ADDvantage Technologies Group, Inc.
1221 East Houston
Broken Arrow, Oklahoma 74012
NOTICE OF ANNUAL MEETING
Date: Tuesday, March 7, 2006
Time: 10:00 a.m.
Place: Corporate Office of ADDvantage Technologies Group, Inc.
1221 East Houston
Broken Arrow, Oklahoma 74012
Matters to be voted on:
1. Election of five directors.
2. Ratification of the appointment of Hogan & Slovacek as our independent
auditors for 2006.
3. Any other business properly brought before the shareholders at the
meeting.
By Order of the Board of Directors,
James W. Brown, Secretary
February 10, 2006
CONTENTS
Page
----
General Information About Voting 2
Identification of Officers 3
Security Ownership of Certain Beneficial Owners and Management 3
and Related Stockholder Matters
Equity Compensation Plan Information 5
Proposal No. 1: Election of Directors 5
Certain Relationships and Related Party Transactions 10
Section 16(a) Beneficial Ownership Reporting Compliance 11
Compensation of Directors and Executive Officers 12
Summary Compensation Table 12
Shareholder Return Performance Graph 14
Proposal No. 2: Ratification of Independent Auditors 15
Shareholder Proposals for 2007 Annual Meeting 17
Other Matters 17
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your
shares of common stock by completing the enclosed proxy card and returning it
to us in the enclosed envelope. This proxy statement has information about the
annual meeting and was prepared by our management for the board of directors.
This proxy statement is first being sent to shareholders on or about
February 11, 2006. Please note that our annual report accompanies this mailing
of the proxy statement.
1
ADDvantage Technologies Group, Inc.
1221 East Houston
Broken Arrow, Oklahoma 74012
PROXY STATEMENT FOR 2006 ANNUAL MEETING
GENERAL INFORMATION ABOUT VOTING
Who can vote? Although we encourage you to
You can vote your shares of common complete and return the proxy card to
stock if our records show that you ensure that your vote is counted, you
owned the shares on January 17, 2006. can attend the annual meeting and
A total of 10,128,747 shares of common vote your shares in person.
stock can vote at the annual meeting.
You get one vote for each share of If your shares are held in the name
common stock. We do not recognize of your broker, a bank, or other
cumulative voting for the election of nominee, that party should give
our directors. The enclosed proxy you instructions for voting your
card shows the number of shares you shares.
can vote.
How are votes counted?
How do I vote by proxy? We will hold the annual meeting if
Follow the instructions on the holders of a majority of the shares
enclosed proxy card to vote on each of common stock entitled to vote
proposal to be considered at the annual either sign and return their proxy
meeting. Sign and date the proxy card cards or attend the meeting. If
and mail it back to us in the enclosed you sign and return your proxy card,
envelope. The proxyholders named on your shares will be counted to
the proxy card will vote your shares determine whether we have a quorum
as you instruct. If you sign and even if you abstain or fail to vote
return the proxy card but do not vote on any of the proposals listed on
on a proposal, the proxyholders will the proxy card. Votes will be
vote for you on that proposal. Unless tabulated by an inspector of election
you instruct otherwise, the appointed by our board of directors.
proxyholders will vote for each of the Abstentions from voting, which you
five directors and for the ratification may specify on the ratification of
of Hogan & Slovacek as Independent the appointment of Hogan & Slovacek
auditors. as independent auditors, will have
the effect of a negative vote.
What if other matters come up at the
annual meeting?
The matters described in this proxy If your shares are held in the name
statement are the only matters we of a nominee, and you do not tell the
know will be voted on at the annual nominee how to vote your shares
meeting. If other matters are (so-called "broker nonvotes"), the
properly presented at the meeting, nominee may vote them on the
the proxyholders will vote your shares proposals to elect directors and to
as they see fit. ratify the appointment of Hogan &
Slovacek as our independent auditors.
Additionally, broker nonvotes will be
Can I change my vote after I return counted as present to determine if a
my proxy card? quorum exists.
Yes. At any time before the vote on
a proposal, you can change your vote
either by giving our secretary a Who pays for this proxy solicitation?
written notice revoking your proxy The accompanying proxy is solicited
card or by signing, dating and by and on behalf of our board of
returning to us a new proxy card. We directors, and the entire cost will
will honor the proxy card with the be paid by us. In addition to
latest date. Attendance at the annual sending you these materials, some of
meeting will not, by itself, revoke our employees may contact you by
your proxy card. telephone, by mail or in person.
None of these employees will receive
Can I vote in person at the annual any extra compensation for doing
meeting rather than by completing this, but they may be reimbursed for
the proxy card? their out-of-pocket expenses incurred
while assisting us in soliciting your
proxy.
2
IDENTIFICATION OF OFFICERS
We have three executive officers. Our officers are elected by our board
of directors and serve at the pleasure of the board.
David E. Chymiak
Biographical information for Mr. Chymiak, the Chairman of our board since
1999, is set forth below in Proposal No. 1, Election of Directors.
Kenneth A. Chymiak
Biographical information for Mr. Chymiak, our President and Chief
Executive Officer since 1999, is set forth below in Proposal No. 1, Election of
Directors.
James W. Brown
James W. Brown, 57, has been our vice president of operations since
August 17, 2005 and secretary since October 18, 2005. From 2000 until 2005,
Mr. Brown served as an independent consultant to a number of companies involved
in manufacturing as well as the installation of telecommunications equipment.
From 1997 to October 1999, Mr. Brown was Chief Financial Officer and Controller
for Flow Tech, a manufacturer of high-performance automotive aftermarket
exhaust systems, in Tempe, Arizona. Mr. Brown is a CPA and was certified in
the State of Oklahoma in 1976.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table shows the number of shares of common stock or
preferred stock beneficially owned (as of January 17, 2006) by:
* each person known by us who beneficially owns more than 5% of any class of
our voting stock;
* each director and nominee for director;
* each executive officer named in the Summary Compensation Table on
page 10; and
* our directors and executive officers as a group.
Except as otherwise indicated, the beneficial owners listed in the table have
sole voting and investment powers of their shares.
3
Beneficial Ownership
--------------------
Number of
Number of Shares of
Shares of Series B
Common Preferred
Stock Percent Stock Percent
Name and Address of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class (1) Owned Class
---------------- --------- --------- ----- -----
David E. Chymiak 2,861,038 (2) 28.2% 150,000 50.0%
1221 E. Houston
Broken Arrow, OK 74012
Kenneth A. Chymiak 2,477,138 (2)(5) 24.4% 150,000(7) 50.0%
1221 E. Houston
Broken Arrow, OK 74012
Susan Chymiak 2,477,138 (2)(6) 24.4% 150,000(8) 50.0%
1221 E. Houston
Broken Arrow, OK 74012
Stephen J. Tyde 27,000 (3) * -0- -0-
1900 Sandwedge Place
Wilmington, NC 28405
Freddie H. Gibson 10,000 (2) * -0- -0-
8008 S. Erie Avenue
Tulsa, OK 74136
Henry F. McCabe 10,000 (4) * -0- -0-
7225 S. 85th E. Avenue
Tulsa, OK 74133
All Executive Officers 5,385,176 (9) 52.9% 300,000 100%
and Directors as a group
(5 persons)
_____________________________
* Less than one percent.
(1) Shares which an individual has the right to acquire within 60 days
pursuant to the exercise of options are deemed to be outstanding for
the purpose of computing the percentage ownership of such individual, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table or the
percentage ownership of all officers and directors as a group.
(2) Includes 10,000 shares subject to stock options which are fully
exercisable.
(3) Includes 7,000 shares subject to stock options which are fully
exercisable.
(4) Includes 5,000 shares subject to stock options which are fully
exercisable.
(5) Of the shares beneficially owned by Mr. Chymiak, 671,138 are held of
record by him as trustee of the Ken Chymiak Revocable Trust and 1,796,000
are held of record by his spouse, Susan C. Chymiak as trustee of the Susan
Chymiak Revocable Trust. Mr. Chymiak has sole voting and investment power
over those shares held of record by him. Mr. Chymiak disclaims beneficial
ownership of the shares held by his wife.
(6) Of the shares beneficially owned by Ms. Chymiak, 1,796,000 are held of
record by her as trustee of the Susan Chymiak Revocable Trust and 671,138
are held of record by her spouse, Kenneth A. Chymiak as trustee of the Ken
Chymiak Revocable Trust. Ms. Chymiak has sole voting and investment power
over those shares held of record by her. Ms. Chymiak disclaims beneficial
ownership of the shares held by her husband.
(7) Of the shares beneficially owned by Mr. Chymiak, 75,000 are held of record
by him as trustee of the Ken Chymiak Revocable Trust and 75,000 are held
of record by his spouse, Susan C. Chymiak as trustee of the Susan Chymiak
Revocable Trust. Mr. Chymiak disclaims beneficial ownership of the shares
held by his wife.
(8) Of the shares beneficially owned by Ms. Chymiak, 75,000 are held of record
by her as trustee of the Susan Chymiak Revocable Trust and 75,000 are held
of record by her spouse, Kenneth A. Chymiak as trustee of the Ken Chymiak
Revocable Trust. Ms. Chymiak disclaims beneficial ownership of the shares
held by her husband.
(9) Includes 42,000 shares subject to stock options which are fully
exercisable.
4
Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities Weighted-average equity compensation
to be issued upon exerciser price of plans (excluding
exercise of out- outstanding options, securities reflected
standing options, warrants and rights column (a))
Plan Category warrants & rights
(a) (b) (c)
Equity
Compensation plans
approved by 144,757 $3.23 786,041
security holders
Equity
compensation plans
not approved by 0 0 0
security holders
Total 144,757 $3.23 786,041
PROPOSAL NO. 1
Election of Directors
Our entire board of directors will be elected at the annual meeting. The
directors will be elected for one-year terms expiring at the next annual
meeting. Our bylaws provide that our board shall consist of not less than one
nor more than nine directors, as determined from time to time by board
resolution. Our board has established the number of directors at five.
Vote Required. The five nominees receiving the highest number of votes
will be elected. Votes withheld for a nominee will not be counted. You get
one vote for each of your shares of common stock for each of the directorships.
Nominations. At the annual meeting, we will nominate as directors the
persons named in this proxy statement. Although we do not know of any reason
why one of these nominees might not be able to serve, our board of directors
will propose a substitute nominee if any nominee is unavailable for election.
General Information About the Nominees. All of the nominees are currently
directors of ADDvantage. Each has agreed to be named in this proxy statement
and to serve as director if elected. The ages listed for the nominees are as
of February 10, 2006.
David E. Chymiak Director since 1999
David E. Chymiak, 60, has been the Chairman of our board since 1999. He
is also the President and a director of our wholly owned subsidiary, Tulsat
Corporation, which he and Kenneth A. Chymiak acquired in 1985. David E.
Chymiak is the brother of Kenneth A. Chymiak, our President and Chief Executive
Officer.
Kenneth A. Chymiak Director since 1999
Kenneth A. Chymiak, 59, has been our President and Chief Executive Officer
since 1999. He has also been the Executive Vice President and a director of
our wholly owned subsidiary, Tulsat Corporation, which he acquired with David
E. Chymiak in 1985, since 1985. Kenneth A. Chymiak is the brother of David E.
Chymiak, our Chairman of the Board since 1999.
5
Freddie H. Gibson Director since 1999
Freddie H. Gibson, 58, has been with the Heat Transfer Equipment Company
in Tulsa, Oklahoma since 1988. First as CEO, he has served since 1994 as the
President with responsibilities for the financial and accounting controls,
financial reporting, management of staff coordination and short and long-term
planning. Previously, Mr. Gibson had been President of Interactive Computer
Systems from 1980-1988. Also, he was the Controller and Systems Manager for
two other companies and began his career with Arthur Andersen & Co. in their
administrative services division. Mr. Gibson holds a Bachelor of Science
degree in Business Administration from Oklahoma State University, graduating
with honors.
Stephen J. Tyde Director since 1999
Stephen J. Tyde, 58, is the founder of The Pump & Motor Works, Inc., a
re-manufacturer of industrial pumps, motors, transformers and switchgear
(to 20,000 hp). After 20 years in the turbo machinery business, Mr. Tyde
started The Pump & Motor Works in 1989 and developed it to a multi-million
dollar operation before his divestiture in 2001. During that time, Mr. Tyde
oversaw all aspects of the company and retained personal responsibility for
financial planning, reporting and controls. He continues to serve on a part
time basis as Vice President. Mr. Tyde is currently the sole owner and Chief
Operating Officer of P&MW Holding, Inc., an industrial real estate company.
Stephen J. Tyde received an undergraduate degree in Business Administration
from The Ohio State University, a Masters Degree in Business Administration
from George Washington University, and has studied engineering at the
University of Pittsburgh. Mr. Tyde is the Chairman of our Audit,
Compensation, and Corporate Governance committees.
Henry F. McCabe Director since 2004
Henry F. McCabe, 83, is Chairman of the Board of McCabe Industrial
Minerals Inc. in Tulsa, Oklahoma, where he has been employed since 1976.
McCabe Industrial Minerals operates manufacturing and processing plants in the
states of Nebraska, Kansas and Oklahoma, which provide granules for asphalt
shingle manufacturers. Mr. McCabe was Co-Founder of the company in 1976 and
engages in numerous other business enterprises.
Board of Directors
Board Independence. The board of directors has determined that Messrs.
Gibson, Tyde and McCabe have no relationship with the Company that would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director and that such individuals are independent under
the rules and listing standards of the American Stock Exchange ("AMEX").
Committees of the Board. The board of directors has three committees, the
Audit Committee, the Compensation Committee and the Corporate Governance and
Nominating Committee. The following describes the functions and membership of
each committee and the number of times it met during our fiscal year ended
September 30, 2005:
Audit Committee
The functions and members of the Audit Committee are set forth below.
Stephen J. Tyde is the chairman of the Audit Committee. The Audit Committee
met one time during fiscal 2005. The Chairman had frequent teleconferences
with the independent auditors discussing the quarterly reviews.
Functions Members
--------- -------
* Selects the firm that will serve as our independent Stephen J. Tyde
auditors
Freddie H. Gibson
* Reviews scope and results of audits with independent
auditors, compliance with any of our accounting Henry F. McCabe
policies and procedures and the adequacy of our
system of internal controls
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* Oversees quarterly reporting
* Performs the other functions listed in the Charter of the Audit
Committee which may be found on our website at www.addvantagetech.com
Report of the Audit Committee
-----------------------------
The Audit Committee of our board of directors is comprised of three
directors who are not officers of the Company. Under currently applicable
rules, all members are "independent" as defined under the American Stock
Exchange listing standards. The Audit Committee reviews our financial
reporting process on behalf of the board of directors. The Audit Committees
policy is to submit all proposed non-audit services to the Audit Committee
chairman, who considers and pre-approves all engagements for audit or non-audit
services rendered by our independent auditors. The Audit Committee approved
100% of such services in 2005 under its pre-approval policy. Management has
the primary responsibility for the financial statements and the reporting
process, including the system of internal controls.
In connection with its function to oversee and monitor our financial
reporting process, the Audit Committee has done the following:
- reviewed and discussed the audited financial statements for the fiscal
year ended September 30, 2005, with management;
- discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Certification of
Statements on Auditing Standards, AU Section 380);
- received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with
the independent accountant the independent accountant's independence;
and
- based on the review and discussions referred to above, recommended to
the Board that the audited financial statements be included in our
Annual Report on Form 10-K for fiscal year 2005 for filing with the
Securities and Exchange Commission (the "SEC").
Stephen J. Tyde Freddie H. Gibson Henry F. McCabe
Audit Committee Financial Expert
--------------------------------
The SEC has adopted rules pursuant to the provisions of the Sarbanes-Oxley
Act requiring audit committees to include an "audit committee financial
expert," defined as a person who has the following attributes:
1) an understanding of generally accepted accounting principles and
financial statements;
2) the ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves;
3) experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the registrants financial statements, or experience actively
supervising one or more persons engaged in such activities;
4) an understanding of internal control over financial reporting; and
7
5) an understanding of audit committee functions.
The financial expert will have to possess all of the attributes listed above to
qualify as an audit committee financial expert. Our board of directors has
determined that each of the Audit Committee members is financially literate
under the current AMEX listing standards. The board also determined that
Stephen J. Tyde and Freddie H. Gibson, both independent directors, qualify as
"audit committee financial experts" as defined by the SEC in rules adopted
pursuant to the Sarbanes-Oxley Act of 2002.
Compensation Committee
The functions and members of the Compensation Committee are set forth
below. Stephen Tyde is Chairman of the Compensation Committee, which met one
time during fiscal 2005.
Functions Members
--------- -------
* Reviews and monitors performance of our Stephen J. Tyde
officers
Freddie H. Gibson
* Approves compensation and benefits programs
of our officers Henry F. McCabe
Report of the Compensation Committee
------------------------------------
The Compensation Committee of our board of directors is comprised of three
directors who are not officers of the Company. The Compensation Committee is
responsible for the review of the performance of our executive officers. The
performance of the executive officers of the Company is reviewed in light of
the performance of the Company and the Company's working capital position and
prospects. The Committee does not assign relative weights to the factors
considered in setting compensation, but rather considers all factors as a
whole. In determining compensation levels, the Committee has not set specific
performance targets for officers to attain in order to earn any specific
component of compensation.
The Committee and the board of directors have considered other companies
in the telecommunications industry and reviewed, to the extent such information
was available, the compensation paid to the Chief Executive Officer and other
executive officers of those companies. As a result of such review, the board
of directors has, as it did the previous year, concluded that the compensation
levels of the Company's executive officers are in the lower range of
compensation paid by comparably situated companies. There have been no
material increases in salary or other compensation paid to the executive
officers in the past four fiscal years. The Committee agreed to develop a
comprehensive executive compensation program to be discussed and acted upon at
the next scheduled board meeting in March.
At the present time, the Company maintains its 1998 Incentive Stock Plan
for the purpose of awarding options to its directors, executive officers and
other key employees. Stock options were granted to the executive officers
during fiscal 2005 as described herein under "Summary Compensation Table," and
to directors as described herein under "Compensation of Directors."
The Company's future compensation policies will be developed in light of
the Company's profitability and with the goal of rewarding members of management
for their contributions to the Company's success.
Stephen J. Tyde Freddie H. Gibson Henry F. McCabe
Compensation Committee Interlocks and Insider Participation
During 2005, the Compensation Committee was comprised of Stephen J. Tyde,
Freddie H. Gibson and Henry F. McCabe, all of whom are non-employee directors
8
of the Company. During 2005, none of the Company's executive officers served
on the board of directors or on the compensation committee of any other entity
who had an executive officer that served either on the Company's Board of
Directors or on its Compensation Committee.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is comprised of three
directors who are not officers of the Company. Under currently applicable
rules, all members are "independent" as defined under the American Stock
Exchange listing standards. A copy of the Corporate Governance and Nominating
Committee Charter is posted on our website at www.addvantagetech.com.
The functions and members of the Corporate Governance and Nominating
Committee are set forth below. Stephen Tyde is Chairman of the Corporate
Governance and Nominating Committee. The Committee did not meet during fiscal
2005.
Functions Members
--------- -------
* Provides oversight of the governance of the board of
directors Stephen J. Tyde
* Makes recommendations to the board as a whole concerning
board size, make-up structure and compensation Freddie H. Gibson
* Identifies individuals qualified to become board members
* Selects or recommends that the board select the director
nominees to stand for election at the annual meeting of
shareholders Henry F. McCabe
* Recommends to the whole board nominees for the positions
of Chairman of the Board, chairmen of the various committees
of the board, and members of the various committees of
the board
* Reviewing, monitoring and approving compliance with our Code
of Business Conduct and Ethics
* Considering, reviewing and approving potential conflict of
interests involving board members or corporate officers
The Corporate Governance and Nominating Committee has adopted a policy
with regard to the consideration of director candidates recommended by
shareholders. The Corporate Governance and Nominating Committee will consider
director candidates recommended by any shareholder holding 10,000 shares of our
common stock for at least 12 months prior to the date of submission of the
recommendation or nomination. Additionally, a recommending shareholder shall
submit a written statement in support of the candidate, particularly within the
context of the criteria for board membership, including issues of character,
judgment, age, independence, expertise, corporate experience, length of
service, other commitments and the like, personal references, and a written
indication by the candidate of his/her willingness to serve, if elected, and
evidence of the nominating persons ownership of our stock sufficient to meet
any applicable stock ownership requirements set forth in our corporate
governance guidelines.
A shareholder that instead desires to nominate a person directly for
election to the board must meet the deadlines and other requirements set forth
in the Company's bylaws and the rules and regulations of the SEC.
The Corporate Governance and Nominating Committee's criteria and process
for identifying and evaluating the candidates that it selects, or recommends to
the full board for selection, as director nominees, are: (i) regular review of
composition and size of the board; (ii) review of qualifications of candidates
properly recommended or nominated by any qualifying shareholder; (iii)
evaluation of the performance of the board and qualification of members of the
board eligible for re-election: and (iv) consideration of the suitability of
each candidate, including current members of the board, in light of the size
and composition of the board. After such review and consideration, the
Corporate Governance and Nominating Committee will recommend a slate of
director nominees.
While the Corporate Governance and Nominating Committee has not
9
established specific minimum requirements for director candidates, the
committee believes that candidates and nominees must reflect a board that is
comprised of directors who: (i) are predominantly independent; (ii) are of
high integrity; (iii) have qualifications that will increase overall board
effectiveness; and (iv) meet other requirements as may be required by
applicable rules, such as financial literacy or financial expertise with
respect to audit committee members.
Board Meetings
Our board held two meetings during fiscal 2005. Each director attended
all meetings of the board and the committees on which he served.
Shareholder Communication with the Board of Directors
Communication with the board of directors should be directed to the
attention of Stephen J. Tyde. Written correspondence to Mr. Tyde may be
delivered to our executive offices, 1221 East Houston, Broken Arrow, Oklahoma,
74012. All security holder communications directed to Mr. Tyde will be
promptly forwarded to him. All board members are encouraged, but not required,
to attend our annual meeting. Last year, four board members attended our
annual meeting.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics which is applicable
to all of our directors, officers and employees, and a Code of Ethics for CEO
and Senior Financial Officers. Copies of our Code of Business Conduct and
Ethics and Code of Ethics for CEO and Senior Financial Officers are posted on
our website at www.addvantagetech.com.
Certain Relationships and Related Party Transactions
In fiscal 1999, Chymiak Investments, L.L.C., which is owned by David E.
Chymiak and Kenneth A. Chymiak, purchased from Tulsat Corporation on
September 30, 1999, the real estate and improvements comprising the
headquarters and a substantial portion of the other office and warehouse space
of Tulsat Corporation for a price of $1,286,000. The price represents the
appraised value of the property less the sales commission and other sales
expenses that would have been incurred by Tulsat Corporation if it had sold the
property to a third party in an arm's-length transaction. Tulsat Corporation
entered into a five-year lease commencing October 1, 1999 with Chymiak
Investments, L.L.C. covering the property. This lease was renewed on
October 1, 2004 and will expire on September 30, 2008.
Chymiak Investments Inc., which is owned by Kenneth A. Chymiak and his
wife, Susan C. Chymiak, owns three other properties leased to Tulsat
Corporation for five-year terms (all ending in 2008).
The Company leases various properties primarily from two companies owned by
David E. Chymiak and Kenneth A. Chymiak as discussed above. Future minimum
lease payments under these leases are as follows:
2006 $ 377,640
2007 360,000
2008 324,000
----------
$ 1,061,640
===========
Related party rental expense for the year ended September 30, 2005 was
$465,840.
10
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than 10% of our
common stock to report their initial ownership of our common stock and any
subsequent changes in that ownership to the SEC and to furnish us with a copy
of each of these reports. SEC regulations impose specific due dates for these
reports and we are required to disclose in this proxy statement any failure to
file by these dates during fiscal 2004.
Based solely on the review of copies of these reports furnished to us and
written representations that no other reports were required, during and with
respect to the fiscal year ended September 30, 2005, we believe that these
persons have complied with all applicable filing requirements, except that,
due to administrative oversight, (i) in 2005, Forms 4 reporting option grants
for each of the following individuals were not timely filed: Kenneth A.
Chymiak, David E. Chymiak, Stephen J. Tyde, Freddie R. Gibson, and Henry F.
McCabe; and a Form 4 for Stephen J. Tyde regarding one transaction was filed
one day late; (ii) in 2001 and 2002, Forms 5 (as required at that time), and
in 2003 and 2004, Forms 4 (as required at that time), reporting one option
grant per year for each of the following individuals were not filed: Kenneth
A. Chymiak, David E. Chymiak, Stephen J. Tyde, and Freddie R. Gibson; (iii)
Henry F. McCabe did not timely file a Form 3 with respect to his holdings of
common stock as of March 4, 2004, the date he became a director of the Company
and one Form 4 in 2004; and (iv) Dee Cooper, Controller and Principal
Accounting Officer until his resignation from the Company on July 11, 2005, did
not timely file Form 3 and one Form 4. The omissions were inadvertent and the
delinquent reports have been filed. Appropriate steps have been taken to
educate all required filers of their obligations to file in a timely manner in
the future.
11
Compensation of Directors and Executive Officers
Compensation of Directors
We pay our three non-employee directors $500 per quarter and $500 for each
board meeting and $250 for each committee meeting or telephonic board or
committee meeting the director attends. The chairman of the audit committee
receives an additional $250 per quarter. In addition, directors are eligible
to receive awards of options to purchase 1,000 shares of our common stock each
year after the annual shareholders meeting. We reimburse all directors for
out-of-pocket expenses incurred by them in connection with their service on our
board and any board committee. During the fiscal year ended
September 30, 2005, Henry McCabe, Fred Gibson and Steve Tyde received directors
fees of $3,500, $3,500 and $4,500, respectively. All of the directors received
an award of stock options to purchase 5,000 shares of common stock at an
exercise price of $4.62 per share. Directors who were our employees received
no additional cash compensation for their services on our board of directors.
Summary Compensation Table
Executive Officers
Annual Compensation Long-Term Compensation
------------------- ----------------------
Number
Other of Shares
Annual under-
Compen- lying
Name and Salary Bonus sation Options
Principal Position Year ($)(1) ($) ($)(2) Granted
------------------ ---- ------ ----- ------ -------
David E. Chymiak 2005 225,000 -0- 10,500 5,000
Chairman 2004 225,000 -0- 10,837 1,000
2003 225,000 -0- 10,240 1,000
Kenneth A. Chymiak 2005 225,000 -0- 10,500 5,000
President and 2004 225,000 -0- 10,837 1,000
Chief Executive Officer 2003 225,000 -0- 10,240 1,000
________________
(1) These amounts represent the salaries paid to these officers by TULSAT
Corporation, our wholly owned subsidiary.
(2) Other annual compensation represents, in 2005, 2004, and 2002 our
contributions on behalf of each of the individuals to our 401(k) Plan.
Option Grants During Fiscal 2005
The following table sets forth information regarding options granted during
fiscal 2005 to named executive officers.
Potential Realizable Value
Shares % of Total at Assumed Annual Rates of
Under- Options Granted Stock Price Appreciation for
lying options to Employees in Excercise Expiration Option Term (2)
Name Granted Fiscal Year Price ($/Sh) Date 5% 10%
---- ------- ---------- ------------ ---- -- ---
Kenneth A. Chymiak 5,000 20.0% $ 4.62 3/7/15 $12,376 $33,962
David E. Chymiak 5,000 20.0% $ 4.62 3/7/15 $12,376 $33,962
(1) These options are fully vested and exercisable at date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the Company's
12
Common Stock appreciates in value from the date of grant at the 5% and 10%
annualized rates prescribed by the Securities and Exchange Commission for
purposes of this table and are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock.
Option Exercises and Year-End Option Value Table
There were no stock options exercised by the named executive officers
during fiscal 2005. The following table sets forth information regarding the
value of unexercised stock options held by each of the named executive officers
as of the year ended September 30, 2005.
Number of Number of Shares of Common Value of Unexercised In-
Shares Stock Underlying Unexercised the-money Options at
Acquired on Value Options at September 30, 2004 September 30, 2004
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
Name
----
Kenneth A. Chymiak - - 10,000 - $8,475 -
David E. Chymiak - - 10,000 - $8,475 -
13
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's common stock against
the cumulative total return of the American Stock Exchange and the Index for
the Nasdaq Telecommunications Stocks for the period of five fiscal years
commencing October 1, 2000 and ending September 30, 2005. The graph assumes
that the value of the investment in the Company's common stock and each index
was $100 on September 30, 2000.
[A line graph appears here depicting the cumulative total shareholder return
of $100 invested in common stock of the Company as compared to $100 invested
in the American Stock Exchange Index and the Nasdaq Telecommunications Stocks.
The line graph begins at September 30, 2000, and plots the cumulative return
at September 30, 2001, 2002, 2003, 2004 and 2005. The plot points are
provided below.]
Cumulative Total Return
-----------------------
------------------------------------------------------------------------------
9/30/00 9/29/01 9/28/02 9/30/03 9/30/04 9/30/05
------------------------------------------------------------------------------
------------------------------------------------------------------------------
AEY $100.00 $62.96 $43.21 $234.57 $237.65 $240.12
------------------------------------------------------------------------------
------------------------------------------------------------------------------
American Stock Exchange 100.00 84.75 86.69 103.82 133.27 182.00
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Nasdaq Telecommunications 100.00 27.82 12.11 21.39 23.70 26.32
------------------------------------------------------------------------------
14
PROPOSAL NO. 2
Ratification Of Independent Auditors
We recommend that you vote for the ratification of the appointment of
Hogan & Slovacek.
Our Audit Committee has selected the accounting firm of Hogan & Slovacek
as our independent auditors to examine our financial statements for the fiscal
year ending September 30, 2006. This engagement will be effective upon
completion of the review by Tullius Taylor Sartain & Sartain LLP of the
Company's Quarterly Report on Form 10-Q for the first quarterly period ended
December 31, 2005. Tullius Taylor Sartain & Sartain LLP has served as our
principal accountant for the most recently completed fiscal year. However, as
discussed below, that firm resigned on January 17, 2006.
Change in Company's Certifying Accountant
On January 17, 2006, the Company and the Chairman of the Audit Committee
of the Company's Board of Directors were advised by letter of the same date that
Tullius Taylor Sartain & Sartain LLP ("Tullius"), the principal accountant
engaged to audit the Company's financial statements, would resign as the
Companys independent registered public accounting firm. The effective date of
the resignation is the date of completion of Tullius' review of the Company's
Quarterly Report on Form 10-Q for the first quarterly period ended
December 31, 2005.
The reports of Tullius on the Company's consolidated financial statements
for each of the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified as to uncertainties, audit scope
or accounting principles.
The Audit Committee was informed of, but neither recommended nor approved,
the termination of the client-auditor relationship with Tullius.
During the Company's two most recent fiscal years ended
September 30, 2005, and for the period from October 1, 2005, through the date
of Tullius' letter of resignation, there were no disagreements with Tullius on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Tullius, would have caused them to make
reference to the subject matter of their disagreement in their reports on the
Company's consolidated financial statements for such periods.
During the period of October 1, 2005, through the date of Tullius' letter
of resignation, there were no reportable events as defined by paragraph
(a)(1)(v) of Item 304 of Regulation S-K promulgated by the SEC.
The Company provided Tullius with copies of both of its Current reports on
Form 8-K reporting this event and asked Tullius to furnish the Company with
letters addressed to the SEC stating whether Tullius agrees with the statements
made by the Company and, if not, stating the respects in which it does not
agree. Tullius furnished such letters to the Company, indicating to the SEC
that it was in agreement with the Company's statements concerning Tullius.
On January 26, 2006, the Audit Committee engaged Hogan & Slovacek to serve
as the principal accountant to audit the Companys financial statements for the
current fiscal year.
During the Company's two most recent fiscal years ended
September 30, 2005, and for the period from October 1, 2005, through the date
of such engagement, the Company did not consult with Hogan & Slovacek regarding
the application of accounting principles to a specific transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, or any other matters or reportable events
described in Items 304(a)(2)(i) and (ii) of Regulation S-K.
15
PRINCIPAL ACCOUNTING FEES AND SERVICES
Tullius served as our independent auditor from 1994 until its
resignation discussed above, and it examined our financial statements for the
fiscal year ended September 30, 2005. Our Audit Committee considered whether
the provision of the tax services and other services by Tullius was compatible
with maintaining their independence and determined that it was.
Fees Incurred by the Company for Tullius Taylor Sartain & Sartain
Fee Category 2005 2004
------------ ---- ----
Audit Fees (1) $ 66,960 $ 43,700
Audit-Related Fees - -
Tax Fees 12,350 5,158
All Other Fees 6,085 10,360
--------------------
Total $ 83,395 $ 59,218
====================
---------------
Notes to table:
---------------
(1) Audit fees represent fees for professional services provided in connection
with the integrated audit of our financial statements and review of our
quarterly financial statements and audit services provided in connection
with the issuance of comfort letters, consents, and assistance with review
of documents filed with the SEC.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditor
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and
overseeing the work of the independent registered public accounting firm. In
recognition of this responsibility, the Audit Committee has established a
policy to pre-approve all audit and permissible non-audit services provided by
the independent registered public accounting firm.
Before engagement of the independent registered public accounting firm for
the next year's audit, management will submit a list of services and related
fees expected to be rendered during that year within each of the following four
categories of services to the Audit Committee for approval:
1. Audit services include audit work performed on the financial statements,
internal control over financial reporting, as well as work that generally
only the independent registered public accounting firm can reasonably be
16
expected to provide, including comfort letters, statutory audits, and
discussions surrounding the proper application of financial accounting
and/or reporting standards.
2. Audit-Related services are for assurance and related services that are
traditionally performed by the independent registered public accounting
firm, including due diligence related to mergers and acquisitions, employee
benefit plan audits, and special procedures required to meet certain
regulatory requirements.
3. Tax services include all services, except those services specifically
related to the audit of the financial statements, performed by the
independent registered public accounting firm's tax personnel, including
tax analysis; assisting with coordination of execution of tax related
activities, primarily in the area of corporate development; supporting
other tax related regulatory requirements; and tax compliance and reporting.
4. Other Fees are those associated with services not captured in the other
categories. The company generally doesnt request such services from the
independent registered public accounting firm.
Before engagement, the Audit Committee pre-approves the independent
registered public accounting firm's services within each category. During the
year, circumstances may arise when it may become necessary to engage the
independent registered public accounting firm for additional services not
contemplated in the original pre-approval categories. In those instances, the
Audit Committee requires specific pre-approval before engaging the independent
registered public accounting firm.
1052:
The Audit Committee may delegate pre-approval authority to one or more of
its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting.
1057:
SHAREHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
If you want to include a shareholder proposal in the proxy statement for
the 2007 annual meeting, it must be delivered to our executive offices,
1221 East Houston, Broken Arrow, Oklahoma, 74012, on or before
October 14, 2006. In addition, if you wish to present a proposal at the 2007
annual meeting that will not be included in our proxy statement and you fail to
notify us by December 28, 2006, then the proxies solicited by our board for the
2007 annual meeting will include discretionary authority to vote on your
proposal in the event that it is properly brought before the meeting.
OTHER MATTERS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the annual meeting other than the proposal
discussed above. If other proposals are properly brought before the meeting,
any proxies returned to us will be voted as the proxyholders see fit.
You can obtain a copy of our Annual Report on Form 10-K for the year ended
September 30, 2005 at no charge by writing to us at 1221 East Houston,
Broken Arrow, Oklahoma, 74012. This document and other information may also
be accessed from our website at www.addvantagetech.com.
Only one annual report and proxy statement are being delivered to multiple
shareholders who share one address, unless we have received instructions to the
contrary. We will provide a separate copy of the annual report and proxy
statement to a shareholder at a shared address to which single copies were
delivered upon request sent in writing to 1221 East Houston, Broken Arrow,
Oklahoma, 74012, or by calling (918) 251-9121. If you wish to receive a
separate annual report and proxy statement in the future, or if you currently
receive multiple copies of the annual report and proxy statement and wish to
request delivery of only single copies, you may notify us at the same address
or phone number.
17
PROXY
ADDVANTAGE TECHNOLOGIES GROUP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth A. Chymiak, and David E. Chymiak, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of Common
Stock of ADDvantage Technologies Group, Inc. (the "Company") held of record by
the undersigned on January 17, 2006 at the Annual Meeting of Shareholders of
the Company to be held on March 7, 2006, and at any and all adjournments or
postponements thereof.
1. Election of directors.
[ ] FOR all nominees listed below (except as indicated to the contrary below
and subject to the discretion of the proxies as provided herein).
Kenneth A. Chymiak David E. Chymiak Stephen J. Tyde
Freddie H. Gibson Henry F. McCabe
[ ] WITHHOLD AUTHORITY to vote for all the nominees above.
Instructions: To withhold authority for any individual nominee or
nominees, write their name(s) here:
(Continued and to be signed on the reverse side)
2. Proposal to ratify the appointment of Hogan & Slovacek as our independent
auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy when properly executed will be voted at the Annual Meeting or any
adjournments or postponements thereof as directed herein by the undersigned
shareholder. If no specifications are made, this Proxy will be voted For
Proposals 1 and 2. This Proxy is revocable at any time before it is exercised.
IMPORTANT: Please date this and sign this Proxy exactly as name appears to the
left. If shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give title as
such. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 2006
Signature(s)
------------------------------
Signature(s)
------------------------------
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.