires, and that such representative will be available to respond to
appropriate questions.
17
Audit Fees and Services
Aggregate fees for professional services rendered for the Company by
Deloitte & Touche LLP as of or for the fiscal years ended December 31, 2006 and
2005 are set forth below. The aggregate fees included in the Audit category are
billed for the fiscal years for the audit of Company's annual financial
statements and review of financial statements or engagements. The aggregate fees
included in each of the other categories are fees billed in the fiscal years.
Fiscal Year 2006 Fiscal Year 2005
---------------- ----------------
Audit Fees $181,500 $171,800
Tax Fees $5,000 $5,000
All Other Fees --- ---
Audit Fees for the fiscal years ended December 31, 2006 and 2005 were for
professional services rendered for the audits of the financial statements of the
Company, quarterly review of the financial statements included in the Company's
Quarterly Reports on Form 10-Q, consents and other assistance required to
complete the year end audit of the financial statements.
Tax Fees as of the fiscal years ended December 31, 2006 and 2005 were for
services rendered for review of tax returns and tax advice.
All Other Fees. As of the fiscal years ended December 31, 2006 and 2005
there were no other fees.
The Audit Committee has determined that the provision of the above services
is compatible with maintaining Deloitte & Touche LLP's independence.
Policy on Audit Committee Pre-Approval. The Audit Committee pre-approves
all audit and non-audit services provided by the independent accountants prior
to the engagement of the independent accountants with respect to such services.
Unless a type of service to be provided by the independent auditor has received
general pre-approval, it will require specific pre-approval by the Audit
Committee. Any proposed services exceeding pre-approved cost levels require
specific pre-approval by the Audit Committee. The Audit Committee may delegate
pre-approval authority to one or more of its members and that member shall
report any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
The Audit Committee has engaged Deloitte & Touche LLP for the calendar year
ending December 31, 2007.
EMPLOYEE STOCK PURCHASE PLAN
The term of the Company's Employee Stock Purchase Plan is scheduled to
expire on March 31, 2007.
Recommendation of Board of Directors. The Board of Directors recommends
that the shareholders vote FOR approval of the extension of the term of the
Company's Employee Stock Purchase Plan for an additional ten (10) years. The
affirmative votes of the holders of majorities of the outstanding Common Stock
and Preferred Stock, voting as separate classes, will be required for such
approval.
PROPOSALS FOR 2008 ANNUAL MEETING
The 2008 annual meeting of the shareholders of the Company is scheduled to
be held April 30, 2008. If a shareholder intending to present a proposal at that
meeting wishes to have a proper proposal included in the Company's proxy
statement and form of proxy relating to the meeting, the shareholder must submit
the proposal to the Company not later than November 16, 2007.
18
OTHER MATTERS
No business other than that described above and/or set forth in the
attached Notice of Meeting is expected to come before the annual meeting, but
should any other matters requiring a vote of shareholders arise, including a
question of adjourning the meeting, the persons named in the accompanying proxy
will vote thereon according to their best judgment in the interests of the
Company. In the event any of the nominees for the office of director should
withdraw or otherwise become unavailable for reasons not presently known, the
persons named as proxies will vote for other persons in their place in what they
consider the best interests of the Company.
By Order of the Board of Directors
MARY A. TANONA
Secretary and General Counsel
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Dated: March 23, 2007
19
Appendix A
PROVIDENCE AND WORCESTER RAILROAD COMPANY
AUDIT COMMITTEE CHARTER
PURPOSE
- -------
The primary function of the Providence and Worcester Railroad Company
(hereinafter "Company") Audit Committee is to report to and assist the Board of
Directors (hereinafter "Board") in fulfilling its oversight responsibilities by
reviewing: the financial reports provided by the Company to its stockholders and
the general public; the Company's systems of internal controls regarding finance
and accounting; and the Company's auditing, accounting and financial reporting
process. The Audit Committee's primary duties and responsibilities are to:
1. Serve as an independent and objective party to monitor and oversee the
integrity of the Company's financial reporting process and internal
control system.
2. Evaluate qualifications and independence of, appoint, oversee and,
where appropriate, replace the external auditors who are accountable
to the Audit Committee and the Board.
3. Provide an open avenue of communication among the external auditors,
financial and senior management, and the Board.
4. Oversee the system of disclosure controls and system of internal
controls regarding finance, accounting, legal compliance and ethics.
The Audit Committee is responsible for the duties set forth in this charter
but is not responsible for either the preparation of the financial statements or
the auditing of the financial statements. Management has the responsibility of
preparing the financial statements and implementing internal controls and the
independent accountants have the responsibility of auditing the statements and
monitoring the effectiveness of the internal controls. The review of the
financial statements by the Audit Committee is not of the same quality as the
audit performed by the independent accountants. In carrying out its
responsibilities, the Audit Committee believes its policies and procedures
should remain flexible in order to best react to a changing environment.
The Audit Committee, and each member of the Audit Committee in his or her
capacity as such, shall be entitled to rely, in good faith, on information,
opinions, reports or statements, or other information prepared or presented to
them by officers and employees of the Company, whom such member believes to be
reliable and competent in the matters presented and on counsel, public
accountants or other persons as to matters which the member believes to be
within the professional competence of such person.
ORGANIZATION
- ------------
The Audit Committee shall be comprised of at least three directors as
determined by the Board, each of whom shall satisfy the independence standards
specified in the American Stock Exchange (hereinafter "Amex") Company Guide and
Rule 10A-3 under the Securities Exchange Act of 1934 and all other legal
requirements. Each member shall be free from any relationship that, in the
opinion of the Board, would interfere with the exercise of his/her independent
judgment as a member of the Audit Committee. All members shall be financially
literate and able to read and understand financial statements, including balance
sheets, income statements, and cash flow statements. The Audit Committee
chairman shall, by reason of experience and background, demonstrate a reasonably
high level of financial sophistication including, without limitation, being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
Determination of independence, Audit Committee financial expertise,
financial literacy and accounting or related financial management expertise
shall be made by the Board as the Board interprets such qualifications in its
business judgment and in accordance with applicable law and the listing
requirements of Amex.
The Audit Committee shall have the power to adopt its own operating rules
and procedures and to call upon assistance from officers and employees of the
Company and outside counsel and consultants without the consent of management.
20
RESPONSIBILITIES AND DUTIES
- ---------------------------
1. Be directly responsible for the appointment, compensation, retention
and oversight of any independent auditor engaged for the purpose of
preparing or issuing an audit report or performing other audit, review
or attest services. The external auditors shall report directly to the
Audit Committee.
2 Meet at least once each quarter and meet at least annually in
executive session with the external auditors without management
present.
3. Meet with the external auditors and financial management to review the
scope of the audit for the current year and the audit procedures to be
utilized. At the conclusion of the audit year, review the results of
the audit, including any comments or recommendations of the external
auditors.
4. Appraise with the external auditors and management the adequacy and
effectiveness of the accounting and financial controls of the Company
and the appropriateness of the Company's accounting principles. In
connection therewith:
o Elicit any recommendations for the improvement of such internal
controls and/or accounting principles; and
o Review any deficiencies identified by management in the design
and operation of internal controls for financial reporting and at
least annually consider, in consultation with management and the
independent auditors, the adequacy of the Company's internal
controls for financial reporting, including the resolution of
identified material weaknesses and reportable conditions, if any.
5. Prior to release of the Company's Annual Report to the shareholders
and the public, review the financial statements contained therein with
management and the external auditors to determine that the disclosures
and content of the financial statements are satisfactory and review
and discuss:
o Changes in accounting standards or rules promulgated by the
Financial Accounting Standards Board or the SEC that have an
impact on the financial statements;
o Estimates made by management having a material impact on the
financial statements;
o The effect of alternative assumptions, estimates or GAAP methods
on the Company's financial statements;
o Any changes from prior years in accounting principles applied in
the preparation of such financial statements; and
o Any material written communications between the independent
auditor and the Company's management, including any management
letter provided by the independent auditor and the Company's
response to that letter.
6. Annually review with management and the independent auditors the basis
for the disclosures made in the Annual Report to shareholders
regarding the Company's internal controls for financial reporting.
7. Ensure that retention of the independent auditor to perform audit and
nonaudit services is properly disclosed in the Company's proxy
statement and filings with the SEC.
8 Discuss with the external auditors and management, via telephone if
appropriate, the quarterly financial statements of the Company before
the results are released to the shareholders and the public.
9. Inquire of management (including the General Counsel), and the
external auditor, about significant risks or exposures that could
financially impact the Company and assess the steps management has
taken to minimize such risks.
10. Investigate any matter brought to its attention within the scope of
21
its duties, with the power to compensate and obtain advice and
assistance from outside legal, accounting or other advisors for this
purpose if, in its judgment, that is appropriate. Resolve any
disagreements between the external auditors and management. Determine
funding for the appropriate compensation of the independent auditors
and other advisors that the Audit Committee chooses to engage, with
such funding to be provided by the Company.
11. Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters communicated at each meeting with, the full Board.
12. Review, at least annually, with management and the independent auditor
the qualifications, performance, independence and objectivity of the
independent auditor. In connection with such review and evaluation,
the Audit Committee shall
o Obtain and review a written report from the independent auditor
at least annually regarding the auditor's internal
quality-control procedures and any material issues raised by the
most recent quality-control review;
o Obtain an annual written statement from the independent auditor
delineating all relationships, both direct and indirect, between
the independent auditor and the Company, including each non-audit
service provided to the Company and at least the matters set
forth in Independence Standards Board No. 1;
o Consider whether the provision of non-audit services is
compatible with maintaining the auditor's independence, taking
into account the opinions of management;
o Discuss any relationships that may impair the auditor's
independence and take such actions as it deems appropriate or
make recommendations to the Board regarding actions to be taken
to remedy such impairment; and
o Ensure appropriate audit and concurring partner rotation as
required by law.
13. Review and approve any related-party transactions entered into by the
Company.
14. Review and pre-approve the engagement of independent accountants to
perform permissible non-audit services in accordance with policies
adopted by the Audit Committee and applicable laws and regulations.
Review any non-audit services performed on behalf of the Company by
the independent accountants that meet the de minimis exception under
applicable laws and regulations.
15. Establish procedures for receipt and processing of complaints related
to accounting, internal controls or auditing-related matters, and the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing practices.
16. Administer the Company's Code of Ethics for Chief Executive Officer
and Senior Financial Officers, including consideration of any waivers
and investigation of any alleged violations thereof.
ADOPTION AND EFFECTIVE DATE
- ---------------------------
This amended Audit Committee Charter was adopted by the Audit Committee
pursuant to a delegation of authority by vote of the Board of the Company on
January 28, 2004 and became effective immediately.
ANNUAL REVIEW
- -------------
At least annually, members of the Audit Committee shall review the terms
and scope of the Audit Committee charter to determine the adequacy of the
charter. Such review and any recommendations which follow thereafter shall be
reflected in the minutes of the meeting of the Audit Committee during which such
review was undertaken.
22
Appendix B
Amended and Restated Charter of the Stock Option & Compensation Committee of
the Board of Directors of
Providence and Worcester Railroad Company
The Board of Directors of Providence and Worcester Railroad Company (the
"Company") has constituted and established a Stock Option & Compensation
Committee (the "Committee") with authority, responsibility, and specific duties
as described in this Charter (the "Charter").
COMPOSITION
- -----------
The Committee shall consist of directors who are independent of management
in accordance with applicable Securities and Exchange Commission ("SEC") rules
and the listing standards of the AMEX Stock Market and free from any
relationship that, in the opinion of the Board of Directors of the Company (the
"Board"), as evidenced by its election of such Committee members, would
interfere with the exercise of independent judgment as a Committee member.
Committee members shall be appointed by the Board. One member shall serve
as chairperson. He/she shall be responsible for leadership of the Committee,
including overseeing the agenda, presiding over the meetings and reporting to
the Board. If the Committee Chairperson is not present at a meeting, the members
of the Committee may designate a chairperson.
RESOURCES and AUTHORITY
- -----------------------
The Committee shall have the resources and authority it deems necessary and
appropriate to discharge its responsibilities, at the Company's expense. The
Committee shall have the power to adopt its own operating rules and procedures
and to call upon assistance from officers and employees of the Company and
outside counsel and other advisers without the consent of management.
The Committee, and each member of the Committee in his/her capacity as such,
shall be entitled to rely, in good faith, on information, opinions, reports or
statements, or other information prepared or presented to them by officers and
employees of the Company, whom such member believes to be reliable and competent
in the matters presented and on counsel, compensation consultants or other
persons as to matters which the member believes to be within the professional
competence of such person.
PRINCIPAL FUNCTIONS
- -------------------
The Committee's basic responsibility is to assure that the senior
executives of the Company and its wholly owned affiliates are compensated
effectively in a manner consistent with the stated compensation strategy of the
Company and the requirements of appropriate regulatory bodies. The Committee
shall also communicate to shareholders the Company's compensation policies and
the reasoning behind such policies as required by the Securities and Exchange
Commission. More specifically, the Committee shall be responsible for the
following:
o Reviews and approves with the Chairman of the Board, the
Company's compensation philosophy.
o Approves and reports to the Board, the executive compensation
plans and the compensation (including incentive awards) of the
Chairman of the Board and the President and any other officer who
is a member of the Board.
o Reviews and approves with the Chairman of the Board and the
President, the executive compensation plans and compensation
(including incentive awards) of the officers of the Company other
than the Chairman of the Board and the President.
o Assures that the total compensation paid to the Company's
principal officers other than the Chairman of the Board and the
President is reasonable as it relates to such officer's
responsibilities and length of service with the Company and
taking into account any cost of living increases.
23
o Periodically reviews and approves stock ownership guidelines,
including granting or making recommendations to the Board
concerning employee stock options.
o Consults with the Chairman of the Board and makes recommendations
to the Board for new or material changes to existing employee
benefit plans.
o Reviews the status of and reports to the Board on the Company's
director compensation practices. Any changes in director
compensation should come upon the recommendation of the Committee
but with full discussion and concurrence by the Board.
o Oversees the preparation and review of, and discusses with
management, the Company's Compensation Discussion & Analysis
("CD&A") and related disclosures required by the SEC.
o Reviews and decides whether to recommend the final CD&A to the
Board for inclusion in the Company's annual proxy statement.
o Conducts an annual evaluation of the adequacy of this Charter and
recommends any proposed amendments to the Board for approval.
o Reports to the Board on a regular basis so that the Board is
informed of the Committee's activities.
o Such other duties and responsibilities as may be assigned to the
Committee, from time to time, by the Board and/or the Chairman of
the Board, or as designated in plan documents.
MEETINGS
- --------
The Committee shall meet sufficiently often to discharge its
responsibilities hereunder, but at least as often as required by applicable SEC
rules and AMEX listing requirements. Meetings may be called by the Chairman of
the Board, the President of the Company or the Chairperson of the Committee.
Appropriate members of management and staff will prepare draft agendas and
related background information for each Committee meeting, which will be
reviewed and approved by the Committee Chairperson in advance of distribution to
the other Committee members. The Company's corporate Secretary or Assistant
Secretary will be present at all meetings. Any background materials, together
with such agenda, should be distributed to the Committee members, the President
and corporate Secretary in advance of the meeting for their review and
discussion. The corporate Secretary will maintain one set of all Committee
minutes, agendas and background information, and the like, to be filed with the
corporate records of the Company and will be provided a set of all Committee
correspondence. All meetings of the Committee shall be held pursuant to the
By-laws of the Company with regard to notice and waiver thereof, and written
minutes of each meeting shall be duly filed in the Company records. Reports of
meetings of the Committee shall be made to the Board at its next
regularly-scheduled meeting following the Committee meeting accompanied by any
recommendations to the Board approved by the Committee. In addition, all
Directors are to be furnished copies of each Committee meeting's minutes.
24
[GRAPHIC OMITTED]
- ------
X
- ------
Using a black ink pen, mark your votes with an X as shown in this example.
Please do not write outside the designated area.
================================================================================
Annual Meeting of Shareholders - April 25, 2007
================================================================================
This Proxy is Solicited on Behalf of the Board of Directors
April 25, 2007
The undersigned, whose signature appears below, hereby appoints Robert H. Eder,
P. Scott Conti, and Robert J. Easton, attorneys each with power of substitution
and with all the powers the undersigned would possess if personally present, to
vote the Preferred Stock of Providence and Worcester Railroad Company held of
record by the undersigned on March 2, 2007 at the annual meeting of shareholders
to be held on April 25, 2007 in Worcester, Massachusetts, and at any
adjournments thereof, as follows.
A. Proposals - The Board of Directors recommends a vote FOR the listed nominees
and FOR Proposal 2.
1. Election of Directors:
For Withhold For Withhold For Withhold
--- -------- --- -------- --- --------
01-F. Barrett 02-S. Conti 03-J. Garrahy
For Withhold For Withhold For Withhold
--- -------- --- -------- --- --------
04-J. Garvey 05-C. McCollam, Jr. 06-C. Scott
For Against Abstain
--- ------- -------
2. Amendment to the Company's Employee Stock
Purchase Plan extending the term thereof
for an additional ten years.
3. In their discretion, upon such other
matters as may properly come before
the meeting.
B. Non-Voting Items
Change of Address - Please print new address below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C. Authorized Signatures - This section must be completed for your vote to be
counted. - Date and Sign Below
Sign exactly as your name appears hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by duly authorized officer. If a
partnership, please sign in partnership name by authorized person. In case of
joint tenants or multiple owners, each party must sign.
Date (mm/ldd/yyyy) - Signature 1 - Please keep Signature 2 - Please keep
Please print date below. signature within the box. signature within the box.
- ------------------------- ------------------------- -------------------------
/ /
- ------------------------- ------------------------- -------------------------
[GRAPHIC OMITTED]
================================================================================
Proxy - Providence and Worcester Railroad Company
================================================================================
This Proxy is Solicited on Behalf of the Board of Directors
April 25, 2007
The undersigned, whose signature appears below, hereby appoints Robert H. Eder,
P. Scott Conti, and Robert J. Easton, attorneys each with power of substitution
and with all the powers the undersigned would possess if personally present, to
vote the Common Stock of Providence and Worcester Railroad Company held of
record by the undersigned on March 2, 2007 at the annual meeting of shareholders
to be held on April 25, 2007 in Worcester, Massachusetts, and at any
adjournments thereof, as follows.
PLEASE DATE, SIGN AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.
(Items to be voted appear on reverse side.)
[GRAPHIC OMITTED]
- ------
X
- ------
Using a black ink pen, mark your votes with an X as shown in this example.
Please do not write outside the designated areas.
================================================================================
Annual Meeting Proxy Card
================================================================================
A. Proposals - The Board of Directors recommends a vote FOR the listed nominees
and FOR Proposal 2.
1. Election of Directors.
For Withhold For Withhold For Withhold
--- -------- --- -------- --- --------
01-Richard Anderson 02-Robert Eder 03-John Healy
For Against Abstain
--- ------- -------
2. Amendment to the Company's Employee Stock
Purchase Plan extending the term thereof
for an additional ten years.
3. In their discretion, upon such other
matters as may properly come before
the meeting.
B. Non-Voting Items
Change of Address - Please print new address below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C. Authorized Signatures - This section must be completed for your vote to be
counted. Date and Sign Below
Sign exactly as your name appears hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by duly authorized officer. If a
partnership, please sign in partnership name by authorized person. In case of
joint tenants or multiple owners, each party must sign.
Date (mm/ldd/yyyy) - Signature 1 - Please keep Signature 2 - Please keep
Please print date below. signature within the box. signature within the box.
- ------------------------- ------------------------- -------------------------
/ /
- ------------------------- ------------------------- -------------------------