SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
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
FARMSTEAD TELEPHONE GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
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[ ] Fee paid previously with preliminary materials.
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statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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FARMSTEAD TELEPHONE GROUP, INC.
22 Prestige Park Circle
East Hartford, Connecticut 06108
______________________________
NOTICE OF THE
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, July 14, 2005
______________________________
May 23, 2005
To our Stockholders:
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders (the
"Meeting") of Farmstead Telephone Group, Inc. (the "Company") will be held
at 10:00 a.m. local time on Thursday, July 14, 2005 at the Company's
offices located at 22 Prestige Park Circle, East Hartford, Connecticut
06108 for the following purposes:
(1) To elect six directors, each to serve a one-year term;
(2) To ratify the selection, by the Board of Directors, of Carlin,
Charron & Rosen LLP as independent auditors of the Company for
the year ending December 31, 2005; and
(3) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
These items of business are more fully described in the proxy
statement accompanying this notice.
The Company's Board of Directors has fixed the close of business on
May 16, 2005 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting, or any adjournment or
postponement thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED AT THE MEETING. PLEASE COMPLETE, SIGN,
DATE, AND MAIL THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE. MOST
STOCKHOLDERS CAN ALSO VOTE THEIR SHARES OVER THE INTERNET OR BY TELEPHONE.
IF INTERNET OR TELEPHONE VOTING IS AVAILABLE TO YOU, VOTING INSTRUCTIONS
ARE PRINTED ON THE PROXY CARD SENT TO YOU. IF YOU PLAN TO ATTEND THE
MEETING AND YOUR SHARES ARE HELD IN THE NAME OF A BROKER OR OTHER NOMINEE,
PLEASE BRING WITH YOU A PROXY OR LETTER FROM THE BROKER OR NOMINEE
CONFIRMING YOUR OWNERSHIP.
By Order of the Board of Directors,
Robert G. LaVigne
Executive Vice President,
Chief Financial Officer and
Secretary
PROXY STATEMENT
2005 Annual Meeting of Stockholders FARMSTEAD LOGO
July 14, 2005
INTRODUCTION
Solicitation of Proxies
This Proxy Statement is being sent to you in connection with the
solicitation of proxies by the Board of Directors (the "Board") of
Farmstead Telephone Group, Inc., a Delaware corporation (the "Company" or
"Farmstead"), for the 2005 Annual Meeting of Stockholders (the "Meeting")
to be held on Thursday, July 14, 2005 at 10:00 a.m. local time, or any
adjournments or postponements thereof, for the purposes set forth in the
attached Notice of Annual Meeting of Stockholders. This Proxy Statement and
the accompanying proxy are first being mailed to stockholders on or about
May 23, 2005. A copy of the Company's Annual Report for the year ended
December 31, 2004, is included with this Proxy Statement.
Voting Rights and Required Votes
Only the holders of record of the Company's common stock, par value
$.001 per share ("Common Stock"), as of the close of business on May 16,
2005 (the "Record Date"), are entitled to notice of, and to vote on, all
matters properly brought before the Meeting or any adjournments or
postponements thereof. As of March 31, 2005 there were 3,342,730 common
shares outstanding.
Each stockholder is entitled to one vote for each share of Common
Stock held by him or her at the close of business on the Record Date.
Pursuant to the Company's Amended and Restated By-laws, to constitute a
quorum for the transaction of business at any meeting of stockholders,
there must be present, in person or by proxy, the holders of no less than
one-third of the voting power of the issued and outstanding shares of
voting stock of the Company. Abstentions and "broker non-votes" are counted
as present and entitled to vote for purposes of determining a quorum. A
broker non-vote occurs when a bank, broker or other holder of record
holding shares for a beneficial owner does not vote on a particular
proposal because that holder does not have discretionary voting power for
that particular item and has not received instructions from the beneficial
owner. If you are a beneficial owner, your bank, broker or other holder of
record is permitted to vote your shares on the election of Directors and
the ratification of Carlin, Charron & Rosen LLP as our independent auditors
even if the broker does not receive voting instructions from you. Once a
share is represented for any purpose at the meeting, it is deemed present
for quorum purposes for the remainder of the meeting.
Directors are elected by the affirmative vote of a plurality of the
shares present at the Meeting, in person or by proxy, and entitled to vote
in the election of Directors. Under applicable Delaware law, in
determining whether such nominees have received the requisite number of
affirmative votes, withheld votes and broker non-votes are not treated as
votes cast and, therefore will have no effect on the outcome of the vote.
Approval of the proposal relating to the ratification of the
appointment of independent auditors of the Company's financial statements
requires the affirmative vote of a majority of the shares of Common Stock
present, in person or by proxy, and entitled to vote at the Meeting. Under
applicable Delaware law, in determining whether such proposal has received
the requisite number of affirmative votes, abstentions will be counted and
will have the same effect as a vote against each proposal. Broker non-votes
are not treated as votes cast and, therefore will have no effect on the
outcome of the vote.
When proxies in the enclosed form are returned properly executed, the
shares represented thereby will be voted at the Meeting and, where
instructions have been given by the stockholder, will be voted in
accordance therewith. If the stockholder does not otherwise specify, the
stockholder's shares will be voted FOR each of the nominees for director
and FOR the proposal to ratify the appointment of the independent auditors,
all as set forth in this Proxy Statement. As to any other business, which
may come before the Meeting, the proxy holders will vote in accordance with
their best judgment.
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Votes will be counted manually. A stockholder executing the
accompanying proxy has the power to revoke it at any time prior to the
exercise thereof by appearing at the Meeting and voting in person or by
filing with the Secretary of the Company, a properly executed, later-dated
proxy (including an Internet or telephone vote), or a written instrument
revoking the proxy. Most stockholders have a choice of voting over the
Internet, by using a toll-free telephone number or by completing a proxy
card and mailing it in the postage-paid envelope provided. Please refer to
your proxy card or the information forwarded by your bank, broker or other
holder of record to see which options are available to you. Please be
aware that if you vote over the Internet, you may incur costs such as
telephone and Internet access charges for which you will be responsible,
and that there may be some risk a stockholder's vote might not be properly
recorded or counted because of an unanticipated electronic malfunction.
Costs of Solicitation
The solicitation of proxies in the accompanying form is made by, and
on behalf of, the Board of Directors. We have engaged the services of
Computershare Trust Co., Inc., the Company's Transfer Agent, and ADP
Investor Communication Services, to assist us in the distribution and
processing of proxies, for which total fees and expenses of approximately
$7,000 will be paid. There will be no solicitation by officers and
employees of the Company. The Transfer Agent will make arrangements with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of proxy materials to the beneficial owners of shares held of
record by such persons, and such persons will be reimbursed for reasonable
expenses incurred by them in connection therewith.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Amended and Restated By-laws of the Company provide that the
Board of Directors shall be fixed solely and exclusively by resolution duly
adopted from time to time by the Board of Directors. The Board has fixed
the current number of directors at six. Each director presently is elected
for a one-year term at each annual meeting of the stockholders. Officers
are elected by, and serve at the pleasure of, the Board of Directors.
Six directors are to be elected at the Meeting to hold office until
the next Meeting or until their successors have been duly elected and
qualified. The Board of Directors has determined that three of the six
nominees are independent under the guidelines of the American Stock
Exchange. It is the intention of the persons named in the accompanying
Proxy Card to vote FOR the election of the six persons named in the table
below as directors of the Company, unless authority to do so is withheld.
All of the nominees are currently serving as directors of the Company, and
they have consented to being nominated and named herein, and to serve as
directors if elected at the Meeting. In the event that any of the nominees
for director is unable to serve as a director, the shares represented by
all valid proxies will be voted for the election of such other person as
the Board may nominate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES AS DIRECTOR.
For each nominee, each of whom is an incumbent, and for each officer
of the Company other than such nominees, there follows a brief listing of
their principal occupation for at least the past five years, other major
affiliations, and age as of January 1, 2005.
Nominees:
George J. Taylor, Jr., Chairman of the Board of Directors from 1984
until May 12,2005; our Chief Executive Officer from 1984 until October 1,
2004, and our President from 1989 until October 1, 2004. Mr. Taylor, Jr.
was President of Lease Solutions, Inc. (formerly Farmstead Leasing, Inc.),
a business products and automobile leasing company, from 1981 to 1993 and
Vice President - Marketing and Sales for National Telephone Company from
1977 to 1981. Mr. Taylor was one of the founders of the National
Association of Telecommunication Dealers, has been a member of, or advisor
to, its Board of Directors since its inception in 1986, and for two years
served as its President and Chairman. He is the brother of Mr. Hugh M.
Taylor, a Director of the Company. Age: 62.
Jean-Marc Stiegemeier, Chairman of the Board of Directors since May
12, 2005; our President and Chief Executive Officer, and a Director, since
October 1, 2004. From August 16, 2004 to October 1, 2004, he provided
business consulting services to the Company. Mr. Stiegemeier has extensive
executive management experience in
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the telecommunications industry. From 2002 to 2004 he was a business
consultant, advising companies on strategic redirections and turnarounds.
He also served on the board of directors for certain of these companies.
From 1997-2001, he served in various capacities including President,
Founder and Director of Exp@nets Inc., a voice and data solutions provider.
Prior thereto, Mr. Stiegemeier served as Chairman and CEO of Franklin
Industries Inc., Lucht, Inc., Ships Entertainment, Inc, California-
Telamerica Inc., Morrow Optical, Inc., and Telamerica, Inc. He was also the
President of Honeywell-Telamerica. Age: 59.
Harold L. Hansen, Director of the Company since 1992. An independent
management consultant since January 1997. A member of the Audit Committee
(Chairman until January 2, 2003) and the Compensation Committee. President
of Hansen Associates, a management and financial consulting firm from 1995
to 1997. President of H2O Environmental, Inc., an environmental and
geotechnical services company, from 1994 to 1995. President of Hansen
Associates from 1993 to 1994. Prior to 1993, Mr. Hansen served in various
corporate executive capacities including Executive Vice President and Chief
Operating Officer of Gestetner Corporation, Vice President and General
Manager of the Office Products Division of Royal Business Machines and Vice
President and General Manager of the Business Products Group of Saxon
Industries. Age: 74.
Joseph J. Kelley, Director of the Company since April 1995. Chairman
of the Compensation Committee and a member of the Audit Committee.
Currently an Executive-in-Residence at the Olin Graduate School of Business
at Babson College, Wellesley, Massachusetts. President of East Haven
Associates, a telecommunications consulting firm located in Wellesley,
Massachusetts, from 1995 to 2001. Group Vice President of NYNEX, in 1994,
responsible for the State of Massachusetts operations. From 1985 to 1994
he served in various executive level positions with NYNEX, or associated
companies including Vice President - Operations of New England Telephone
(1991 - 1993), Vice President - New England Telephone, Network Department
(1990 - 1991), Corporate Director of Business Development, NYNEX Marketing
(1988 - 1990) and Vice President of New England Telephone - Maine (1985 -
1988). Mr. Kelley has been involved in the telecommunications industry
since 1963. Age: 65.
Ronald P. Pettirossi, Director of the Company since January 3, 2003.
Chairman of the Audit Committee. President of ER Ltd., a consulting company
since 1995. Mr. Pettirossi is a former audit partner of Ernst & Young,
LLP, who worked with public and privately held companies for 31 years. Mr.
Pettirossi is a member of the Board of Directors of Magellan Petroleum
Corporation and Magellan Petroleum Australia Limited. Age: 61.
Hugh M. Taylor, Director of the Company since 1993. Managing Director
of Newbury, Piret & Company, Inc., an investment banking firm located in
Boston, MA since 1994. CEO, President and a director of the Berlin City
Bank, Berlin, New Hampshire, from 1993 to 1994. Executive Vice President of
Fleet Bank of Massachusetts from 1992 to 1993. Executive Vice President and
Chief Operating Officer of Fleet Bank of Boston from 1990 to 1992. From
1973 to 1990 he was employed by the New England Merchants Bank, later the
Bank of New England, where he held various executive management positions
within the Commercial Banking Division, and the bank's venture capital
subsidiary. Brother of Mr. George J. Taylor, Jr. Age: 60.
Other Executive Officers:
Robert G. LaVigne, Executive Vice President since July 1997, and our
Chief Financial Officer, Corporate Secretary and Treasurer since 1988. Mr.
LaVigne was a Director of the Company from 1988 to 2001. He was the
Controller of Economy Electric Supply, Inc., a distributor of electrical
supplies and fixtures, from 1985 to 1988 and the Corporate Controller of
Hi-G, Inc., a manufacturer of electronic and electromechanical components,
from 1982 to 1985. Mr. LaVigne is a Certified Public Accountant. Age: 53.
Alfred G. Stein, Executive Vice President of our Company since
January 15, 2005. Mr. Stein was initially engaged by the Company in
September 2004 as an outside business consultant to assist management in
the development of a strategic re-direction of the Company's sales
organization and product offerings. Mr. Stein has extensive experience in
the telecommunications industry. Since 2002 he served as founder and
President of Matthews & Wolf, LLC, a small business consulting firm. From
1998 to 2002 he served as Vice President - Business Process Development for
Exp@nets, Inc. a voice and data solutions provider with over $1 billion in
revenues. From 1983 to 1998, he was President of Eagle
Intercommunications, Inc. a New York based telecommunications solution
provider selling Toshiba, NYNEX and Avaya products and services. Eagle was
acquired by Exp@nets in May of 1998. Age: 60.
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Nevelle R. Johnson has been an Executive Vice President of our
Company since March 1, 2005. Mr. Johnson's responsibilities include the
re-direction and growth of our national sales organization, as well as the
implementation of new product and service offerings. Mr. Johnson has
extensive experience in the telecommunications industry. From November
2003 to March 2005 he was a Vice President of sales and services within
Avaya Inc. From 2000 to 2003 he was the Executive Vice President of sales
and services for Exp@nets, Inc. a voice and data solutions provider. From
1983 to 2000 he held various sales and executive positions with AT&T and
Lucent Technologies. Age: 47.
Other Section 16 Officers:
Frederick E. Robertson, Jr., Vice President- Operations since January
2003, and our Director of Provisioning from March 2001 to January 2003.
Mr. Robertson, Jr. was Senior Director of Merchandising for Staples
Communications, Inc. from 1999 to 2001, Director of Corporate Purchasing
and Logistics for Claricom, Inc. from 1998 to 1999, and Corporate Manager,
Cost Control and Purchasing for Executone Information Systems, Inc. from
1996 to 1998. Age: 46.
Meetings and Committees of the Board of Directors
During 2004, the Board held five meetings. In addition, certain
actions were approved by unanimous written consent resolutions of the
directors. In addition, the independent directors held two separate
meetings during 2004. No director attended less than 75% of all Board and
applicable committee meetings held. During 2004, the Board had two ongoing
committees: an Audit Committee and a Compensation Committee. The Company
does not have a standing nominating committee; however the full board of
directors participates in the consideration of director nominees.
The Audit Committee, consisting of Messrs. Pettirossi (Chairman),
Hansen and Kelley, consults with the independent auditors and management
with respect to the adequacy of internal controls and the Company's audited
financial statements. In the Board's judgment, each member of the Audit
Committee is financially literate. The Board has reviewed the
qualifications and experience of each of the Audit Committee members and
determined that Mr. Pettirossi qualifies as "audit committee financial
expert" as that term has been defined by the SEC. The Audit Committee also
reviews the Company's internal quarterly financial statements with
management and, when deemed necessary, with the independent auditors as
well. The Audit Committee also recommends to the Board of Directors the
appointment of independent auditors for the following year. The Audit
Committee held five meetings during 2004.
The Compensation Committee, consisting of Messrs. Kelley (Chairman)
and Hansen, determines the compensation and benefits of the Chief Executive
Officer and reviews and approves, or modifies if deemed appropriate, the
recommendations of the Chief Executive Officer with respect to the
compensation and benefits of the other executive officers. The
Compensation Committee also approves the issuance of grants pursuant to the
Company's stock option plans. The Compensation Committee held one meeting
during 2004.
PROPOSAL 2 - RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Carlin,
Charron & Rosen, LLP ("CC&R") as our independent auditors for the year
ending December 31, 2005. CC&R, and its predecessor company, DiSanto
Bertoline & Company, P.C., have been our independent auditors since October
2001. We are submitting the selection of CC&R for stockholder ratification
at the Annual Meeting. In the event the stockholders fail to ratify the
appointment, the Audit Committee will reconsider this appointment. Even if
the appointment is ratified, the Audit Committee, in its discretion, may
direct the appointment of a different independent auditing firm at any time
during the year if the Audit Committee determines that such a change would
be in the best interests of Farmstead and its stockholders.
A representative of CC&R is expected to be present at the Meeting,
will be afforded the opportunity to make a statement if he or she desires
to do so, and will be available to respond to appropriate questions from
stockholders.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF CARLIN, CHARRON & ROSEN, LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 2005.
Principal Accountant Fees and Services
The Audit Committee or a designated member thereof, approves each
audit and non-audit service rendered by CC&R to Farmstead. The Audit
Committee reviews and approves an engagement letter received from CC&R
which details the scope and cost of services to be provided the Company
during the following fiscal year in connection with the audit of the
Company's financial statements, reviews of quarterly financial statements
and the preparation of tax returns. All other services to be performed by
the auditors that are not included in the approved engagement letter are
submitted to the Audit Committee for approval. The following table shows
information about fees billed to Farmstead by CC&R for professional
services rendered during the years ended December 31, 2004 and 2003:
Fee Category 2004 2003
------------ ---- ----
Audit Fees $43,875 $38,575
Audit-Related Fees - -
Tax Fees 9,250 8,000
All Other Fees 1,554 8,350
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Total Fees $54,679 $54,925
======= =======
Audit Fees. Consists of fees billed for professional services
rendered for the audit of Farmstead's consolidated financial statements and
reviews of interim consolidated financial statements included in quarterly
reports filed with the Securities and Exchange Commission.
Audit-Related Fees. There were no audit-related fees billed during
2004 and 2003.
Tax Fees. Consists of fees billed for professional services rendered
for the preparation of federal and state tax returns.
All Other Fees. For 2004, consists of consulting fees in connection
with Section 404 of the Sarbanes-Oxley Act of 2002, and for representation
at the 2004 Annual Meeting of Stockholders. For 2003, consists of fees for
the audit of the Company's 401(k) plan, and services rendered in meeting
with the Audit Committee and attendance at the Annual Meeting. There were
no management consulting services provided in 2003
CORPORATE GOVERNANCE
At Farmstead, we are committed to operating in an ethical, legal and
environmentally sensitive and socially responsible manner, while creating
long-term value for our shareholders. Farmstead has adopted a Code of
Ethical Conduct applicable to its officers, directors and employees. A
copy of this Code of Ethical Conduct is maintained on Farmstead's website
at www.farmstead.com, in the Corporate Governance section, and was
previously filed with the Securities and Exchange Commission as Appendix A
to the Company's proxy statement for last year's annual meeting.
Stockholders may obtain copies of these documents, free of charge, by
sending a written request to our principal executive office at 22 Prestige
Park Circle, East Hartford, CT 06108, Attention: Corporate Secretary.
Farmstead also has a "hotline" available to all employees, and the
Audit Committee has established procedures for the confidential and
anonymous submission of employee complaints on accounting, internal
controls or auditing matters.
Independence of Directors
No director qualifies as independent unless the Board affirmatively
determines that the director has no material relationship with Farmstead
either directly or as a partner, stockholder or officer of an organization
that has a relationship with Farmstead. Our Board of Directors has
determined that all non-management directors are
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independent in accordance with the American Stock Exchange listing
standards, except for Mr. George J. Taylor, Jr. and Mr. Hugh M. Taylor.
The Board has made this determination based on the following objective
standards, in addition to any other relevant facts and circumstances:
* A director who is an employee or whose immediate family member
is an executive officer of Farmstead is not independent until
three years after the end of such employment relationship.
* A director who receives, or whose immediate family member
receives, more than $100,000 per year in direct compensation
from Farmstead, other than director and committee fees and
pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any
way on continued service), is not independent until three years
after he or she ceases to receive more than $100,000 per year
in such compensation.
* A director who is affiliated with or employed by, or whose
immediate family member is affiliated with or employed in a
professional capacity by, a present or former internal or
external auditor of Farmstead is not independent until three
years after the end of either the affiliation or the auditing
relationship.
* A director who is employed, or whose immediate family member is
employed, as an executive officer of another company where any
of Farmstead's present executives serves on that company's
compensation committee is not independent until three years
after the end of such service or the employment relationship.
* A director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of another
company that makes payments to, or receives payments from,
Farmstead for property or services in an amount which, in any
single fiscal year, exceeds the greater of $1 million or 2% of
such other company's consolidated gross revenues is not
independent until three years after falling below such
threshold
Executive Sessions
Our non-management, independent directors meet at least once per year
in executive session without management. Executive sessions are led by a
"Presiding Director." An executive session may be held in conjunction with
a regularly scheduled Board meeting and other sessions may be called by the
Presiding Director in his or her own discretion or at the request of the
Board. Mr. Pettirossi is currently designated as the Presiding Director.
During 2004, the non-management independent directors met twice.
Nomination of Directors
It is the policy of the Board of Directors to consider candidates for
director that are recommended by stockholders. In order to recommend a
candidate, stockholders must submit the individual's name and
qualifications in writing to the Board (in care of the Secretary at
Farmstead's principal executive office at 22 Prestige Park Circle, East
Hartford, CT 06108) and otherwise in accordance with all of the procedures
outlined under "Nominations and Stockholders' Proposals for year 2006
Annual Meeting of Stockholders" for a director nomination.
In identifying and evaluating nominees for Director, the Board of
Directors takes into account the applicable requirements for directors
under the Securities Exchange Act of 1934, as amended, and the listing
standards of the American Stock Exchange. In addition, the Board of
Directors may take into consideration such factors and criteria as it deems
appropriate, including the nominee's character, judgment, business
experience and acumen. In addition to nominees recommended by stockholders,
the Board of Directors also considers candidates recommended by management
or other members of the Board. The Board evaluates candidates recommended
for Director by stockholders in the same way that it evaluates any other
nominee.
Communications with the Board of Directors
The Board has established a process for stockholders and other
interested parties to communicate with the Board or an individual director,
including the Presiding Director or the non-management directors as a
group. A stockholder may contact the Board of Directors or an individual
director by writing to their attention at Farmstead's principal executive
offices at 22 Prestige Park Circle, East Hartford, CT 06108. Communications
received in writing
6
are distributed to the Board or to individual directors as appropriate in
accordance with procedures approved by Farmstead's independent directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock, $.001 par value, as of March 31,
2005 by (i) each person known by the Company to own beneficially more than
five percent of the Company's outstanding shares of Common Stock, (ii) all
directors and nominees for director of the Company, (iii) each Named
Executive Officer and Other Section 16 Officers (as defined below in
"Compensation of Officers, and Directors") and (iv) all five percent
stockholders, directors, nominees for director, named executive officers
and other Section 16 officers of the Company as a group. In addition to
being a beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock, Mr. George J. Taylor, Jr. and Mr.
Jean-Marc Stiegemeier are directors of the Company.
Percentage of
Number of Shares Outstanding
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Common Stock
---------------------------------------- ---------------------- -------------
Five Percent Stockholders:
George J. Taylor, Jr. 1,132,884(3) 26.8%
Jean-Marc Stiegemeier 400,000(5) 10.7%
Robert G. LaVigne 272,500(4) 7.6%
Nevelle R. Johnson 260,000(9) 7.2%
Alfred G. Stein 250,000(9) 7.0%
John V. Winfield 179,100(8) 5.4%
Other Directors:
Harold L. Hansen 49,229(5) 1.5%
Hugh M. Taylor 55,703(6) 1.6%
Joseph J. Kelley 38,229(5) 1.1%
Ronald P. Pettirossi 12,500(5) *
Other Section 16 Officers:
Frederick E. Robertson, Jr. 20,367(7) *
5% Stockholders, Directors, Named Executive
Officers and Section 16 Officers as a Group (11
persons) 2,670,512(10) 48.0%
--------------------
* Less than 1%.
Unless otherwise indicated, the address of each named beneficial
owner is c/o the Company, 22 Prestige Park Circle, East Hartford, CT
06108. Mr. Winfield's address is 820 Moraga Drive, Los Angeles,
California 90049.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or
exercisable within sixty (60) days, are deemed outstanding for
computing the percentage of the person holding such options but are
not deemed outstanding for computing the percentage of any other
person. Except as otherwise indicated, the Company believes each
person named in the table has sole voting and investment power with
respect to all shares beneficially owned by him. Information with
respect to beneficial ownership is based upon information furnished
by such stockholder.
Includes 885,782 shares issuable upon exercise of currently
exercisable stock options. Also includes 27,020 shares held by his
children.
Includes 265,500 shares issuable upon exercise of currently
exercisable stock options.
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Consists of shares issuable upon exercise of currently exercisable
stock options or warrants.
Includes 52,316 shares issuable upon exercise of currently
exercisable stock options and 2,000 shares held by his children.
Includes 15,500 shares issuable upon exercise of currently
exercisable stock options.
Based upon the receipt by the Company of Schedule 13D dated February
9, 2005 and filed with the Securities and Exchange Commission.
According to this form, Mr. Winfield has the sole voting and
disposition power over these shares.
Includes 250,000 shares issuable upon the exercise of warrants. The
shares underlying the warrants were not registered as of the date of
issuance. However, the Company has agreed to register these shares as
follows: for Mr. Johnson-100,000 shares by March 1, 2006, 100,000
shares by March 1, 2007 and 50,000 shares by March 1, 2008; for Mr.
Stein-50,000 shares by July 15, 2005, 100,000 shares by January 15,
2006 and 100,000 shares by January 15, 2007.
Includes 1,319,056 shares issuable upon exercise of currently
exercisable stock options and 900,000 shares issuable upon exercise
of currently exercisable warrants.
Compensation of Officers and Directors
The following table sets forth all compensation earned for services
rendered to the Company during the three years ended December 31, 2004 by
the Chief Executive Officer ("CEO") and by each executive officer (the
"Named Executive Officers") and Other Section 16 Officers whose total
annual compensation exceeded $100,000 in 2004.
Summary Compensation Table
Long-term
Annual Compensation (1) Compensation
----------------------------------------- Awards (1)
Other Annual ------------ All Other
Compensation Options Compen-
Name and Principal Position Year Salary ($) Bonus ($) ($) (#) sation ($)
-----------------------------------------------------------------------------------------------------------------------
CEO:
Jean-Marc Stiegemeier 2004 76,000 37,500(6) - 1,000,000(5)
President, CEO and Director
(from October 1, 2004)
George J. Taylor, Jr. 2004 160,000 - 1,973(2) - 11,036(3)
President and CEO 2003 160,000 - 6,511(2) - 11,968(3)
(until October 1, 2004) 2002 180,462 - 3,127(2) - 14,367(3)
Named Executive Officers:
Robert G. LaVigne 2004 112,000 - - 20,000 20,899(4)
Executive Vice President, Chief 2003 112,000 - 6,570(2) 20,000 4,565(4)
Financial Officer, Secretary and 2002 125,697 - 6,731(2) 20,000 16,769(4)
Treasurer
Michael R. Johnson (7) 2004 100,000 - - - -
Executive Vice President 2003 100,000 - - 2,000 -
(until December 31, 2004) 2002 112,819 - - 125,000 -
Frederick E. Robertson, Jr. 2004 100,000 - - - -
Vice President- Operations 2003 100,000 - 1,346 15,000 -
2002 100,000 - - 2,000 -
Other than the warrants issued to Mr. Stiegemeier in connection with
his employment agreement, the Company did not grant any restricted
stock awards or stock appreciation rights ("SARS") or make any long-
term incentive plan payments during the fiscal years presented.
8
Includes payouts of unused vacation and/or sick time of $4,538 for
2003 and $1,154 for 2002 for Mr. Taylor, and, $6,570 for 2003 and
$6,731 for 2002 for Mr. LaVigne. For Mr. Taylor, also includes an
imputed value for the personal use of a company-owned vehicle in the
amount of $1,973 for all years presented.
Consists of life and disability insurance premiums paid by the
Company on personally-owned policies, aggregating $11,036 for 2004,
$11,036 for 2003 and $11,937 for 2002, and imputed income on a split-
dollar life insurance policy amounting to $932 for 2003 and $2,430
for 2002. Not included is an annual premium payment of $16,500 made
in 2002 under the split-dollar insurance policy which was terminated
in 2003.
Includes insurance premiums paid under a Company-owned split-dollar
life insurance policy of $3,187 for 2004, $0 for 2003 and $13,075 for
2002. The 2002 payment approximated 10% of Mr. LaVigne's
compensation paid during the year. The 2004 payment represented only
the cost of the death benefit. The cash surrender value of the
policy vests to Mr. LaVigne's benefit at the rate of 10% per year
over a ten-year period. Included is $17,712, $4,565 and $3,694,
respectively, representing the increase in the vested policy cash
surrender value during 2004, 2003 and 2002, respectively. Upon
termination of employment, the unvested portion of the policy cash
surrender value remains with the Company.
Includes a warrant to purchase 400,000 shares of common stock. The
common stock underlying the warrant has not been registered with the
Securities and Exchange Commission as of March 31, 2005.
Represents a one-time signing bonus per Mr. Stiegemeier's employment
agreement.
Mr. Johnson's employment with the Company ended December 31, 2004.
Supplemental Executive Retirement Plan ("SERP"). The Company
maintains a Supplemental Executive Retirement Plan ("SERP") for the benefit
of Mr. Taylor, Jr. The SERP was structured to provide the funding for Mr.
Taylor's annual retirement benefit of $100,000 payable over 15 years
beginning at age 65. The SERP is an unfunded plan; however, it is being
informally funded through a Company-owned life insurance policy with an
annual premium payment of $50,000 for ten years. No premium payment was
made in 2004 and during 2004 the Company borrowed $275,000 against the
policy's cash value. The policy provides a $1.5 million death benefit.
Liability Insurance. Farmstead currently provides liability
insurance for its directors and officers. AIG is the principal underwriter
of the current coverage which extends until September 13, 2005. The annual
cost of this coverage is approximately $59,000.
Perquisites. The Company provides certain of our senior executive
officers with perquisites that we believe are reasonable, competitive and
consistent with the Company's overall compensation program. These
perquisites include: use of a car leased by the Company, financial
counseling and tax preparation services; housing for executives who reside
outside of the Greater Hartford area for a transitional period and
telephonic equipment. We believe these costs described in this paragraph
are legitimate business expenses but we also recognize that all of these
costs can be viewed as personal benefits for these executives and have
reported them as required in the "Other Annual Compensation" column or in
the footnotes to the table set forth above. No senior executive officer
received perquisites greater than $50,000 for the year ended December 31,
2004.
Option/Warrant/SAR Grants in Last Fiscal Year
The following table sets forth information concerning individual
grants of options and warrants to purchase shares of the Company's Common
Stock made to the CEO and each Named Executive Officer and Other Section 16
Officers during the year ended December 31, 2004:
9
Number of % of Total
Securities Options/Warrants Exercise Potential
Underlying Granted to or Realizable Value
Options/warrants Employees in Base Price Expiration -------------------
Name Granted (#) Fiscal Year ($/SH) Date 5% ($) 10% ($)
---------------------------------------------------------------------------------------------------------------------------
Jean-Marc Stiegemeier 1,000,000 94.7% .39 (1) 157,937 468,176
George J. Taylor, Jr. - - - - - -
Robert G. LaVigne 20,000 1.9% .70 2/2/2014 8,805 22,312
Michael R. Johnson - - - - - -
Frederick E. Robertson, Jr. - - - - - -
400,000 warrants expire 10/1/2009; 600,000 options expire 10/1/2014.
Aggregated Option/Warrant/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/Warrant/SAR Values
The following table provides information on the number and value of
unexercised options and warrants held at December 31, 2004, by the CEO and
each Named Executive Officer and Other Section 16 Officers:
No. of Securities Underlying Value of Unexercised
Unexercised Options and In-the-Money Options and
Shares Warrants at 12/31/04 (#) Warrants at 12/31/04 ($)
Acquired on Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------------
Jean-Marc Stiegemeier 400,000 600,000 $140,000 $210,000
George J. Taylor, Jr. - - 885,782 - - -
Robert G. LaVigne - - 265,500 - 10,000 -
Michael R. Johnson - - 76,000 - 240 -
Frederick E. Robertson, Jr. - - 10,000 17,000 1,380 5,520
Long-Term Incentive Plans - Awards in Last Fiscal Year: None.
Compensation of Directors
Non-employee directors are entitled to receive a $5,000 annual
retainer, $1,000 for each board meeting attended and $500 for each
committee meeting attended. The directors are also reimbursed for their
expenses in attending each meeting. For each year of service on the board,
non-employee directors receive a non-qualified option to purchase 5,000
shares of Common Stock, at an exercise price equal to the closing market
price of the Common Stock on the date of grant. In addition, Mr.
Pettirossi receives an annual fee of $4,000 for serving as Chairman of the
Audit Committee. Directors who are also employees of Farmstead receive no
compensation for serving as directors. In May 2004, the directors agreed to
a suspension of all compensation arising out of their service to the Board
or any committees of the Board though December 2004.
Employment Contracts and Termination of Employment
And Change-in-Control Arrangements
On October 1, 2004, the Company entered into an employment agreement,
expiring December 31, 2009, (the "Agreement") with Mr. Jean-Marc
Stiegemeier (the "Executive") in connection with his appointment as
President and Chief Executive Officer of the Company through December 31,
2009. Executive succeeded Mr. George J. Taylor, Jr. who continues to serve
the Company as Chairman of the Board of Directors. The Agreement includes
the following key provisions: (i) an annual base salary of $300,000, which
may be increased by the Board in its discretion or decreased by the Board
under certain defined circumstances; (ii) a one-time special bonus of
$37,500, $25,000 of which was paid October 1, 2004, with the balance paid
in January 2005; (iii) an annual bonus of up to 100% of Executive's base
salary based upon the attainment of a Board-approved earnings target for
that year; (iv) the use of a Company-provided house for a one-year period;
(v) as an incentive to reduce the Company's "acquisition" costs, Executive
would receive an "acquisition incentive bonus" equal to one percent (1%) of
the
10
Purchase Price, as defined in the Agreement) for each acquisition that is
concluded during the term of this Agreement without any obligation by the
Company to pay any fees, commissions or any other cash or equity-based
compensation to any third party(ies) for or in connection with (a) the
identification of the entity that is the subject of the acquisition; (b)
the valuation of the acquisition or (c) the negotiation of the purchase
price and other key business terms of the acquisition with the selling
party or its representatives. Concurrent with the effective date of the
Agreement, Executive was issued a Warrant to purchase up to Four Hundred
Thousand (400,000) shares of common stock at fair market value. The
Warrant was exercisable immediately and expires five years from the date of
grant. The underlying common stock is currently unregistered. The
Executive was also granted an option to purchase up to Six Hundred Thousand
(600,000) shares of common stock under the 2002 Stock Option Plan at an
exercise price equal to the fair market value of the common stock. Three
Hundred Thousand (300,000) shares are exercisable one year after the grant
date, with the remainder exercisable two years after the grant date. The
options expire ten years after the grant date.
The Agreement also provides severance pay for the Executive during
the term of the Agreement under certain circumstances. Should the Company
terminate the agreement without "cause", or if the Executive terminates the
Agreement "for good reason", or in the event the Executive resigns after a
"change in control", as all are defined in the Agreement, then severance
pay will equal three times the "Executive Compensation Amount" as defined.
The Executive will not, however, be entitled to any severance or other
compensation if he voluntarily terminates his employment or if the Company
terminates the Agreement "for cause", as defined. From August 16, 2004 to
October 1, 2004, the Executive provided business consulting services to the
Company for which the Executive earned $50,000 in fees.
The Company has an employment agreement with Mr. Taylor, Jr. dated
January 1, 1998 and as amended at various times between August 1, 2001 and
May 12, 2005. The current agreement contains an employment term expiring
December 31, 2007. The agreement also contains the following major
provisions: (i) a base salary of $200,000 for 2005, increasing to $250,000
in 2006 and $300,000 in 2007; (ii) an annual bonus of up to 100% of his
base salary based upon the attainment of a Board-approved earnings target
for that year, subject to the approval of the Compensation Committee and (iii)
an "acquisition incentive bonus" as described above for Executive.
Mr. Taylor, Jr.'s agreement provides severance pay should he terminate the
Agreement for "good cause", as defined, or should the Company terminate his
agreement without cause, or in the event of a change in control of the
Company, as defined. Severance pay would amount to three times (i) the
amount of the then-current base pay (deemed to be $300,000 for purposes of
severance pay calculations), plus (ii) the average bonus paid during the
three most recent calendar years. Mr. Taylor, Jr. will not be entitled to
any severance or other compensation if he voluntarily terminates his
employment or if the Company terminates the Agreement "for cause", as
defined.
On April 12, 2005 the Board authorized the CEO to negotiate a new
two-year employment agreement for Mr. LaVigne, replacing his previous
agreement which expired December 31, 2004. Mr. LaVigne's agreement is
expected to be substantially similar to his previous employment agreement
and will include a $150,000 salary and a grant of 40,000 stock options.
This agreement has not been finalized. Under his previous agreement, in the
event that the Company terminated the agreement without cause, or in the
event Mr. LaVigne terminated the agreement for good reason (as defined),
Mr. LaVigne would be entitled to severance pay amounting to one-half of (i)
the then-current base salary, (ii) the average bonus paid during the last
two years and (iii) split-dollar insurance plan contributions made during
the prior year. In addition, he would be entitled to receive 100% of the
policy reserves in a Company-owned life insurance policy on his behalf. In
the event of a change in control (as defined), Mr. LaVigne would receive
severance pay of approximately a full year's salary, bonus and benefits.
In addition, all unvested stock options would immediately vest. The
agreement also contained provisions regarding confidentiality and a non-
compete covenant, which would prohibit him from competing with the Company
during his employment and for six months thereafter.
The aforementioned agreements were approved by the Compensation
Committee and the Board of Directors.
Compliance with Section 16 (a) of the Exchange Act:
Section 16 of the Securities Exchange Act of 1934 requires directors
and executive officers and persons, if any, owning more than ten percent of
a class of the Company's equity securities to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of the Company's equity and equity
11
derivative securities. Based solely upon a review of the copies of such
reports furnished to the Company, or written representations from reporting
persons, the Company believes that during 2004 all required reports were
timely filed.
Certain Business Relationships and Transactions with Management:
As previously described, on October 1, 2004, the Company entered into
an employment agreement with Mr. Jean-Marc Stiegemeier in connection with
his appointment as President and Chief Executive Officer of the Company.
From August 16, 2004 to October 1, 2004, Mr. Stiegemeier provided business
consulting services to the Company for which he earned $50,000 in fees.
Compensation Committee Interlocks and Insider Participation:
During the year ended December 31, 2004, the members of the
Compensation Committee were Joseph J. Kelley (Chairman), Hugh M. Taylor
(until May 2004) and Harold L. Hansen. The Committee members are not
employees of the Company and have no interlocking relationships as defined
by the Securities and Exchange Commission.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Committee") is comprised of two independent directors. The Board of
Directors delegates to the Compensation Committee the responsibility for
developing and administering the policies that govern the total
compensation program for executive officers of the Company. The Committee
also oversees grants of stock awards under the Company's stock option plans
for all plan participants, including awards of stock options or warrants
made to the executive officers of the Company. In making pay decisions for
the named executives whose compensation is detailed in this proxy statement
(other than the Chief Executive Officer), the Committee also takes into
consideration the views and recommendations of the Chief Executive Officer
concerning each executive's overall contribution to the Company's
performance. The Committee has prepared the following report to summarize
the executive compensation approach of the Company and describe specific
decisions made by the Committee with respect to the Chief Executive
Officer's compensation and future compensation guidelines.
The compensation philosophy for executive officers conforms generally
to the compensation philosophy followed for all of the Company's employees.
The Company's compensation is designed to maintain executive compensation
programs and policies that enable the Company to attract and retain the
services of highly qualified executives. The goal of the Committee is to
achieve fair compensation for the individuals and to enhance shareholder
value by continuing to closely align the financial rewards of management
with those of the Company's shareholders. In addition to base salaries,
executive compensation programs and policies consisting of discretionary
cash bonuses and periodic grants of stock options are designed to reward
and provide incentives for individual contributions as well as overall
Company performance. The Compensation Committee consults with independent
compensation consultants when appropriate.
Key elements of the Company's compensation program consist of base
salary, discretionary annual cash bonuses and periodic grants of stock
awards. The Company's policies with respect to these elements, including
the basis for the compensation awarded the Company's Chief Executive
Officer, are discussed below. While the elements of compensation described
below are considered separately, the Compensation Committee takes into
account the full compensation package offered by the Company to the
individual, including healthcare and other insurance benefits and
contributions made by the Company.
Base Salaries: The Company has established competitive annual base
salaries for all executive officers, including the named executive
officers. In determining the salary of each senior executive, the
Company's Chief Executive Officer makes recommendations to the Committee
with respect to the base salary of each senior executive other than
himself. The Committee discusses these recommendations, and the relevant
data, and then determines the senior executives' base salary. The
Committee meets separately to determine the base salary of the Company's
Chief Executive Officer. The Company has an employment agreement with
George J. Taylor, Jr. and will have one with Robert G. LaVigne, Executive
Vice President, Chief Financial Officer, Secretary and Treasurer. No other
named
12
executive officer had a formal employment agreement with the Company as of
December 31, 2004. The annual base salaries for each of the Company's
executive officers, including the Company's Chief Executive Officer,
reflect the subjective judgment of the Compensation Committee (and with
respect to the other executive officers, the recommendations of the Chief
Executive Officer) based on the consideration of the executive officer's
position with the Company, competitive factors within the industry, the
executive officer's tenure, the Company's needs, and the executive
officer's individual performance, achievements and contributions to the
growth of the Company
Annual Bonus: At the conclusion of each fiscal year, the Committee reviews
with the Company's Chief Executive Officer the performance of each senior
executive officer against financial and operational goals established at
the beginning of the year. Based upon the overall performance of the
Company and the contribution by the individuals in achieving that
performance by attaining the originally established goals (taking into
account any goals added or modified during the course of the year), the
Company's Chief Executive Officer recommends to the Committee annual bonus
compensation levels for each senior executive. The Committee considers his
recommendations, and the relevant data, and then determines the annual
bonus compensation for each senior executive. The Committee meets
separately to evaluate the performance of the Chief Executive Officer and
determine his annual bonus compensation award.
Stock Awards: Grants of stock options are made to executives, directors
and other employees of the Company under the Company's 2002 Plan. The Plan
is administered by the Compensation Committee in accordance with the
requirements of Rule 16b-3. The Company has also granted stock awards
through the use of warrants. Grants of stock awards are made to such
executives and other key employees to enable them to participate in the
creation of stockholder value in the Company as well as to permit the
accumulation of an equity interest in the Company, thereby aligning the
interests of executives with those of stockholders. Individual awards are
determined based upon the level of position held, competitive factors
within the industry, individual contribution to the achievement of the
Company's financial goals, the executive officer's tenure with the Company,
his or her total cash compensation for the prior year, the executive
officer's acceptance of additional responsibilities, his or her
contributions toward the Company's attainment of strategic goals, and such
other performance factors as management and the Committee may consider.
Chief Executive Officer's Fiscal 2004 Compensation
Mr. Taylor, Jr.'s (the "Former CEO") compensation for 2004 was based
upon his employment agreement with the Company, as amended and as further
described in the preceding section entitled "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements". As set
forth in the Summary Compensation Table above, the Former CEO's total
annual compensation for the year ended December 31, 2004 was $161,973.
There was no bonus award for 2004.
Mr. Stiegemeier's (the "Current CEO") compensation for 2004 was based
upon his employment agreement with the Company, as further described in the
preceding section entitled "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements". As set forth in the
Summary Compensation Table above, the Current CEO's total annual
compensation for the year ended December 31, 2004 was $113,500, which
included a one-time $37,500 signing bonus.
Section 162(m) Limitations
Under Section 162(m) of the Code, a tax deduction by corporate
taxpayers, such as the Company, is limited with respect to the compensation
of certain executive officers unless such compensation is based upon
performance objectives meeting certain regulatory criteria or is otherwise
excluded from the limitation. Based upon the Compensation Committee's
commitment to link compensation with performance as described in this
report, the Compensation Committee currently intends to qualify
compensation paid to the Company's executive officers for deductibility by
the Company under Section 162(m) of the Code. Both members of the
Compensation Committee are outside directors.
COMPENSATION COMMITTEE
Joseph J. Kelley, Chairman
Harold L. Hansen
13
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised of three
outside directors who meet the American Stock Exchange standards for
independence. The Audit Committee operates under a written charter adopted
by the Board of Directors. The Audit Committee's function is one of
oversight as set forth in its Charter. Its primary duties include (a)
assisting the Board of Directors in its oversight of (i) the integrity of
our financial statements and significant accounting policies, (ii) our
financial, investment and risk management policies in operating our
business activities, and (iii) the work of the independent auditors; (b)
deciding whether to appoint, retain or terminate the Company's independent
auditors and to pre-approve all audit, audit-related and other services, if
any, to be provided by the independent auditors, (c) establishing
procedures for the receipt, retention and treatment of complaints received
by the Company regarding accounting or auditing matters, and (d) preparing
any report of the Audit Committee required by the rules and regulations of
the Securities and Exchange Commission.
Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's
system of internal controls. The independent auditors are responsible for
auditing the financial statements and for expressing an opinion as to
whether those audited financial statements fairly present the financial
position, results of operations, and cash flows of the Company in
conformity with accounting principles generally accepted in the United
States of America.
The Audit Committee has reviewed the Company's audited financial
statements, and met separately with both management and Carlin, Charron &
Rosen LLP (the "Auditors") to discuss those financial statements and
reports prior to issuance. Management has represented, and the Auditors
have confirmed, that the financial statements were prepared in accordance
with generally accepted accounting principles.
The Audit Committee discussed with the Auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees". In addition, the Audit Committee
received from the Auditors a formal written statement describing all
relationships between the Auditors and the Company that might bear on the
Auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," discussed
with the Auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the Auditors' independence.
Based on the review and discussions referred to above, the Audit
Committee has recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual
Report on Form 10- K for the year ended December 31, 2004 for filing with
the Securities and Exchange Commission.
AUDIT COMMITTEE
Ronald P. Pettirossi, Chairman
Harold L. Hansen
Joseph J. Kelley
Report of the Compensation Committee, Audit Committee and Audit Committee
Charter
In accordance with the rules of the Securities and Exchange
Commission, the Report of the Compensation Committee and the Report of the
Audit Committee shall not be incorporated by reference into any of the
Company's future filings made under the Securities Exchange Act of 1934 or
the Securities Act of 1933, and shall not be deemed to be soliciting
material or to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 or the Securities Act of 1933.
STOCK PERFORMANCE GRAPH AND CUMULATIVE TOTAL RETURN
The following chart compares the yearly change in the cumulative
total stockholder return on the Company's Common Stock during the five
fiscal-year period ended December 31, 2004 with the cumulative total return
on the Russell 2000 Index and an index constructed from a peer group of
companies (Telephone & Telegraph Apparatus) that are classified in the same
Standard Industrial Classification ("SIC") code as the Company for that
same period. The comparison assumes $100 was invested on December 31, 1999
in the Company's Common Stock and in each of
14
the foregoing indices and assumes reinvestment of dividends. The stock
price performance shown on the graph below is not necessarily indicative of
future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Farmstead Telephone Group, Inc., the SIC
Code Index and the Russell 2000 Index
[GRAPH]
Cumulative Total Return
-----------------------------------------------------------------
December 31 1999 2000 2001 2002 2003 2004
----------- ---- ---- ---- ---- ---- ----
Farmstead Telephone Group $100.00 $100.50 $66.82 $26.35 $ 70.59 $ 69.65
SIC Code Index $100.00 $ 64.77 $25.04 $10.28 $ 19.20 $ 24.66
Russell 2000 Stock Index $100.00 $ 95.68 $96.66 $75.80 $110.19 $129.47
This graph shall not be incorporated by reference into any of the
Company's future filings made under the Securities Exchange Act of 1934 or
the Securities Act of 1933, and shall not be deemed to be soliciting
material or to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 or the Securities Act of 1933.
ANNUAL REPORT/FORM 10-K
The Company's 2004 Annual Report to its stockholders is a
reproduction of its Form 10-K filed with the Securities and Exchange
Commission ("SEC"), excluding the Index to Exhibits and any filed exhibits
or financial statement schedules, and is being mailed to all stockholders
concurrently with this Proxy Statement. Additional copies of the Company's
Form 10-K (without exhibits or financial statement schedules) as filed with
the SEC may be obtained at no cost by writing to the Corporate Secretary,
Farmstead Telephone Group, Inc., 22 Prestige Park Circle, East Hartford, CT
06108. The Company's Form 10-K may also be accessed on the Internet at
http://www.farmstead.com. Exhibits or financial statement schedules listed
in the Company's Form 10-K are available upon request to the Corporate
Secretary at a nominal charge for printing and mailing.
NOMINATIONS AND STOCKHOLDERS' PROPOSALS
FOR YEAR 2006 ANNUAL MEETING OF STOCKHOLDERS
The Amended and Restated By-laws of the Company require that all
nominations for persons to be elected directors, other than those made by
the Board of Directors, be made pursuant to written notice to the Secretary
of the Company. The notice must be received not less than 90 nor more than
120 days prior to the date on which the Company released its proxy
statement to stockholders in connection with the preceding year's Meeting
(or if the date of the Meeting is advanced or delayed by more than 30 days
from the date of the preceding year's Meeting not less than 90 nor more
than 120 days prior to the date of the Meeting or not later than 10 days
after notice of public disclosure of such meeting date is first made). The
notice must set forth all information relating to each nominee that
15
is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required pursuant to the Securities Exchange Act
of 1934, as amended. The notice must also include the stockholder's name
and address as they appear on the Company's books and the class and number
of shares of stock beneficially owned by such stockholder.
In addition, the Amended and Restated By-laws require that for
business to be properly brought before an annual meeting by a stockholder,
the Secretary of the Company must have received written notice thereof not
less than 90 nor more than 120 days prior to the Meeting (or if the date of
the Meeting is advanced or delayed by more than 30 days from the date of
the preceding year's Meeting not less than 90 nor more than 120 days prior
to the date of the Meeting or not later than 10 days after notice of public
disclosure of such meeting date is first made). The notice must set forth
(i) a brief description of the business desired to be brought before the
meeting; (ii) the stockholder's name and address as they appear on the
Company's books; (iii) the class and number of shares of stock beneficially
owned by the stockholder; and (iv) any material interest of the stockholder
in such business.
Any proposal of a stockholder intended to be presented at the
Company's 2006 Annual Meeting of Stockholders and included in the proxy
statement and form of proxy for that meeting must be received by the
Company no earlier than March 17, 2006 and no later than April 16, 2006.
Proposals should be sent to: Corporate Secretary, Farmstead Telephone
Group, Inc., 22 Prestige Park Circle, East Hartford, CT 06108. Such
proposals must meet the requirements set forth in the rules and regulations
of the SEC in order to be eligible for inclusion.
OTHER MATTERS - STOCKHOLDER PROPOSALS
Our management does not intend to bring any other business before the
meeting for action and has not been notified of any other business proposed
to be brought before the meeting. However, if any other matters properly
come before the Meeting, the persons named in the enclosed form of proxy
are expected to vote the proxy in accordance with their best judgment on
such matters.
May 23, 2005 Robert G. LaVigne
Executive Vice President, Chief
Financial Officer and Secretary
16
DIRECTIONS TO FARMSTEAD TELEPHONE GROUP, INC.
22 Prestige Park Circle, East Hartford, CT 06108
I-84 Heading East Towards Hartford
Take Exit 58 (Robert's Street) off of I-84. Bear left off of the exit onto
Roberts Street. At the 2nd traffic light, turn left onto Hillside Street.
At the end of Hillside Street, turn right onto Burnside Avenue. At the
second traffic light, turn left onto School Street (first light is blinking
light at fire station). At the third traffic light, turn right onto
Prestige Park Road. Follow Prestige Park Road for approximately 1/3 of a
mile. Turn right just before Farmstead (fourth building on the right from
entrance to Prestige Park) onto Prestige Park Circle and follow around the
building. Corporate Parking is on the left.
I-84 Heading West Towards Hartford
Take Exit 58 (Robert's Street) off of I-84. Turn right off of exit onto
Roberts Street. Turn left at next traffic light onto Hillside Street. At
the end of Hillside Street, turn right onto Burnside Avenue. At the second
traffic light, turn left onto School Street (first light is blinking light
at fire station). At the third traffic light, turn right onto Prestige
Park Road. Follow Prestige Park Road for approximately 1/3 of a mile.
Turn right just before Farmstead (fourth building on the right from
entrance to Prestige Park) onto Prestige Park Circle and follow around the
building. Corporate Parking is on the left.
I-91 Heading South Towards Hartford
Take Exit 35A off I-91 (Route 291E). Take Exit 4 off of 291E (East
Hartford, South Windsor). Bear right off exit ramp. At third traffic
light, turn left onto School Street. Go through one stop sign, at next
light, turn left onto Prestige Park Road. Follow Prestige Park Road for
approximately 1/3 of a mile. Turn right just before Farmstead (fourth
building on the right from entrance to Prestige Park) onto Prestige Park
Circle and follow around the building. Corporate Parking is on the left.
I-91 Heading North Towards Hartford
Follow I-91 North to Exit 29 (Charter Oak Bridge, 84E, Route 15). Take
Exit 91 (Silver Lane) and bear right off the exit. At 2nd traffic light,
take a left onto Roberts Street. At 3rd traffic light, turn left onto
Hillside Street. At the end of Hillside Street, turn right onto Burnside
Avenue. At the second traffic light, turn left onto School Street (first
light is blinking light at fire station). At the third traffic light, turn
right onto Prestige Park Road. Follow Prestige Park Road for approximately
1/3 of a mile. Turn right just before Farmstead (fourth building on the
right from entrance to Prestige Park) onto Prestige Park Circle and follow
around the building. Corporate Parking is on the left.
17
FORM OF PROXY
-------------
PROXY FARMSTEAD TELEPHONE GROUP, INC. PROXY
22 Prestige Park Circle, East Hartford, CT 06108 (860) 610-6000
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders - July 14, 2005
The undersigned, as a Stockholder of FARMSTEAD TELEPHONE GROUP, INC. (the
"Company"), hereby appoints George J. Taylor, Jr. and Robert G. LaVigne or
any one of them, the true and lawful proxies and attorneys-in-fact of the
undersigned to attend the Annual Meeting (the "Meeting") of the
Stockholders of the Company, to be held July 14, 2005, at 10:00 a.m. local
time at the Company's offices located at 22 Prestige Park Circle, East
Hartford, CT 06108 and any adjournments or postponements thereof, and any
of them to vote, as designated below, the number of shares which the
undersigned would be entitled to vote, as fully and with the same effect as
the undersigned might do if personally present, on the following matters as
set forth in the Proxy Statement and Notice dated May 23, 2005.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE DIRECTORS, AND "FOR" THE
RATIFICATION OF THE APPOINTMENT OF CARLIN, CHARRON & ROSEN LLP, AS SET
FORTH ON THE REVERSE SIDE.
[X] Please mark votes as shown in this example.
The Board of Directors recommends a vote FOR all proposals.
1. Election of Directors
Nominees: George J. Taylor, Jr., Jean-Marc Stiegemeier, Harold L.
Hansen, Joseph J. Kelley, Ronald P. Pettirossi and Hugh M. Taylor
[ ] FOR [ ] WITHHELD [ ] For all nominees except as noted below:
_____________________________________________________________________
[CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE]
2. Ratification of the appointment of Carlin, Charron & Rosen, LLP as
independent auditors of the Company for the year ending December 31,
2005.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournments or
postponements thereof.
This Proxy is revocable and the undersigned reserves the right to attend
the Meeting and vote in person. The undersigned hereby revokes any proxy
heretofore given in respect of the shares of the Company.
Date: ________________________, 2005
____________________________________
Signature
____________________________________
Signature
Please sign exactly as the name(s) appear on your Stock Certificate. When
attorney, executor, administrator, trustee, or guardian, please give full
title as such. If more than one name is shown, as in the case of joint
tenancy, each party should sign.
Mark here if you plan to attend the Meeting [ ]
Mark here for address change and note new address below [ ]
THE BOARD OF DIRECTORS URGES THAT YOU COMPLETE, SIGN AND DATE THE PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED ENVELOPE.