UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ _ ]
Check the appropriate box:
[ - ] Preliminary Proxy Statement
[ _ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ - ] Definitive Additional Materials
[ _ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SERVOTRONICS, INC.
-------------------------------------------------------------
(Name of registrant as specified in its charter)
N/A
----------------------------------------------------------------------
(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) or 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 number, or the Form or
Schedule and date of filing.
(1) Amount previously paid:
------------------------------------------
(2) Form, schedule or Registration Statement No.:
------------------------------------------
(3) Filing party:
------------------------------------------
(4) Date filed:
----------------------------
SERVOTRONICS, INC.
1110 Maple Street, P.O. Box 300
Elma, New York 14059-0300 716-655-5990 Fax 716-655-6012
Dr. Nicholas D. Trbovich
Chairman and President
June 6, 2006
Dear Fellow Shareholder:
The Annual Meeting of Shareholders will take place on June 30, 2006 at 2:30
p.m. at the Center for Tomorrow, North Campus, State University of New York at
Buffalo, Flint Road (off Maple Road), Amherst, New York 14226. You are cordially
invited to attend.
The enclosed Notice of Annual Meeting and Proxy Statement describe the
matters to be acted upon during the meeting. The meeting will also include a
report on the state of Servotronics, Inc.'s business.
To ensure your representation at the meeting, even if you are unable to
attend, please sign the enclosed Proxy Card and return it in the postage paid
envelope.
If you have any questions in regard to completing your proxy, please call
our Treasurer, Cari L. Jaroslawsky at (716) 655-5990.
Your continued interest and support is very much appreciated.
Sincerely,
Dr. Nicholas D. Trbovich
SERVOTRONICS, INC.
1110 Maple Street
P.O. Box 300
Elma, New York 14059
NOTICE OF
2006 ANNUAL SHAREHOLDERS' MEETING
To the Shareholders:
Notice is hereby given that the 2006 Annual Meeting of the Shareholders of
Servotronics, Inc. (the "Company") will be held at the Center for Tomorrow,
North Campus, State University of New York at Buffalo, Flint Road (off Maple
Road), Amherst, New York 14226, on Friday, June 30, 2006 at 2:30 p.m., Buffalo
time, for the following purposes:
1. To elect four directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected and qualified.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on May 19, 2006 are
entitled to notice of and to vote at the meeting or any adjournments thereof.
DR. NICHOLAS D. TRBOVICH
Chairman of the Board,
President and Chief Executive Officer
Dated: June 6, 2006
--------------------------------------------------------------------------------
SHAREHOLDERS ARE URGED TO VOTE BY SIGNING, DATING AND MAILING THE ENCLOSED PROXY
IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE
UNITED STATES.
--------------------------------------------------------------------------------
June 6, 2006
SERVOTRONICS, INC.
1110 Maple Street
P.O. Box 300
Elma, New York 14059
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 30, 2006
The following information is furnished in connection with the Annual
Meeting of Shareholders of SERVOTRONICS, INC. (the "Company") to be held on June
30, 2006 at 2:30 p.m., Buffalo time, at the Center for Tomorrow, North Campus,
State University of New York at Buffalo, Flint Road (off Maple Road), Amherst,
New York 14226. A copy of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 2005 accompanies this Proxy Statement. Additional
copies of the Annual Report, Notice, Proxy Statement and form of proxy may be
obtained without charge from the Company's Treasurer, 1110 Maple Street, P.O.
Box 300, Elma, New York 14059. This Proxy Statement and proxy card are first
being mailed to shareholders on or about June 6, 2006.
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy for the Annual Meeting of Shareholders is being
solicited by the directors of the Company. The proxy may be revoked by a
shareholder at any time prior to the exercise thereof by filing with the
Treasurer of the Company a written revocation or duly executed proxy bearing a
later date. The proxy may be revoked by a shareholder attending the meeting, by
withdrawing such proxy and voting in person. The cost of soliciting the proxies
on the enclosed form will be paid by the Company. In addition to the use of
mails, proxies may be solicited by employees of the Company (who will receive no
additional compensation therefor) personally or by telephone or other electronic
communications, and arrangements may be made with banks, brokerage houses and
other institutions, nominees and/or fiduciaries to forward the soliciting
material to their principals and to obtain authorization for the execution of
proxies. The Company may, upon request, reimburse banks, brokerage houses and
other institutions, nominees and fiduciaries for their expenses in forwarding
proxy material to their principals. The Company has retained the services of
InvestorCom, Inc. 100 Wall Street, 24th Floor, New York, New York 10005, to
assist in the solicitation of proxies and will pay that firm a fee of
approximately $3,000 plus expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The record date for determining shares entitled to vote has been fixed at
the close of business on May 19, 2006. On such date there were outstanding
2,372,723 shares of common stock of the Company, $.20 par value, entitled to one
vote each.
1
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following table lists the persons that owned beneficially, as of May
19, 2006, more than 5% of the outstanding shares of common stock of the Company,
based on the Company's records. Unless otherwise stated, each person has sole
voting and investment power with respect to the shares of common stock indicated
as beneficially owned by that person.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
---------------- -------------------- ---------
Servotronics, Inc. Employee
Stock Ownership Trust (2) 816,467 (2) 34.4%
1110 Maple Street
P.O. Box 300 Elma, New York 14059
Dr. Nicholas D. Trbovich 585,189 (3) 22.8%
1110 Maple Street
P.O. Box 300 Elma, New York 14059
Nicholas D. Trbovich, Jr. 141,689 (4) 5.7%
1110 Maple Street
P.O. Box 300 Elma, New York 14059
Harvey Houtkin (4) 352,088 (5) 14.8%
160 Summit Avenue
Montvale, New Jersey 07645
--------------------
(1) Percent of class is based upon 2,372,723 shares of common stock outstanding
as of May 19, 2006 plus the number of shares subject to stock options held
by the indicated person, all of which are presently exercisable.
(2) The trustees of the Servotronics, Inc. Employee Stock Ownership Trust (the
"ESOT") -- Dr. Nicholas D. Trbovich, Nicholas D. Trbovich, Jr. and Raymond
C. Zielinski -- direct the voting of unallocated shares. The participants
in the related plan have the right to direct the voting of shares which
have been allocated to their respective accounts; if a participant does not
direct the vote, the trustees may direct the vote of that participant's
shares. As of May 19, 2006, approximately 419,180 shares have been
allocated to the accounts of participants and approximately 397,287 shares
(16.7% of the shares outstanding) remain unallocated.
(3) This amount includes (i) 32,309 shares held by a charitable foundation for
which Dr. Trbovich serves as a trustee; (ii) 195,600 shares which Dr.
Trbovich has the right to acquire under stock options which are currently
exercisable; (iii) approximately 45,474 shares allocated to Dr. Trbovich's
account under the Servotronics, Inc. Employee Stock Ownership Plan; and
(iv) approximately 3,084 shares beneficially owned by certain of Dr.
Trbovich's children (as to which Dr. Trbovich disclaims beneficial
interest). This amount does not include the shares beneficially owned by
certain of Dr. Trbovich's other relatives. Does not include shares held by
the ESOT as to which Dr. Trbovich serves as one of the three trustees. See
note (2) above.
2
(4) This amount includes (i) 102,800 shares which Mr. Trbovich, Jr. has the
right to acquire under stock options which are currently exercisable and
(ii) approximately 23,075 shares allocated to Mr. Trbovich, Jr.'s account
under the Servotronics, Inc. Employee Stock Ownership Plan. Does not
include shares held by the ESOT as to which Mr. Trbovich, Jr. serves as one
of three trustees. See note (2) above.
(5) Based on a statement on Schedule 13D, as last amended on February 12, 2004,
filed by Mr. Houtkin with the Securities and Exchange Commission. According
to Mr. Houtkin's statement, he has sole voting and investment power with
respect to 190,000 shares and shared voting and investment power with
respect to 162,088 shares. Mr. Houtkin disclaims beneficial ownership in
additional shares owned by other members of his family.
Security Ownership of Management
--------------------------------
The following table sets forth, as of May 19, 2006, information as to the
beneficial ownership of shares of common stock of the Company held by each
director, executive officer and by all directors and officers as a group (each
individual listed in the following table has sole voting and investment power
with respect to the shares of common stock indicated as beneficially owned by
that person, except as otherwise indicated):
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
---------------- -------------------- ---------
Dr. Nicholas D. Trbovich 585,189 (2) 22.8%
Nicholas D. Trbovich, Jr. 141,689 (3) 5.7%
Donald W. Hedges 73,836 (4) 3.0%
Dr. William H. Duerig 72,693 (5) 3.0%
Raymond C. Zielinski 64,022 (6) 2.7%
Cari L. Jaroslawsky 7,500 (7) 0.3%
All directors and
officers as a group 1,375,669 (8) 47.8%
--------------------
(1) Percent of class is based upon 2,372,723 shares of common stock outstanding
as of May 19, 2006 plus the number of shares subject to stock options held
by the indicated person or group, all of which are presently exercisable.
(2) See note (8) below and note (3) to the table in "Security Ownership of
Certain Beneficial Owners."
(3) See note (8) below and note (4) to the table in "Security Ownership of
Certain Beneficial Owners."
(4) This amount includes 69,100 shares which Mr. Hedges has the right to
acquire under stock options which are currently exercisable. Mr. Hedges has
sole voting and investment power with respect to 4,261 shares and shared
voting and investment power with respect to 475 shares.
(5) This amount includes 69,100 shares which Dr. Duerig has the right to
acquire under stock options which are currently exercisable.
(6) This amount includes (i) 37,800 shares which Mr. Zielinski has the right to
acquire under stock options which are currently exercisable and (ii)
approximately 12,198 shares allocated to Mr. Zielinski's account under the
Servotronics, Inc. Employee Stock Ownership Plan. Does not include shares
held by the ESOT as to which Mr. Zielinski serves as one of three trustees.
See note (8) below and note (2) to the table in "Security Ownership of
Certain Beneficial Owners."
3
(7) This amount represents 7,500 shares which Ms. Jaroslawsky has the right to
acquire under stock options which are currently exercisable.
(8) See notes (2) through (7) above. Also includes unallocated shares held by
the ESOT over which certain officers, as trustees of the ESOT, may be
deemed to have voting power, as well as shares allocated to the accounts of
all officers as a group under the related plan. See the table in "Security
Ownership of Certain Beneficial Owners" and note (2) thereto.
Executive Officers
------------------
The following is a listing of the Company's current executive officers:
Position with the Company and Principal Occupation
Name Age and Business Experience for Past Five Years
---- --- -------------------------------------------
Dr. Nicholas D. Trbovich 71 See table under "Election of Directors."
Nicholas D. Trbovich, Jr. 46 See table under "Election of Directors."
Raymond C. Zielinski 61 Vice President since 1990; Director of Manufacturing of the Company
from 1983 to 1990.
Cari L. Jaroslawsky 37 Treasurer and Chief Financial Officer of the Company since
September 2005; CPA Consultant/Controller for the Company
for more than five years prior to September 2005.
Nicholas D. Trbovich, Jr. is the son of Dr. Nicholas D. Trbovich. There are
no other family relationships between any of the directors or executive officers
of the Company.
Executive Compensation
----------------------
DIRECTORS' FEES. Under the Company's compensation arrangements,
non-employee directors are paid a yearly director's fee of $10,000 plus a per
meeting fee of $650 and reimbursement of actual expenses for attendance at Board
meetings. Directors who are also employees do not receive the Director's and/or
meeting fees. Members of the Audit Committee of the Board are paid a yearly
Audit Committee fee of $2,500 plus a per-meeting fee of $450 and reimbursement
of actual expenses for attendance at Audit Committee meetings. On December 30,
2005, Dr. Duerig and Mr. Hedges were granted options to purchase 7,500 shares of
common stock at an exercise price of $4.70 per share.
COMPENSATION TABLE. The following table contains information with respect
to the annual and long-term compensation for the years ended December 31, 2005,
2004 and 2003 for the Company's Chief Executive Officer and each other person
who was an Executive Officer of the Company and received total salary and bonus
in excess of $100,000 during 2005.
4
Long Term
---------
Annual Compensation (2) Compensation
----------------------- ------------
Awards
------
Securities
Underlying All Other
Name and Options Compen-
Principal Position Year Salary Bonus(1) (No. of Shares) sation(3)
------------------ ---- ------ -------- --------------- ---------
Dr. Nicholas D. Trbovich 2005 $ 391,064 $ 40,000 25,000 $ 53,816
Chairman, President and 2004 374,611 40,000 -- 9,665
CEO 2003 359,579 -- 50,000 34,886
Raymond C. Zielinski 2005 $ 145,725 $ 7,500 7,500 $ 5,169
Vice President 2004 139,576 5,000 -- 4,032
2003 134,263 -- 9,000 3,409
Nicholas D. Trbovich, Jr. 2005 $ 179,083 $ 25,000 15,000 $ 9,779
Director, Vice President 2004 162,500 15,000 -- 4,601
2003 139,446 -- 27,000 13,848
Lee D. Burns 2005 $ 102,596 -- -- $ 10,809
Former Treasurer, Secretary 2004 127,942 $ 5,000 -- 1,038
and CFO* 2003 122,809 -- 9,000 12,569
* Separated from the Company in September of 2005
-------------------
(1) The "Bonus" column of the compensation table above includes discretionary
incentive payments authorized by the Board of Directors and paid in the
year indicated in the table. No bonuses were paid in the year 2003.
Discretionary payments authorized for 2006 will be included in the
compensation table for 2006 to the extent they are paid in that year. The
Board of Directors has made no commitment for incentive payments in
subsequent years.
(2) The values of perquisites and other personal benefits are not shown on the
table because the aggregate amount of such compensation (if any) for each
year shown did not exceed 10% of the Executive Officer's annual salary and
bonus for that year.
(3) All Other Compensation for 2005 includes (i) an allocation of 1,273 shares,
902 shares and 1,136 shares for Dr. Trbovich, Mr. Zielinski and Mr.
Trbovich, Jr., respectively, of common stock of the Company under the
Servotronics, Inc. Employee Stock Ownership Plan valued as of November 30,
2004 (the date of the allocation) at the closing price on the American
Stock Exchange on that date of $4.50 per share; (ii) $3,989, $1,112, $1,304
and $767 to Dr. Trbovich, Mr. Zielinski, Mr. Trbovich, Jr. and Mr. Burns,
respectively, for life insurance; (iii) $44,099, $3,365 and $10,042 paid
for Dr. Trbovich, Mr. Trbovich, Jr. and Mr. Burns, respectively, for
vacation pay in lieu of time off pursuant to a policy that is generally
applicable to all employees of the Company.
5
OPTION GRANTS. The following table gives information with respect to stock
options granted to the Executive Officers during 2005.
Option Grants in Last Fiscal Year
---------------------------------
(Individual Grants)
Number of Percent of Total
Securities Options
Underlying Granted to
Options Employees Exercise or Expiration
Name of Officer Granted in Fiscal Year Base Price ($/Sh) Date
--------------- ------- -------------- ----------------- ----
Dr. Nicholas D. Trbovich 25,000 (1) 38.5% $4.70 12/30/15
Raymond C. Zielinski 7,500 (1) 11.5% $4.70 12/30/15
Nicholas D. Trbovich, Jr. 15,000 (1) 23.1% $4.70 12/30/15
Cari L. Jaroslawsky 7,500 (1) 11.5% $4.70 12/30/15
(1) Immediately exercisable
OPTION EXERCISES AND FISCAL YEAR END VALUES. No Executive Officer exercised
options during 2005. The following table shows information with respect to the
value of unexercised options held by the Executive Officers as of December 31,
2005. Valuation calculations for unexercised options are based on the closing
price ($4.70) of the Company's common shares on the American Stock Exchange on
December 31, 2005. All of the options granted to the Executive Officers are
currently exercisable.
Fiscal Year-End Option Values
-----------------------------
Value of
Number of Unexercised
Unexercised Securities In-the-money
Underlying Options At Options At
Name of Officer Fiscal Year-End Fiscal Year-End
--------------- --------------- ---------------
Dr. Nicholas D. Trbovich 195,600 $180,698
Raymond C. Zielinski 37,800 $33,111
Nicholas D. Trbovich, Jr. 102,800 $95,695
Cari L. Jaroslawsky 7,500 -0-
Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------
Number of Securities
Number of Securities Remaining Available for
to be Issued Upon Weighted-average Future Issuance Under
Exercise of Outstanding Exercise Price of Equity Compensation
Options, Warrants Outstanding Options, Plans (Excluding Securities
And Rights Warrants and Rights Reflected in Column (a))
Plan Category (a) (b) (c)
------------- ----------------------- -------------------- ---------------------------
Equity compensation
plans approved by
security holders 333,000 $3.503 17,000
Equity compensation
plans not approved
by security holders 180,900 $6.072 84,100
------- ------
Total 513,900 $4.407 101,100
======= =======
6
PROPOSAL 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide that there shall be not less than three
directors nor more than nine and that the number of directors to be elected at
the Annual Meeting of Shareholders shall be fixed by the Board of Directors. The
Board of Directors has fixed the number of directors to be elected at the
meeting at four. Each person so elected shall serve until the next Annual
Meeting of Shareholders and until his successor is elected and shall have
qualified.
Each nominee is currently serving as a director of the Company and was
elected at the Company's 2005 Annual Meeting of Shareholders.
The directors believe that all of the nominees are willing and able to
serve as directors of the Company. If any nominee at the time of election is
unable or unwilling to serve or is otherwise unavailable for election, the
enclosed proxy will be voted in accordance with the best judgment of the person
or persons voting the proxy. Each nominee, to be elected as a director, must
receive the affirmative vote of a plurality of the votes cast at the meeting.
The following table sets forth certain information regarding the nominees
for election to the Company's Board of Directors.
Position With the Company and Principal Occupation
Name Age and Business Experience for Past Five Years
---- --- -------------------------------------------
Dr. William H. Duerig 84 Director of the Company since 1990; Physicist and Senior Program Manager for
Kearfott Guidance & Navigation Corporation for more than five years prior to
retirement in 1993.
Donald W. Hedges 85 Director of the Company since 1967; self-employed attorney since 1988.
Nicholas D. Trbovich, Jr. 46 Director of the Company since 1990; Vice President of the Company since 1990;
Director of Corporate Development of the Company from 1987 to 1990;
Director of eAutoclaims, Inc.
Dr. Nicholas D. Trbovich 71 Chairman of the Board of Directors, President and Chief Executive Officer of the
Company since 1959.
The directors recommend a vote FOR the four nominees listed above. Unless
instructed otherwise, proxies will be voted FOR these nominees.
ADDITIONAL COMPANY INFORMATION
Committees and Meeting Data
---------------------------
The Board of Directors has an Audit Committee comprised of Dr. Duerig and
Mr. Hedges. The Audit Committee meets with the Company's independent auditors
and reviews with them matters relating to corporate financial reporting and
accounting procedures and policies, the adequacy of financial, accounting and
operating controls, the scope of the audit and the results of the audit. The
Audit Committee is also charged with the responsibility of submitting to the
Board of Directors any recommendations it may have from time to time with
respect to financial reporting and accounting practices, policies and financial
accounting and operation controls and safeguards.
7
The Board has designated Dr. William H. Duerig as the Company's "Audit
Committee financial expert" in accordance with the SEC rules and regulations.
The Board has determined that Dr. Duerig and Mr. Hedges are independent pursuant
to Section 121A of the listing Standards of the American Stock Exchange
("AMEX").
The Company has a formal Audit Committee which performs all the required
functions. The Company's full Board of Directors performs the functions of all
other committees and in lieu thereof as permitted by the Company's By-Laws and
the current AMEX listing standards. The Board of Directors does not have a
standing nominating committee. Pursuant to Board resolutions, the full Board of
Directors approves/ratifies all director nominees after they are determined by
the independent Directors. See "Director Nominating Process" on page 11.
Additionally, the independent Directors determine the compensation of the Chief
Executive Officer and all Executive Officers and such determination is then
subsequently submitted to the full Board of Directors for approval/ratification.
During the fiscal year ended December 31, 2005, the Audit Committee met 12 times
and the Board of Directors met 16 times. No Director attended less than 100% of
the meetings held. Each Director is expected to attend the Annual Meeting of
Shareholders. In 2005, the Annual Meeting of Shareholders was attended by all
Directors.
Report of the Audit Committee of the Board of Directors
-------------------------------------------------------
The Audit Committee serves as the representative of the Board of Directors
for general oversight of the Company's financial accounting and reporting,
systems of internal control, audit process and monitoring compliance with
standards of business conduct. The Charter for the Audit Committee was filed
with the 2004 Proxy Statement. Management of the Company has primary
responsibility for preparing financial statements of the Company as well as the
Company's financial reporting process. Freed Maxick & Battaglia, CPAs, PC,
acting as independent auditors, is responsible for expressing an opinion on the
conformity of the Company's audited financial statements with generally accepted
accounting principles.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements for fiscal year 2005 with the Company's management.
2. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards
No. 61, Communications with Audit Committees.
3. The Audit Committee has received the written disclosures and the
letter from the independent auditors required by Independence
Standards Board No. 1, Independence Discussions with Audit Committees,
and has discussed with Freed Maxick & Battaglia, CPAs, PC the matter
of that firm's independence.
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of
Directors of the Company, and the Board of Directors has approved,
that the audited financial statements be included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2005, for
filing with the Securities and Exchange Commission.
Each member of the Audit Committee is independent as defined under the
listing standards of the American Stock Exchange.
AUDIT COMMITTEE
---------------
Dr. William H. Duerig, Chairman
Donald W. Hedges
8
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of reports filed pursuant to Section 16(a) of
the Securities Exchange Act or representations from directors and executive
officers required to file such reports, the Company believes that all such
filings required of its executive officers and directors were timely made.
CODE OF ETHICS
The Company has adopted a Code of Ethics and Business Conduct that applies
to all directors, officers and employees of the Company as required by the
listing standards of the American Stock Exchange. The Code is available on the
Company's website at www.servotronics.com and the Company intends to disclose on
this website any amendment to the Code. Waivers under the Code, if any, will be
disclosed under the rules of the SEC and the American Stock Exchange.
EMPLOYMENT AGREEMENTS
Dr. Trbovich and Mr. Trbovich, Jr. have employment agreements with the
Company pursuant to which they are entitled to receive minimum salary
compensation of $397,400 and $182,000 per annum respectively, or such greater
amount as the Company's Board of Directors may determine, and individual and
spousal lifetime health and life insurance benefits. In the event of Dr.
Trbovich's or Mr. Trbovich, Jr.'s death or total disability during the term of
the employment agreement, they or their estate is entitled to receive 50% of the
compensation they are receiving from the Company at the time of their death or
disability during the remainder of the term of the employment agreement. Also,
in the event of (i) a breach of the agreement by the Company, (ii) a change in
control of the Company, as defined, or (iii) a change in the responsibilities,
positions or geographic office location of Dr. Trbovich or Mr. Trbovich, Jr.,
they are entitled to terminate the agreement and receive a payment of 2.99 times
their average annual compensation from the Company for the preceding five years.
If this provision is invoked by Dr. Trbovich or Mr. Trbovich, Jr. and the
Company makes the required payment, the Company will be relieved of any further
salary liability under the agreement notwithstanding the number of years covered
by the agreement prior to termination. The term of the agreement extends to and
includes July 1, 2010, provided, however the term of the agreement will be
automatically extended for one additional year beyond its then expiration date
unless either party has notified the other in writing that the term will not be
extended. If the Company elects not to extend the agreement, Dr. Trbovich or Mr.
Trbovich, Jr. will be entitled to a severance payment equal to nine months'
salary and benefits.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2005, Dr. Trbovich's son, Nicholas D. Trbovich, Jr., served as an
officer and director of the Company and received the compensation disclosed in
the Compensation Table. See also, the discussion under "Employment Agreements".
Michael D. Trbovich, also a son of Dr. Nicholas D. Trbovich, received
remuneration of $81,358 which includes fringe benefits for health insurance,
life insurance and an amount paid for untaken vacation, but does not include 484
shares allocated by the Company's ESOP or stock options.
Ms. Jaroslawsky has served as Treasurer and Chief Financial Officer of the
Company since September 2005. Prior to being employed by the Company, she served
as a Consultant/Controller to the Company and received fees totaling $65,459 and
$84,027 in 2005 and 2004, respectively.
9
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As previously disclosed on Form 8-K, on September 7, 2005, the Audit
Committee of the Company's Board of Directors terminated PricewaterhouseCoopers
LLP ("PWC") as the Company's independent registered public accounting firm. The
audit reports of PWC on the Company's consolidated financial statements as of
and for the two most recent fiscal years ended December 31, 2004 did not contain
any adverse opinion or disclaimer of opinion, nor were these opinions modified
as to uncertainty, audit scope or accounting principles. During the Company's
two fiscal years ended December 31, 2004 and through September 7, 2005, there
were no disagreements between the Company and PWC on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of PWC,
would have caused it to make a reference to the subject matter of the
disagreement in connection with its audit report which did not occur.
The Company provided PWC with a copy of its Form 8-K disclosure and
requested that PWC furnish the Company with a letter addressed to the Securities
and Exchange Commission stating whether PWC agreed with the Company's
statements. PWC agreed that there were no disagreements, and issued the letter.
On September 7, 2005, the Audit Committee engaged Freed Maxick & Battaglia,
CPAs, PC ("Freed Maxick"), effective September 8, 2005, to serve as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2005. During the Company's two most recent fiscal years, and
subsequently through the effective date of the engagement of Freed Maxick,
neither the Company nor any person acting on behalf of the Company consulted
with Freed Maxick with respect to the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on the Company's consolidated financial statements, or
any other matters or reportable events listed in Item 304 (a)(1)(iv) of
Regulation S-B.
From August 16, 2005 to October 20, 2005 RSM McGladrey, Inc., a business
services company, was retained by the Audit Committee of the Company's Board of
Directors to investigate and report to the Audit Committee with respect to
certain management-discovered unauthorized practices by a former financial
officer of the Company with respect to the Company's payroll accounts. The
Directors of Freed Maxick are co-employed by RSM McGladrey, Inc.
Freed Maxick has been selected by the Board of Directors as the independent
public accountants for the Company's current fiscal year. A representative of
Freed Maxick is expected to be present at the meeting with the opportunity to
make a statement if he desires to do so and will be available to respond to
appropriate questions of shareholders.
The following table shows the fees paid or accrued by the Company for the
audit and other services provided by Freed Maxick and RSM McGladrey for fiscal
2005 and by PricewaterhouseCoopers LLP for fiscal 2004.
2005 2004
---------- ----------
Audit Fees (1) $ 63,000 $ 85,200
Tax Fees (2) 1,713 42,150
All Other Fees (3) 35,704 -
---------- ----------
Total $ 100,417 $ 127,350
========== ==========
---------------
10
(1) Audit fees represent fees for professional services provided in
connection with the audit of the Company's financial statements and
review of the Company's quarterly financial statements and audit
services provided in connection with other statutory or regulatory
filings.
(2) Tax fees principally included fees for tax preparation and tax
consulting services.
(3) For 2005, this was primarily for the investigation and report by RSM
McGladrey with respect to a defalcation by a former employee.
The Audit Committee pre-approves all audit and legally permissible
non-audit services provided by the independent accountants. The Audit Committee
pre-approved all services performed by Freed Maxick and RSM McGladrey during
2005.
The Audit Committee of the Board of Directors has considered whether
provision of the services described above is compatible with maintaining our
accountant's independence and has determined that such services have not
adversely affected Freed Maxick's independence.
VOTING INFORMATION
The presence, in person or by properly executed proxy, of the holders of
shares of common stock entitled to cast a majority of the votes entitled to be
cast by the holders of all outstanding shares of common stock is necessary to
constitute a quorum. Pursuant to SEC rules, shareholder proposals must have been
received by April 27, 2006, which date is 45 days before the date (June 10) on
which the Company mailed its proxy materials for last year's annual meeting, to
be considered at the 2006 Annual Meeting. At April 27, 2006, the Company had not
received notice of any intention to submit any other matter; and, therefore, the
named proxies have discretion to vote on any other matter that comes before the
meeting.
Shares of common stock represented by a properly signed, dated and returned
proxy will be treated as present at the meeting for the purposes of determining
a quorum. Proxies relating to "street name" shares of common stock that are
voted by brokers will be counted as shares of common stock (1) present for
purposes of determining the presence of a quorum and (2) as having voted in
accordance with the directions and statements on the form of proxy.
11
DIRECTOR NOMINATING PROCESS
The determination of the individuals to be nominated for the Board of
Directors is made by the independent Directors. This determination is then
subsequently submitted to the full Board of Directors for approval/ratification.
The Board has determined that Dr. Duerig and Mr. Hedges are independent under
the AMEX listing standards.
The Board has not adopted specific minimum criteria for director nominees.
Nominees are identified by first evaluating the current members of the Board
willing to continue in service. Current members of the Board with skills and
experience that are relevant to the Company's business and who are willing to
continue in services are considered for re-nomination. If any member of the
Board does not wish to continue in service, the Board first considers the
appropriateness of the size of the Board and then considers factors that it
deems are in the best interests of the Company and its shareholders in
identifying and evaluating a new nominee.
The Board will consider director nominees from any reasonable source,
including nominees suggested by incumbent Board members and management as well
as shareholder recommendations tendered in accordance with the Company's advance
notice provisions. The Company does not currently employ an executive search
firm, or pay a fee to any other third party, to locate qualified candidates for
director positions.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders who wish to contact the Board of Directors or any of its
members may do so by addressing their written correspondence to Board of
Directors, 1110 Maple Street, P.O. Box 300, Elma, New York 14059. Correspondence
directed to an individual Board member will be referred, if appropriate, to that
member. Correspondence not directed to a particular Board member will be
referred, if appropriate, to the Chairman of the Audit Committee.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING
Proposals for the Company's Proxy Material
------------------------------------------
Shareholder proposals must be received at the Company's offices no later
than February 9, 2007, in order to be considered for inclusion, if appropriate,
as a shareholder proposal in the Company's proxy materials for the 2007 Annual
Meeting. Such proposals must also meet the other requirements established by the
SEC for shareholder proposals.
Proposals to be Introduced at the Annual Meeting but not Intended to be Included
--------------------------------------------------------------------------------
in the Company's Proxy Material
-------------------------------
For any shareholder proposal to be presented in connection with the 2007
Annual Meeting of Shareholders, a shareholder must give timely written notice
thereof to the Company in compliance with the advance notice provisions of the
federal securities laws. To be timely, a qualified shareholder must give written
notice to the Company at the Company's offices not later than April 23, 2007.
12
OTHER MATTERS
So far as the directors are aware, no matters other than the election of
directors will be presented to the meeting for action on the part of the
shareholders. If any other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying proxy to vote thereon
the shares to which the proxy relates in accordance with their best judgment.
By Order of the Directors
DR. NICHOLAS D. TRBOVICH
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Elma, New York`
13