-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FTqqvz+K+Hu3AcciwQERPlxSGUasXyG+KocdD7CBIP/EKuW4QuHzQAHbAZcGbYc6 1o5myv7r4dggSrNuqhBU6A== 0000831968-07-000037.txt : 20070329 0000831968-07-000037.hdr.sgml : 20070329 20070329141109 ACCESSION NUMBER: 0000831968-07-000037 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070329 DATE AS OF CHANGE: 20070329 EFFECTIVENESS DATE: 20070329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENCE & WORCESTER RAILROAD CO/RI/ CENTRAL INDEX KEY: 0000831968 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 050344399 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12761 FILM NUMBER: 07727048 BUSINESS ADDRESS: STREET 1: 75 HAMMOND ST CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5087554000 MAIL ADDRESS: STREET 1: PROVIDENCE & WORCESTER RAILROAD CO STREET 2: 75 HAMMOND STREET CITY: WORCESTER STATE: MA ZIP: 01610 DEF 14A 1 proxy14-a20061231.txt SCHEDULE 14A SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 PROVIDENCE AND WORCESTER RAILROAD COMPANY (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party 4) Date Filed: PROVIDENCE AND WORCESTER RAILROAD COMPANY 75 Hammond Street Worcester, Massachusetts 01610 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS April 25, 2007 PLEASE TAKE NOTICE that the 2007 annual meeting of the shareholders of Providence and Worcester Railroad Company (the "Company") will be held at the Crowne Plaza, 10 Lincoln Square, Worcester, Massachusetts, on Wednesday, April 25, 2007 at 10:00 o'clock A.M., local time, for the following purposes: (1) To elect three directors (by the holders of Common Stock only) and six directors (by the holders of Preferred Stock only) to serve for terms of one year and until their successors are elected and qualified; (2)To approve an amendment extending the term of the Company's Employee Stock Purchase Plan for an additional ten (10) years (by the holders of Common Stock and Preferred Stock, voting as separate classes); and (3) To transact such other business, if any, as may properly come before the meeting or any adjournment or adjournments thereof (by the holders of Common Stock and Preferred Stock, voting as separate classes). Holders of record of the Common Stock or Preferred Stock on the books of the Company as of the close of business on March 2, 2007 will be entitled to vote. By Order of the Board of Directors MARY A. TANONA Secretary and General Counsel PROVIDENCE AND WORCESTER RAILROAD COMPANY Worcester, Massachusetts March 23, 2007 If you are the holder of record of only one class of the Company's capital stock, only one proxy card is enclosed. If you are the holder of record of both Common Stock and Preferred Stock, two proxy cards are enclosed. Kindly fill in, date and sign the enclosed proxy card(s) and promptly return the same in the enclosed addressed envelope, which requires no postage if mailed in the United States. If you are personally present at the meeting, the proxy or proxies will not be used without your consent. PROVIDENCE AND WORCESTER RAILROAD COMPANY PROXY STATEMENT Annual Meeting of Shareholders April 25, 2007 SOLICITATION AND REVOCATION OF PROXIES The accompanying proxy or proxies are solicited by the Board of Directors of Providence and Worcester Railroad Company (herein called the "Company") in connection with the annual meeting of the shareholders to be held April 25, 2007; the Company will bear the cost of such solicitation. It is expected that the solicitation of proxies will be primarily by mail. Proxies may also be solicited personally by regular employees of the Company at nominal cost. The Company may reimburse brokerage houses and other custodians, nominees and fiduciaries holding stock for others in their names, or in those of their nominees, for their reasonable out-of-pocket expenses in sending proxy materials to their principals or beneficial owners and obtaining their proxies. Any shareholder giving a proxy has the power to revoke it at any time prior to its exercise, but the revocation of a proxy will not be effective until notice thereof has been given to the Secretary of the Company. Notice of revocation may be delivered in writing to the Secretary prior to the meeting or may be transmitted orally to the Secretary at the meeting. Every properly signed proxy will be voted in accordance with the specifications made thereon. The Company's Annual Report for 2006, including financial statements, this proxy statement and the accompanying proxy or proxies are expected to be first sent to shareholders on or about March 23, 2007. Neither the Annual Report nor the financial statements therein are incorporated in this Proxy Statement and do not form any part of the material for the solicitation of proxies. VOTING AT MEETING Only shareholders of record at the close of business on March 2, 2007 will be entitled to vote at the meeting. Under the Company's charter, the holders of the Company's Common Stock, voting separately as a class, are entitled to one vote for each share held in the election of one-third (1/3) of the Board of Directors of the Company proposed to be elected at the meeting (or the nearest larger whole number, if such fraction is not a whole number). The holders of the Company's Preferred Stock, voting separately as a class, are entitled to one vote for each share held in the election of the balance of the Board of Directors proposed to be elected at the meeting. The holders of the Company's Common Stock and the holders of the Company's Preferred Stock are entitled to one vote per share, voting as separate classes and not together, upon all other matters presented to the shareholders for their approval. Common Stock directors will be elected in each case by vote of the holders of a majority of the Common Stock present or represented at the meeting, and the Preferred Stock directors will be similarly elected by vote of the holders of a majority of the Preferred Stock. Shares represented by proxies which are marked "withhold authority" with respect to the election of any particular nominee for director, "abstain" with respect to the approval of the amendment to the Company's Employee Stock Purchase Plan or any other matters, or to deny discretionary authority on any other matters will be counted as shares present and entitled to vote, and, accordingly, any such marking of a proxy will have the same effect as a vote against the proposal to which it relates. Brokers who hold shares in street name may lack authority to vote such shares on certain items, absent specific instructions from their customers. Shares subject to such "broker non-votes" will not be treated as shares entitled to vote on the matters to which they relate and therefore will be treated as not present at the meeting for those purposes, but otherwise will have no effect on the outcome of the voting on such matters. It is not currently anticipated that any matter that might be the subject of a "broker non-vote" will come before the annual meeting. On the record date, there were 4,534,056 shares of the Company's Common Stock and 640 shares of the Company's Preferred Stock outstanding and entitled to vote at the meeting. COMPOSITION OF THE BOARD OF DIRECTORS The Board of Directors has determined that all of the current directors of the Company, which include each of the nominees standing for election at the 2007 annual meeting, other than Robert H. Eder and P. Scott Conti, are independent of the Company in that such nominees have no material relationship with the Company either directly, or as a partner, shareholder or affiliate of an organization that has a relationship with the Company. The Board of Directors has made this determination based on the following: o Other than Messrs. Eder and Conti, no nominee for director is an officer or employee of the Company or its subsidiaries or affiliates; o No nominee for director has an immediate family member who is an officer of the Company or its subsidiaries or has any current or past material relationship with the Company; o No nominee for director, other than Messrs. Eder and Conti, has worked for, consulted with, been retained by, or received anything of substantial value from the Company aside from his compensation as a director; o No nominee for director is, or was within the past three years, employed by the independent auditors for the Company; o No executive officer of the Company serves on the Stock Option & Compensation Committee or the Audit Committee of the Company. Other than Mr. Eder, no executive officer of the Company serves on the Board of Directors of any corporation that employs a nominee for director or a member of the immediate family of any nominee for director; o No nominee for director is an executive officer of any entity which the Company's annual sales to or purchases from exceeded one percent of either entity's annual revenues for the last fiscal year; and o No nominee for director serves as a director, trustee, executive officer or similar position of a charitable or non-profit organization to which the Company or its subsidiaries made charitable contributions or payments in fiscal year 2006 in excess of five percent of the organization's consolidated gross revenues, or $200,000, whichever is more, at any time during the past three years. 2 ELECTION OF DIRECTORS At the annual meeting, three Common Stock directors and six Preferred Stock directors are to be elected, and each will hold office until the next annual meeting and until his successor is elected and qualified. The proxies named in the accompanying proxy or proxies, who have been designated by the Board of Directors, intend to vote, unless otherwise instructed, for the election to the Board of Directors of the persons named below, all of whom are now directors of the Company. Certain information concerning such nominees is set forth below: Principal Occupation Director Name and Age During Past Five Years Since(a) - ------------ ---------------------- -------- Common Stock Director Nominees: ------------------------------- Richard W. Anderson Senior Vice President of Massachusetts Capital 1998 (59) Resource Company Robert H. Eder (74) Chairman of the Company 1965 John J. Healy (71) Director of Manufacturing Advancement Center and 1991 Director of Operations for the Massachusetts Manufacturing Extension Partnership; President of Worcester Affiliated Mfg. L.L.C. (manufacturing consultant) from 1997 to 2003 Preferred Stock Director Nominees: ---------------------------------- Frank W. Barrett Retired; until April 2006 Executive Vice President 1995 (67) of TD Bank North, N.A. (formerly Banknorth Massachusetts) (prior to January 2002, Executive Vice President of First Massachusetts Bank, N.A.) P. Scott Conti (49) President of the Company (prior to November 2005 2005 Vice President Engineering) J. Joseph Garrahy President of J. Joseph Garrahy & Associates, Inc. 1992 (76) (business consultants) James C. Garvey (50)President and CEO of Flagship Bank & Trust Company 2005 Charles M. President of Bertha M. McCollam, Inc. and Vice 1996 McCollam, Jr. (74) President and Secretary of Kronholm & McCollam (insurance firms) and President of McCollam Associates (consultant) Craig M. Scott (43) Partner of Duffy, Sweeney & Scott, Ltd. 2004 (a) Dates of directorships include directorships of the Company's predecessors. Brief Biographies Richard W. Anderson, Director. Mr. Anderson has been a Director of the Company since 1998. He is Senior Vice President of Massachusetts Capital Resource Company ("MCRC"), a private investment firm funded by major Massachusetts based life insurance companies providing high risk growth capital to Massachusetts businesses. He began working at MCRC in 1981. Mr. Anderson is also a director of Valpey Fisher Corporation, a company specializing in frequency control devices, and Polar Beverages, Inc. 3 Frank W. Barrett, Director. Mr. Barrett has been a Director of the Company since 1995. In April 2006 Mr. Barrett retired from TD Bank North, N.A. Effective June 2000, he became Executive Vice President of First Massachusetts Bank, N.A. Effective January 2002, First Massachusetts Bank, N.A. merged into Banknorth Massachusetts. No change in Mr. Barrett's responsibility was effected as a result of the merger. Effective March 2005, Banknorth Massachusetts was purchased by Toronto Dominion Bank and changed its name to TD Banknorth, NA. P. Scott Conti, President, Chief Operating Officer and Director. Mr. Conti joined the Company in June 1988 as Engineering Manager, a position he held until December 1997. He was promoted to Chief Engineer in January 1998, and to Vice President Engineering in March 1999. In November 2005 the Company's Board of Directors elected Mr. Conti to succeed the late Orville R. Harrold as President and to fill the vacancy on the Board of Directors that resulted from Mr. Harrold's death. Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder became President of the Company in 1966 and led the Company through its efforts to become an independent operating company. He has been Chairman of the Board of Directors since 1980. He is a graduate of Harvard College and Harvard Law School. He is also Chairman of the Board, and (with his wife) beneficial or direct owner of a majority of the stock, of Capital Properties, Inc., a real estate holding company of which he is also a Director. Mr. Eder is admitted to practice law in Rhode Island and New York. J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company since 1992. He is a former four term Governor of Rhode Island and, since 1990, has been an independent business consultant in the State of Rhode Island. James C. Garvey, Director. Mr. Garvey has been a Director of the Company since 2005. Mr. Garvey has been President and CEO of the Worcester-based Flagship Bank & Trust Company ("Flagship Bank") since 2001. He began working at Flagship Bank in 1999 as Executive Vice President. John J. Healy, Director. Mr. Healy has been a Director of the Company since 1991. Mr. Healy is Director of the Manufacturing Advancement Center and Director of Operations for the Massachusetts Manufacturing Extension Partnership, an independent consulting organization dedicated to assisting small manufacturing enterprises in becoming globally competitive. He was President of Worcester Affiliated Mfg. L.L.C. (manufacturing consultant) from 1997 to 2003. Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the Company since 1996. He is President of Bertha M. McCollam, Inc. and Vice President and Secretary of Kronholm & McCollam (insurance firms), as well as owner and President of McCollam Associates, a consulting firm in the State of Connecticut. He was the Chief of Staff to a former governor of Connecticut. Craig M. Scott, Director. Mr. Scott has been a Director of the Company since 2004. He is partner of the Providence-based law firm of Duffy, Sweeney & Scott, Ltd. and served as its Managing Partner in 2004 - 2005. Recommendation of Board of Directors. The Board of Directors recommends that the shareholders vote FOR approval of the slate of three (3) common stock director nominees and six (6) preferred stock director nominees set forth above. Committees of the Board of Directors The Board of Directors has an Executive Committee, a Stock Option & Compensation Committee and an Audit Committee. The Board of Directors does not have a nominating committee. Each of the Executive, Stock Option & Compensation and Audit Committees has a written charter approved by the Board of Directors. A copy of the Stock Option & Compensation and Audit Committee Charters are attached to this Proxy Statement. 4 In accordance with the By-laws of the Company, the Executive Committee, currently comprising P. Scott Conti, Chairman, John J. Healy and James C. Garvey, exercises the authority of the Board of Directors when formal Board action is required between meetings, subject to the limitations imposed by law, the By-laws or the Board of Directors. The Executive Committee acts on routine matters such as authorizing the sale of surplus real estate and the execution of government contracts for reimbursement for Company work on highway projects adjacent to the railroad and grade crossing rehabilitation. The Stock Option & Compensation Committee, currently comprising Charles M. McCollam, Jr., Chairman, Craig M. Scott and James C. Garvey, each of whom are independent (as defined by applicable American Stock Exchange ("AMEX") listing standards and Securities and Exchange Commission ("SEC") rules), non-employee directors. The Committee is charged with the broad responsibility of seeing that executive officers are effectively compensated in a manner which is internally equitable based on such officer's responsibilities and length of service to the Company. Because the Company is a "controlled" company as defined in Section 801(a) of the AMEX Guide, the Company is not subject to the AMEX Guide requirement that compensation of the chief executive officer and all other officers be determined, or recommended to the Board of Directors for determination, either by a compensation committee comprised of independent directors or by a majority of the independent directors on its Board of Directors. However, the Company's Stock Option & Compensation Committee charter provides that the Stock Option & Compensation Committee shall approve and report to the Board of Directors the executive compensation plan (including incentive awards) of the Chairman of the Board and the President and any other officer who is a member of the Board of Directors. The Audit Committee of the Board of Directors, currently comprising J. Joseph Garrahy, Chairman, Frank W. Barrett and Richard W. Anderson, all of whom are independent as defined by the AMEX listing standards, is responsible for providing independent, objective oversight of the Company's accounting functions and internal controls. The Board of Directors has determined that all three members of the Audit Committee satisfy the financial literacy requirements of the AMEX listing standards and are independent as defined under the AMEX listing requirements and applicable rules of the SEC. The Board of Directors has determined that Frank W. Barrett meets the standards set forth in Item 401(h)(2) of SEC Regulation S-K to qualify as an audit committee financial expert, as that term is defined in Item 401(h)(2). The Company does not have a written procedure for shareholders to make nominations to the Board of Directors, but the Company does consider such nominations. The holders of the Preferred Stock elect a majority of the members of the Board of Directors. Mr. Eder, who owns a majority of the Preferred Stock and who serves as the Chairman of the Board of Directors of the Company, involves himself in the screening and selection of directors of the Company when vacancies occur on the Board of Directors and the Board of Directors has voted to sit as a committee of the whole to consider any recommendations made by shareholders and/or other directors of persons to be directors of the Company and in determining whether to nominate any such recommended person for election by the shareholders. Thus, the Board of Directors has determined that (i) the Company shall not have a nominating committee; and (ii) the Board of Directors shall consider the competencies and experience of such recommended person as they relate to the business of the Company, together with such person's age, reputation and ability to carry out the requirements to serve as a director of the Company. In addition, because the Company is a "controlled" company as defined in Section 801(a) of the AMEX Company Guide, the Company is not subject to the AMEX Company Guide requirement that a listed company adopt a formal written charter or board resolution addressing the nominations process. The Board of Directors held four meetings, the Audit Committee held four meetings, the Stock Option & Compensation Committee held three meetings and the Executive Committee held five meetings during the fiscal year ended December 31, 2006. All directors attended at least 75% of all meetings. The Board of Directors has adopted a policy that requires members of the Board of Directors to make every effort to attend each annual shareholders meeting. All then current members of the Board of Directors attended the 2006 annual shareholders meeting. Code of Ethics The Company has adopted a Code of Ethics applicable to all directors, officers and employees, which meets the requirements of a "code of ethics" as defined in Item 406 of Regulation S-K. 5 Shareholder Communications Shareholders of the Company may communicate directly with the members of the Board of Directors by writing directly to those individuals at the following address: Providence and Worcester Railroad Company, 75 Hammond Street, Worcester, Massachusetts 01610, and the Company shall forward, and not intentionally screen, any mail received at the Company's corporate office that is sent directly to an individual director or to the directors generally unless the Corporation believes that the communication may pose a security risk. The Board of Directors sits as a committee of the whole to address any inquiries made by shareholders. Audit Committee Report Management is responsible for the Company's internal controls and financial reporting process. The independent accountants are responsible for performing an audit of the Company's consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The Audit Committee's responsibility is to appoint, compensate, retain and oversee any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services, and otherwise to monitor and oversee these processes. The responsibilities of the Audit Committee include engaging an accounting firm as the Company's independent accountants. Additionally, and as appropriate, the Audit Committee reviews and evaluates, and discusses and consults with the Company's management and independent accountants regarding the scope of the audit plan, the results of the audit, the Company's financial statement disclosure documents, the adequacy and effectiveness of the Company's accounting and financial controls and changes in accounting principles, and the auditor's performance and independence. The Audit Committee also oversees the receipt and processing of complaints by employees related to accounting, internal controls or auditing-related matters and reviews related-party transactions. In connection with these responsibilities, the Audit Committee reviewed and discussed the audited financial statements with management and the Company's independent accountants, Deloitte & Touche LLP. The Audit Committee also discussed with Deloitte & Touche LLP the matters required by Statement on Auditing Standards No. 61. The Audit Committee received from Deloitte & Touche LLP written disclosures and the letter regarding its independence as required by Independence Standards Board Standard No. 1. The Audit Committee discussed this information with Deloitte & Touche LLP and also considered the compatibility of non-audit services provided by Deloitte & Touche LLP with its independence. Based on the review of the audited financial statements and these various discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K, to be filed with the SEC. Audit Committee: J. Joseph Garrahy, Chairman Frank W. Barrett Richard W. Anderson Compensation of Directors The Board of Directors, upon recommendation of the Stock Option & Compensation Committee, is responsible for determining compensation of the directors. During the fiscal year ended December 31, 2006, each director who was not an employee of the Company received a base fee of $500 for each attended meeting of the Board of Directors plus $50 per attended meeting for each year of service as a director, and each member of the Audit Committee and the Stock Option & Compensation Committee received $300 for each attended meeting of the committee (other than the chairman of each Committee, who received $350). During the month of January of each year, directors of the Company who were serving as such on the preceding December 31 and who are not full time employees of the Company are granted options for the purchase of 100 shares of the Common Stock of the Company, plus options for an additional ten shares for each full year of service to the Company. The exercise price is the last sale price of the Common Stock on the last business day of the preceding year, and the term of each option is ten years (subject to earlier termination if the grantee ceases to serve as a director), provided, however, that no option is exercisable within six months following the date of grant. 6 On January 3, 2006, each director of the Company who was serving as such on December 31, 2005 and was not a full time employee of the Company was granted options for the purchase of 100 shares of Common Stock of the Company, plus options for an additional ten shares for each full year of service to the Company. The exercise price for such options is $14.90. The following table provides information regarding the compensation paid or accrued by each individual who was a director during the 2006 fiscal year other than the Chairman and the President. - -------------- -------- ------------ ------ ------- -------------- ------------- Name Total Fees earned Stock Option Non-Stock All Other ($) or paid in Awards Awards Incentive Plan Compensation cash ($) ($) ($) (a) Compensation ($) - -------------- -------- ------------ ------ ------- -------------- ------------- Richard W. 6,769 4,950 N/A 1,819 N/A 0 Anderson - -------------- -------- ------------ ------ ------- -------------- ------------- Frank W. 8,340 6,200 N/A 2,140 N/A 0 Barrett - -------------- -------- ------------ ------ ------- -------------- ------------- P. Scott Conti (b), (c) (b) N/A N/A (c) N/A 0 - -------------- -------- ------------ ------ ------- -------------- ------------- Robert H. Eder (b) (b) N/A 0 N/A 0 - -------------- -------- ------------ ------ ------- -------------- ------------- J. Joseph 10,161 7,700 N/A 2,461 N/A 0 Garrahy - -------------- -------- ------------ ------ ------- -------------- ------------- James C. 3,300 3,300 N/A 0 N/A 0 Garvey - -------------- -------- ------------ ------ ------- -------------- ------------- John J. Healy 8,618 6,050 N/A 2,568 N/A 0 - -------------- -------- ------------ ------ ------- -------------- ------------- Charles M. 8,578 6,545 N/A 2,033 N/A 0 McCollam, Jr. - -------------- -------- ------------ ------ ------- -------------- ------------- Craig M. Scott 4,677 3,500 N/A 1,177 N/A 0 - -------------- -------- ------------ ------ ------- -------------- ------------- (a) As of 12/31/06, each director had the following number of options outstanding: Richard W. Anderson - 1,080 shares Frank Barrett - 1,440 shares P. Scott Conti - 1,274 shares J. Joseph Garrahy - 760 shares James C. Garvey - 0 shares John J. Healy - 1,800 shares Charles M. McCollam, Jr. - 0 shares Craig M. Scott - 110 shares (b) The Company does not pay director fees to directors who are full-time employees of the Company. (c) Mr. Conti is awarded options in his capacity as President under the Company's Non-Qualified Stock Option Plan, which options are disclosed in the table under the section entitled Grants of Plan Based Awards set forth herein. 7 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table set forth below reflects the only persons (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the best of the Company's knowledge, were on March 2, 2007 the beneficial owners of more than five percent of the Company's outstanding Common Stock, $.50 par value, or Preferred Stock, $50 par value. Each share of the Company's outstanding Preferred Stock is convertible at any time, at the option of the holder, into one hundred shares of Common Stock of the Company. The footnote to the table below sets forth the percentages of the outstanding Common Stock which would be held by the indicated owners if such owners' Preferred Stock were converted in whole into Common Stock. Percent Name and Address Number of Shares Owned of Class - ---------------- ---------------------- -------- Robert H. and Linda Eder 842,742 (Common) 18.6%(a) 120 Sunset Avenue 500 (Preferred) 92.6% Palm Beach, Florida 33480 Steinberg Asset Management, LLC 468,040 (Common) 10.3% Michael A. Steinberg 12 East 49th Street Suite 1202 New York, New York 10017 Keeley Asset Management Corp. 379,675 (Common) 8.4% Kamco Performance Limited Partnership Kamco Limited Partnership No. 1 401 South LaSalle Street Chicago, Illinois 60605 (a) Assuming no conversion of Preferred Stock. If their Preferred Stock were converted in whole to Common Stock, Mr. and Mrs. Eder would own 19.5% of the outstanding Common Stock. Of the shares owned by Mr. and Mrs. Eder, 768,162 shares of Common Stock and 500 shares of Preferred Stock were held directly by Mr. Eder, and 74,580 shares of Common Stock were held directly by Mrs. Eder. By reason of their ownership, Mr. and Mrs. Eder may be deemed to be "control persons" with respect to the Company. 8 The following table reflects, as of March 2, 2007, the beneficial ownership of the Common Stock of the Company by directors, nominees for directors, Named Executive Officers and all officers and directors as a group. Name Number Percentage - ---- ------ ---------- Richard W. Anderson(a) ........................ 201,780 4.4% Frank W. Barrett(b) ........................... 2,050 * P. Scott Conti(c) ............................. 6,989 * Robert J. Easton(d) ........................... 7,190 * Robert H. Eder(e) ............................. 892,742 19.4% David F. Fitzgerald(f) ........................ 6,147 * J. Joseph Garrahy(g) .......................... 1,160 * James C. Garvey ............................... 300 * John J. Healy(h) .............................. 2,640 * Charles M. McCollam, Jr ....................... 3,750 * Frank K. Rogers(i) ............................ 2,505 * Craig M. Scott(j) ............................. 1,110 * Mary A. Tanona(k) ............................. 2,784 * All executive officers and directors as a group (14 persons)(l)............................. 1,131,673 24.6% * Less than one percent (a) Includes 200,000 shares of common stock held by Massachusetts Capital Resource Company of which Mr. Anderson disclaims beneficial ownership. Mr. Anderson is Senior Vice President of Massachusetts Capital Resource Company. Also includes 1,080 shares of Common Stock issuable under stock options exercisable within 60 days. (b) Includes 1,440 shares of Common Stock issuable under stock options exercisable within 60 days. (c) Includes 1,274 shares of Common Stock issuable under stock options exercisable within 60 days. (d) Includes 118 shares of Common Stock held by Mr. Easton's wife in her name and 3,054 shares of Common Stock issuable under stock options exercisable within 60 days. (e) Includes 74,580 shares of Common Stock held by Mr. Eder's wife in her name and assumes the conversion of the 500 shares of Preferred Stock owned by Mr. Eder. (f) Includes 20 shares of Common Stock held by Mr. Fitzgerald's wife in her name and 3,256 shares of Common Stock issuable under stock options exercisable within 60 days. (g) Includes 760 shares of Common Stock issuable under stock options exercisable within 60 days. (h) Includes 1,800 shares of Common Stock issuable under stock options exercisable within 60 days. (i) Includes 1,195 shares of Common Stock issuable under stock options exercisable within 60 days. (j) Includes 110 shares of Common Stock issuable under stock options exercisable within 60 days. (k) Includes 802 shares of Common Stock issuable under stock options exercisable within 60 days. (l) Includes 526 shares of Common Stock owned by an officer of the Company who is not a Named Executive Officer, 50,000 shares of Common Stock issuable upon conversion of Preferred Stock and 14,771 shares of Common Stock issuable under stock options exercisable within 60 days. 9 COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers, directors and persons who beneficially own more than ten percent of a registered class of the Company's equity securities to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent beneficial owners also are required by rules promulgated by the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to the Company or written representations that no Form 5 filings were required, the Company believes that during 2006 its officers, directors and greater than ten-percent beneficial owners complied with all applicable Section 16(a) filing requirements. COMPENSATION DISCUSSION & ANALYSIS The Stock Option & Compensation Committee is charged with the responsibility of setting the compensation for each of the Chairman/Chief Executive Officer (the "Chairman"), the President/Chief Operating Officer ("President") of the Company, and any other officer who is also a member of the Board of Directors, and consulting with the Chairman and the President with respect to the compensation of other executive officers. Our overall philosophy in connection with compensation is to provide a compensation package which attracts and retains qualified people. We also seek to obtain internal equity within the compensation structure by providing appropriate salary levels to reflect the responsibilities of individual executives. Historically, we have adjusted executive compensation each year by the increase in cost of living, which has the effect of rewarding executives for longevity with the Company. We do not give significant weight to the compensation paid by comparable railroads as there are few similar railroads in our region. We have from time to time paid bonuses in connection with specific situations requiring extraordinary effort. However, there is no formal plan. We have not awarded a bonus to the Chairman since 1999 because we believe that his stock ownership position sufficiently encourages him to perform in a way that will maximize value to the Company. To further align the interest of the executives of the Company, we have a non-qualified stock option plan in which all of the executives, other than the Chairman, may participate. The plan is designed to make awards based upon compensation and longevity and, therefore, to encourage executives to remain with the Company. We have not had, and do not expect to have, employment contracts with any of our executives. We do have change-in-control agreements, including a severance policy, for all executives other than the Chairman. This plan generally provides higher benefits for longer-tenured executives. In lieu of any defined benefit or 401(k) plans, we contribute to each executive's Simplified Employee Pension plan ("SEP") which is available to all non-union employees on a non-discriminatory basis. As the Chairman is not subject to a change-in-control agreement, we pay the insurance premiums on a life insurance policy which provides a death benefit of $1,600,000. With the exception of this policy, all other executive benefits are made available to all non-union employees on a non-discriminatory basis. Salaries The Chairman's compensation was set many years ago and has been adjusted from time to time to reflect increases in the cost of living. The President's compensation was set in early 2006 and, in discussions between the Stock Option & Compensation Committee and the President, he has expressed satisfaction with the level of his compensation and the Stock Option & Compensation Committee has seen no need to make any adjustments, other than the annual cost of living increase. We consult with the Chairman and the President from time to time with respect to the compensation of other executives. In general, their philosophy, which is shared by us, is that the compensation of other executives should relate to their responsibilities attendant to their offices and their lengths of service with the Company. Accordingly, we believe that the Chairman's salary should represent the highest salary paid and the salaries of other executive officers should be less than the Chairman's salary and should be governed by 10 their levels of responsibility within the Company. The President of the Company, therefore, is the next highest paid employee. Similarly, other employees are paid in accordance with what the Chairman and the President perceive to be the other executive officers' responsibilities and we concur with their assessment. We reward length of service through annual cost of living increases. Bonus Plan We maintain no formal bonus plan. We do not anticipate paying a bonus to the Chairman in the future for the reason that the Chairman has a substantial equity interest in the Company and, therefore, exceptional performance by him is likely to be translated into an increase in the value of his stock interest in the Company. With respect to other individuals, the Chairman has from time to time awarded bonuses on the occurrence of extraordinary events where executives have put in an extraordinary amount of time and effort to achieve a goal. We concur with this rationale. Stock Option Plan The Company maintains a Nonqualified Stock Option Plan (the "Plan") for its directors and executives, other than the Chairman. Pursuant to the terms of the Plan, all employees of the Company who are not subject to a collective bargaining agreement and have been an employee of the Company for more than one year are eligible to participate in the Plan. Historically, we have allotted seven thousand shares per year to be allocated among eligible employee participants. By keeping the number constant, we eliminate year to year swings and provide for a consistent long-term incentive. Pursuant to the terms of the Plan, each employee participant's compensation is multiplied by a longevity factor which is 1.5 for executives with more than five years' service increasing ratably, in five year increments, up to 3.5 for executives with more than 25 years' service. The sum of all of the products computed for all employee participants then becomes the denominator. Each employee participant is then awarded the number of options equal to the product of (a) the total shares allocated for such year, and (b) the ratio that his/her compensation multiplied by his/her longevity factor bears to the products for all employee participants. Options are granted at fair market value as of the first business day of January of each year for a ten-year term. Options may not be exercised for the first six months following the grant date and, thereafter, are exercisable at any time. In accordance with the Plan, options are granted in January of each year. Upon termination for any reason, the options must be exercised within six months of the date of termination. As with our other compensation, the option awards are designed to encourage longevity with the Company. Other Agreements The Company has change-in-control agreements, including a severance policy, with respect to all its executives other than the Chairman. The amount paid under the severance provisions of a change-in-control agreement is a function of salary and length of service. Accordingly, an executive is entitled to a one-time payment equal to his/her annual base salary if at the time of the event giving rise to the change-in-control he/she has been an employee of the Company for zero to nine years. For the period of employment between ten and nineteen years, the multiplier is one and one-half times salary; for twenty to twenty-nine years, two times salary; and for thirty years or more, two and one-half times salary. Additionally, if within two years following a change-in-control the employer significantly reduces a management employee's base salary and the management employee resigns as a result of such reduction, he/she is also entitled to the severance benefit calculated above. For purposes of a change-in-control and the severance paid thereunder, a management employee does not include any employee who is a beneficial owner, directly or indirectly, of securities which have the right to elect a majority of the Board of Directors or 50% of the voting power of the entire capital stock of the Company. In addition to the benefits outlined above, all management employees are entitled to life and disability coverage under policies of insurance paid by the Company. Life insurance benefits are in the amount of twice annual salary up to $50,000 and disability benefits are equal to 60% of annual salary up to $8,000 per month. Aside from the life insurance benefit due Mr. Eder's designated beneficiary upon death, the above-described bonus plan, stock option plan, severance payments upon a change-in-control, and life and disability insurance plans are benefits available to both our executive employees and other non-union employees on a non-discriminatory basis. 11 STOCK OPTION & COMPENSATION COMMITTEE REPORT The Stock Option & Compensation Committee has reviewed and discussed with management the Compensation Discussion & Analysis included above. Based on these reviews and discussions, the Stock Option & Compensation Committee has recommended to the Board of Directors that the Compensation Discussion & Analysis contained herein be included in the Company's Proxy Statement for the fiscal year ended December 31, 2006 for filing with the SEC. Stock Option & Compensation Committee: Charles M. McCollam, Jr., Chairman Craig M. Scott James C. Garvey 12 EXECUTIVE COMPENSATION Summary Compensation Table The following Summary Compensation Table provides information regarding the total compensation paid or accrued by the Company to each of its Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers other than the CEO and CFO who earned more than $100,000 in total compensation during the fiscal year ended December 31, 2006 and were employed by the Company on December 31, 2006 (the "Named Executive Officers"). - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- Name Year Salary Bonus Stock Option Non-Equity Change in All Total and ($) ($) Awards Awards Incentive Pension Other ($) Principal ($) ($) Plan Value and Compen- Position (a) Compen- Non- sation sation Qualified ($) ($) Deferred Compen- sation Earnings ($) - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- Robert H. 2006 388,179 0 0 0(b) 0 0 87,442 475,621 Eder (c) Chairman and CEO - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- P. Scott 2006 175,949 0 0 4,098 0 0 12,120 192,167 Conti (d) President and Chief Operating Officer - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- Robert J. 2006 160,685 0 0 4,494 0 0 11,224 176,403 Easton (d) Treasurer - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- David F. 2006 136,205 0 0 4,954 0 0 9,194 150,353 Fitzgerald (d) Vice President - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- Mary A. 2006 134,821 0 0 2,204 0 0 9,100 146,125 Tanona (d) Secretary and General Counsel - ---------- ---- ------- ----- ------ ------ ---------- ---------- ------ ------- (a) The amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with SFAS 123R. (b) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder is not eligible to receive a grant of stock options. (c) Includes $14,850 paid directly to Mr. Eder's retirement account under the SEP, $27,433 in life insurance premiums for 2006, $40,918 for purchase of vehicle for use by Mr. Eder and $4,241 in car insurance and parking paid on Mr. Eder's behalf. (d) Reflects amounts paid directly to officer's retirement account under the Company's SEP. 13 Grants of Plan Based Awards The following table provides information on all plan based awards by the Company in 2006 to each Named Executive Officer. - -------------------------------------------------------------------------------------------------------------------------- Name Grant Estimated Future Payouts Estimated Future Payouts All Other All Other Exercise Grant Date Under Non-Equity Under Equity Incentive Stock Option or Base Date Fair Incentive Plan Awards Plan Awards Awards: Awards: Price of Value of Number of Number of Option Stock and Shares of Securities Awards Option Stock or Underlying ($/Sh) Awards Units Options ($) (#) (#) (a) ----------------------------------------------------- Threshold Target Maximum Threshold Target Maximum ($) ($) ($) ($) ($) ($) - -------------------------------------------------------------------------------------------------------------------------- Robert H. N/A N/A N/A N/A N/A N/A N/A N/A 0 0 0 Eder (b) - -------------------------------------------------------------------------------------------------------------------------- P. Scott 01/03/06 N/A N/A N/A N/A N/A N/A N/A 383 14.90 4,098 Conti - -------------------------------------------------------------------------------------------------------------------------- Robert J. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 420 14.90 4,494 Easton - -------------------------------------------------------------------------------------------------------------------------- David F. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 463 14.90 4,954 Fitzgerald - -------------------------------------------------------------------------------------------------------------------------- Mary A. 01/03/06 N/A N/A N/A N/A N/A N/A N/A 206 14.90 2,204 Tanona - --------------------------------------------------------------------------------------------------------------------------
(a) Amounts represent fair value of options and were estimated to be $10.70 per share as of the date of grant using Black-Scholes options-pricing model with the following weighted average assumptions: expected volatility of 88.28%; expected life 7 years; and risk free interest rate of 4.32%. Dividends at the rate of 1.07% per share were assumed for purposes of this estimate. (b) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder is not eligible to receive a grant of stock options. 14 Outstanding Equity Awards at Fiscal Year End The following table provides information on all outstanding equity awards held by each of the Named Executive Officers as of December 31, 2006. - ----------- ------------- --------------- --------------- ---------- ----------- Name Number of Number of Equity Incentive Option Option securities securities Plan Awards: exercise expiration underlying underlying Number of price date unexercised unexercised securities ($) options options underlying exercisable unexercisable unexercised (#) (#) unearned options (#) - ----------- ------------- --------------- --------------- ---------- ----------- Robert H. 0 0 N/A 0 N/A Eder - ----------- ------------- --------------- --------------- ---------- ----------- P. Scott 132 0 N/A 18.375 01/02/08(a) Conti 147 12.375 01/05/09(b) 296 8.890 01/02/14(c) 316 13.490 01/03/15(d) 383 14.900 01/03/16(e) - ----------- ------------- --------------- --------------- ---------- ----------- Robert J. 310 0 N/A 18.375 01/02/08(a) Easton 346 12.375 01/05/09(b) 301 8.000 01/03/10(f) 281 7.125 01/02/11(g) 356 6.750 01/02/12(h) 353 7.750 01/02/13(i) 333 8.890 01/02/14(c) 354 13.490 01/03/15(d) 420 14.900 01/03/16(e) - ----------- ------------- --------------- --------------- ---------- ----------- David F. 343 0 N/A 18.375 01/02/08(a) Fitzgerald 333 12.375 01/05/09(b) 379 8.000 01/03/10(f) 364 7.125 01/02/11(g) 271 6.750 01/02/12(h) 369 7.750 01/02/13(i) 357 8.890 01/02/14(c) 377 13.490 01/03/15(d) 463 14.900 01/03/16(e) - ----------- ------------- --------------- --------------- ---------- ----------- Mary A. 90 0 N/A 7.125 01/02/11(g) Tanona 112 6.750 01/02/12(h) 114 7.750 01/02/13(i) 108 8.890 01/02/14(c) 172 13.490 01/03/15(d) 206 14.900 01/03/16(e) - ----------- ------------- --------------- --------------- ---------- ----------- (a) Vested January 2, 1998 (b) Vested January 5, 1999 (c) Vested January 2, 2004 (d) Vested January 3, 2005 (e) Vested January 3, 2006 (f) Vested January 3, 2000 (g) Vested January 2, 2001 (h) Vested January 2, 2002 (i) Vested January 2, 2003 15 Options Exercised and Stock Vested The following table provides information on all exercises of options by the Named Executive Officers during the Company's 2006 fiscal year. - -------------------------------------------------------------------------------- Option Awards Stock Awards - -------------------------------------------------------------------------------- Name Number of Value Realized Number of Value Realized Shares on Exercise Shares on Vesting Acquired ($) Acquired ($) on Exercise on Vesting (#) (#) - -------------------------------------------------------------------------------- Robert H. Eder 0 0 N/A N/A - -------------------------------------------------------------------------------- P. Scott Conti 232 2,366.40 N/A N/A - -------------------------------------------------------------------------------- Robert J. Easton 210 2,756.25 N/A N/A - -------------------------------------------------------------------------------- David F. Fitzgerald 405 4,780.13 N/A N/A - -------------------------------------------------------------------------------- Mary A. Tanona 0 0 N/A N/A - -------------------------------------------------------------------------------- Pension Benefits The Company makes payments directly to the retirement accounts of management staff (including the named executive officers) under the Company's Simplified Employee Pension plan, a qualified defined contribution plan. Nonqualified Deferred Compensation Plans There are no nonqualified deferred compensation plans for the Company's named executives. Potential Payments Upon Termination or Change in Control As of December 31, 2006, the Company was not obligated to any member of management for any payments or benefits (including, without limitation, insurance benefits for health, life (except with respect to Mr. Eder), disability or any other matter, outplacement services, tax gross ups or any other payment or benefit) upon the event of termination from the Company, whether upon the basis of retirement (including voluntary retirement, early retirement or retirement upon attaining the age on which full retirement benefits are payable), involuntary termination (including termination for cause, not for cause and for good reason, other than change-in-control), disability or death. In the event that a management employee's position with the Company is terminated other than for cause as a result of the change-in-control of the Company, such employee (with the exception of Mr. Eder) is eligible to receive a payment, as detailed below. A change-in-control is deemed to have occurred upon (1) the occurrence of a change in the beneficial ownership directly or indirectly of securities representing more than 50% of the voting power of the Company's stock, (2) the sale of all or substantially all of the Company's assets, (3) a transaction in which the Company is not the surviving entity, or (4) complete liquidation of the Company (each, a "Change-in-Control Event"). In such case the management employee is entitled to a lump sum severance payment 16 within two years of the effective date of a Change-in-Control Event to be determined as of the date of termination, as adjusted based on the Change-in-Control Event and the date of termination, as follows: Years of Service at -------------------- Date of Termination Severance Benefit ------------------- ----------------- 0-9 Years One (1) times Annual Base Salary 10-19 Years One and one-half (1-1/2) times Annual Base Salary 20-29 Years Two (2) times Annual Base Salary 30 Years or More Two and one-half (2-1/2) times Annual Base Salary Annual Base Salary means the management employee's annual rate of base pay in effect immediately prior to the effective date of the Change-in-Control Event. The management employee is entitled to a pro rata portion of the Severance Benefit if the management employee is terminated other than for cause by the Company at any time within the management employee's Severance Benefit time period following a Change-in-Control Event. In accordance with the terms set forth above, the following payments would have been due the following management employees as of December 31, 2006 had a Change-in-Control Event taken place. P. Scott Conti - $263,924 (1.5 X Annual Base Salary) Robert J. Easton - $321,370 (2 X Annual Base Salary) Robert H. Eder - N/A David F. Fitzgerald - $340,513 (2.5 X Annual Base Salary) Mary A. Tanona - $134,821 (1 X Annual Base Salary) Under the terms of the life insurance policy for the benefit of Mr. Eder, Mr. Eder's designated beneficiary would have been entitled to receive $1,600,000 had a termination of his employment occurred on December 31, 2006 as a result of his death. TRANSACTIONS WITH MANAGEMENT Potential conflicts of interest and related party transactions are referred by the Board of Directors to the Audit Committee for review and approval. In reviewing and evaluating potential conflicts of interest and related party transactions, the Audit Committee uses applicable AMEX listing standards and SEC rules as a guide. INDEPENDENT PUBLIC ACCOUNTANTS The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP, who acted as independent auditors of the accounts of the Company for 2006, as independent auditors of the accounts of the Company for the year 2007. The Company has recently been advised by Deloitte & Touche LLP that they have no direct financial interest or any material indirect financial interest in the Company, nor have they had any connection during the past four years with the Company in the capacity of promoter, underwriter, voting trustee, director, officer or employee. It is expected that a representative of Deloitte & Touche LLP will be present at the annual meeting with the opportunity to make a statement if he/she so desires, and that such representative will be available to respond to appropriate questions. 17 Audit Fees and Services Aggregate fees for professional services rendered for the Company by Deloitte & Touche LLP as of or for the fiscal years ended December 31, 2006 and 2005 are set forth below. The aggregate fees included in the Audit category are billed for the fiscal years for the audit of Company's annual financial statements and review of financial statements or engagements. The aggregate fees included in each of the other categories are fees billed in the fiscal years. Fiscal Year 2006 Fiscal Year 2005 ---------------- ---------------- Audit Fees $181,500 $171,800 Tax Fees $5,000 $5,000 All Other Fees --- --- Audit Fees for the fiscal years ended December 31, 2006 and 2005 were for professional services rendered for the audits of the financial statements of the Company, quarterly review of the financial statements included in the Company's Quarterly Reports on Form 10-Q, consents and other assistance required to complete the year end audit of the financial statements. Tax Fees as of the fiscal years ended December 31, 2006 and 2005 were for services rendered for review of tax returns and tax advice. All Other Fees. As of the fiscal years ended December 31, 2006 and 2005 there were no other fees. The Audit Committee has determined that the provision of the above services is compatible with maintaining Deloitte & Touche LLP's independence. Policy on Audit Committee Pre-Approval. The Audit Committee pre-approves all audit and non-audit services provided by the independent accountants prior to the engagement of the independent accountants with respect to such services. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels require specific pre-approval by the Audit Committee. The Audit Committee may delegate pre-approval authority to one or more of its members and that member shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has engaged Deloitte & Touche LLP for the calendar year ending December 31, 2007. EMPLOYEE STOCK PURCHASE PLAN The term of the Company's Employee Stock Purchase Plan is scheduled to expire on March 31, 2007. Recommendation of Board of Directors. The Board of Directors recommends that the shareholders vote FOR approval of the extension of the term of the Company's Employee Stock Purchase Plan for an additional ten (10) years. The affirmative votes of the holders of majorities of the outstanding Common Stock and Preferred Stock, voting as separate classes, will be required for such approval. PROPOSALS FOR 2008 ANNUAL MEETING The 2008 annual meeting of the shareholders of the Company is scheduled to be held April 30, 2008. If a shareholder intending to present a proposal at that meeting wishes to have a proper proposal included in the Company's proxy statement and form of proxy relating to the meeting, the shareholder must submit the proposal to the Company not later than November 16, 2007. 18 OTHER MATTERS No business other than that described above and/or set forth in the attached Notice of Meeting is expected to come before the annual meeting, but should any other matters requiring a vote of shareholders arise, including a question of adjourning the meeting, the persons named in the accompanying proxy will vote thereon according to their best judgment in the interests of the Company. In the event any of the nominees for the office of director should withdraw or otherwise become unavailable for reasons not presently known, the persons named as proxies will vote for other persons in their place in what they consider the best interests of the Company. By Order of the Board of Directors MARY A. TANONA Secretary and General Counsel PROVIDENCE AND WORCESTER RAILROAD COMPANY Dated: March 23, 2007 19 Appendix A PROVIDENCE AND WORCESTER RAILROAD COMPANY AUDIT COMMITTEE CHARTER PURPOSE - ------- The primary function of the Providence and Worcester Railroad Company (hereinafter "Company") Audit Committee is to report to and assist the Board of Directors (hereinafter "Board") in fulfilling its oversight responsibilities by reviewing: the financial reports provided by the Company to its stockholders and the general public; the Company's systems of internal controls regarding finance and accounting; and the Company's auditing, accounting and financial reporting process. The Audit Committee's primary duties and responsibilities are to: 1. Serve as an independent and objective party to monitor and oversee the integrity of the Company's financial reporting process and internal control system. 2. Evaluate qualifications and independence of, appoint, oversee and, where appropriate, replace the external auditors who are accountable to the Audit Committee and the Board. 3. Provide an open avenue of communication among the external auditors, financial and senior management, and the Board. 4. Oversee the system of disclosure controls and system of internal controls regarding finance, accounting, legal compliance and ethics. The Audit Committee is responsible for the duties set forth in this charter but is not responsible for either the preparation of the financial statements or the auditing of the financial statements. Management has the responsibility of preparing the financial statements and implementing internal controls and the independent accountants have the responsibility of auditing the statements and monitoring the effectiveness of the internal controls. The review of the financial statements by the Audit Committee is not of the same quality as the audit performed by the independent accountants. In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible in order to best react to a changing environment. The Audit Committee, and each member of the Audit Committee in his or her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by officers and employees of the Company, whom such member believes to be reliable and competent in the matters presented and on counsel, public accountants or other persons as to matters which the member believes to be within the professional competence of such person. ORGANIZATION - ------------ The Audit Committee shall be comprised of at least three directors as determined by the Board, each of whom shall satisfy the independence standards specified in the American Stock Exchange (hereinafter "Amex") Company Guide and Rule 10A-3 under the Securities Exchange Act of 1934 and all other legal requirements. Each member shall be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his/her independent judgment as a member of the Audit Committee. All members shall be financially literate and able to read and understand financial statements, including balance sheets, income statements, and cash flow statements. The Audit Committee chairman shall, by reason of experience and background, demonstrate a reasonably high level of financial sophistication including, without limitation, being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Determination of independence, Audit Committee financial expertise, financial literacy and accounting or related financial management expertise shall be made by the Board as the Board interprets such qualifications in its business judgment and in accordance with applicable law and the listing requirements of Amex. The Audit Committee shall have the power to adopt its own operating rules and procedures and to call upon assistance from officers and employees of the Company and outside counsel and consultants without the consent of management. 20 RESPONSIBILITIES AND DUTIES - --------------------------- 1. Be directly responsible for the appointment, compensation, retention and oversight of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The external auditors shall report directly to the Audit Committee. 2 Meet at least once each quarter and meet at least annually in executive session with the external auditors without management present. 3. Meet with the external auditors and financial management to review the scope of the audit for the current year and the audit procedures to be utilized. At the conclusion of the audit year, review the results of the audit, including any comments or recommendations of the external auditors. 4. Appraise with the external auditors and management the adequacy and effectiveness of the accounting and financial controls of the Company and the appropriateness of the Company's accounting principles. In connection therewith: o Elicit any recommendations for the improvement of such internal controls and/or accounting principles; and o Review any deficiencies identified by management in the design and operation of internal controls for financial reporting and at least annually consider, in consultation with management and the independent auditors, the adequacy of the Company's internal controls for financial reporting, including the resolution of identified material weaknesses and reportable conditions, if any. 5. Prior to release of the Company's Annual Report to the shareholders and the public, review the financial statements contained therein with management and the external auditors to determine that the disclosures and content of the financial statements are satisfactory and review and discuss: o Changes in accounting standards or rules promulgated by the Financial Accounting Standards Board or the SEC that have an impact on the financial statements; o Estimates made by management having a material impact on the financial statements; o The effect of alternative assumptions, estimates or GAAP methods on the Company's financial statements; o Any changes from prior years in accounting principles applied in the preparation of such financial statements; and o Any material written communications between the independent auditor and the Company's management, including any management letter provided by the independent auditor and the Company's response to that letter. 6. Annually review with management and the independent auditors the basis for the disclosures made in the Annual Report to shareholders regarding the Company's internal controls for financial reporting. 7. Ensure that retention of the independent auditor to perform audit and nonaudit services is properly disclosed in the Company's proxy statement and filings with the SEC. 8 Discuss with the external auditors and management, via telephone if appropriate, the quarterly financial statements of the Company before the results are released to the shareholders and the public. 9. Inquire of management (including the General Counsel), and the external auditor, about significant risks or exposures that could financially impact the Company and assess the steps management has taken to minimize such risks. 10. Investigate any matter brought to its attention within the scope of 21 its duties, with the power to compensate and obtain advice and assistance from outside legal, accounting or other advisors for this purpose if, in its judgment, that is appropriate. Resolve any disagreements between the external auditors and management. Determine funding for the appropriate compensation of the independent auditors and other advisors that the Audit Committee chooses to engage, with such funding to be provided by the Company. 11. Submit the minutes of all meetings of the Audit Committee to, or discuss the matters communicated at each meeting with, the full Board. 12. Review, at least annually, with management and the independent auditor the qualifications, performance, independence and objectivity of the independent auditor. In connection with such review and evaluation, the Audit Committee shall o Obtain and review a written report from the independent auditor at least annually regarding the auditor's internal quality-control procedures and any material issues raised by the most recent quality-control review; o Obtain an annual written statement from the independent auditor delineating all relationships, both direct and indirect, between the independent auditor and the Company, including each non-audit service provided to the Company and at least the matters set forth in Independence Standards Board No. 1; o Consider whether the provision of non-audit services is compatible with maintaining the auditor's independence, taking into account the opinions of management; o Discuss any relationships that may impair the auditor's independence and take such actions as it deems appropriate or make recommendations to the Board regarding actions to be taken to remedy such impairment; and o Ensure appropriate audit and concurring partner rotation as required by law. 13. Review and approve any related-party transactions entered into by the Company. 14. Review and pre-approve the engagement of independent accountants to perform permissible non-audit services in accordance with policies adopted by the Audit Committee and applicable laws and regulations. Review any non-audit services performed on behalf of the Company by the independent accountants that meet the de minimis exception under applicable laws and regulations. 15. Establish procedures for receipt and processing of complaints related to accounting, internal controls or auditing-related matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing practices. 16. Administer the Company's Code of Ethics for Chief Executive Officer and Senior Financial Officers, including consideration of any waivers and investigation of any alleged violations thereof. ADOPTION AND EFFECTIVE DATE - --------------------------- This amended Audit Committee Charter was adopted by the Audit Committee pursuant to a delegation of authority by vote of the Board of the Company on January 28, 2004 and became effective immediately. ANNUAL REVIEW - ------------- At least annually, members of the Audit Committee shall review the terms and scope of the Audit Committee charter to determine the adequacy of the charter. Such review and any recommendations which follow thereafter shall be reflected in the minutes of the meeting of the Audit Committee during which such review was undertaken. 22 Appendix B Amended and Restated Charter of the Stock Option & Compensation Committee of the Board of Directors of Providence and Worcester Railroad Company The Board of Directors of Providence and Worcester Railroad Company (the "Company") has constituted and established a Stock Option & Compensation Committee (the "Committee") with authority, responsibility, and specific duties as described in this Charter (the "Charter"). COMPOSITION - ----------- The Committee shall consist of directors who are independent of management in accordance with applicable Securities and Exchange Commission ("SEC") rules and the listing standards of the AMEX Stock Market and free from any relationship that, in the opinion of the Board of Directors of the Company (the "Board"), as evidenced by its election of such Committee members, would interfere with the exercise of independent judgment as a Committee member. Committee members shall be appointed by the Board. One member shall serve as chairperson. He/she shall be responsible for leadership of the Committee, including overseeing the agenda, presiding over the meetings and reporting to the Board. If the Committee Chairperson is not present at a meeting, the members of the Committee may designate a chairperson. RESOURCES and AUTHORITY - ----------------------- The Committee shall have the resources and authority it deems necessary and appropriate to discharge its responsibilities, at the Company's expense. The Committee shall have the power to adopt its own operating rules and procedures and to call upon assistance from officers and employees of the Company and outside counsel and other advisers without the consent of management. The Committee, and each member of the Committee in his/her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by officers and employees of the Company, whom such member believes to be reliable and competent in the matters presented and on counsel, compensation consultants or other persons as to matters which the member believes to be within the professional competence of such person. PRINCIPAL FUNCTIONS - ------------------- The Committee's basic responsibility is to assure that the senior executives of the Company and its wholly owned affiliates are compensated effectively in a manner consistent with the stated compensation strategy of the Company and the requirements of appropriate regulatory bodies. The Committee shall also communicate to shareholders the Company's compensation policies and the reasoning behind such policies as required by the Securities and Exchange Commission. More specifically, the Committee shall be responsible for the following: o Reviews and approves with the Chairman of the Board, the Company's compensation philosophy. o Approves and reports to the Board, the executive compensation plans and the compensation (including incentive awards) of the Chairman of the Board and the President and any other officer who is a member of the Board. o Reviews and approves with the Chairman of the Board and the President, the executive compensation plans and compensation (including incentive awards) of the officers of the Company other than the Chairman of the Board and the President. o Assures that the total compensation paid to the Company's principal officers other than the Chairman of the Board and the President is reasonable as it relates to such officer's responsibilities and length of service with the Company and taking into account any cost of living increases. 23 o Periodically reviews and approves stock ownership guidelines, including granting or making recommendations to the Board concerning employee stock options. o Consults with the Chairman of the Board and makes recommendations to the Board for new or material changes to existing employee benefit plans. o Reviews the status of and reports to the Board on the Company's director compensation practices. Any changes in director compensation should come upon the recommendation of the Committee but with full discussion and concurrence by the Board. o Oversees the preparation and review of, and discusses with management, the Company's Compensation Discussion & Analysis ("CD&A") and related disclosures required by the SEC. o Reviews and decides whether to recommend the final CD&A to the Board for inclusion in the Company's annual proxy statement. o Conducts an annual evaluation of the adequacy of this Charter and recommends any proposed amendments to the Board for approval. o Reports to the Board on a regular basis so that the Board is informed of the Committee's activities. o Such other duties and responsibilities as may be assigned to the Committee, from time to time, by the Board and/or the Chairman of the Board, or as designated in plan documents. MEETINGS - -------- The Committee shall meet sufficiently often to discharge its responsibilities hereunder, but at least as often as required by applicable SEC rules and AMEX listing requirements. Meetings may be called by the Chairman of the Board, the President of the Company or the Chairperson of the Committee. Appropriate members of management and staff will prepare draft agendas and related background information for each Committee meeting, which will be reviewed and approved by the Committee Chairperson in advance of distribution to the other Committee members. The Company's corporate Secretary or Assistant Secretary will be present at all meetings. Any background materials, together with such agenda, should be distributed to the Committee members, the President and corporate Secretary in advance of the meeting for their review and discussion. The corporate Secretary will maintain one set of all Committee minutes, agendas and background information, and the like, to be filed with the corporate records of the Company and will be provided a set of all Committee correspondence. All meetings of the Committee shall be held pursuant to the By-laws of the Company with regard to notice and waiver thereof, and written minutes of each meeting shall be duly filed in the Company records. Reports of meetings of the Committee shall be made to the Board at its next regularly-scheduled meeting following the Committee meeting accompanied by any recommendations to the Board approved by the Committee. In addition, all Directors are to be furnished copies of each Committee meeting's minutes. 24 [GRAPHIC OMITTED] - ------ X - ------ Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated area. ================================================================================ Annual Meeting of Shareholders - April 25, 2007 ================================================================================ This Proxy is Solicited on Behalf of the Board of Directors April 25, 2007 The undersigned, whose signature appears below, hereby appoints Robert H. Eder, P. Scott Conti, and Robert J. Easton, attorneys each with power of substitution and with all the powers the undersigned would possess if personally present, to vote the Preferred Stock of Providence and Worcester Railroad Company held of record by the undersigned on March 2, 2007 at the annual meeting of shareholders to be held on April 25, 2007 in Worcester, Massachusetts, and at any adjournments thereof, as follows. A. Proposals - The Board of Directors recommends a vote FOR the listed nominees and FOR Proposal 2. 1. Election of Directors: For Withhold For Withhold For Withhold --- -------- --- -------- --- -------- 01-F. Barrett 02-S. Conti 03-J. Garrahy For Withhold For Withhold For Withhold --- -------- --- -------- --- -------- 04-J. Garvey 05-C. McCollam, Jr. 06-C. Scott For Against Abstain --- ------- ------- 2. Amendment to the Company's Employee Stock Purchase Plan extending the term thereof for an additional ten years. 3. In their discretion, upon such other matters as may properly come before the meeting. B. Non-Voting Items Change of Address - Please print new address below. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- C. Authorized Signatures - This section must be completed for your vote to be counted. - Date and Sign Below Sign exactly as your name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full corporate name by duly authorized officer. If a partnership, please sign in partnership name by authorized person. In case of joint tenants or multiple owners, each party must sign. Date (mm/ldd/yyyy) - Signature 1 - Please keep Signature 2 - Please keep Please print date below. signature within the box. signature within the box. - ------------------------- ------------------------- ------------------------- / / - ------------------------- ------------------------- ------------------------- [GRAPHIC OMITTED] ================================================================================ Proxy - Providence and Worcester Railroad Company ================================================================================ This Proxy is Solicited on Behalf of the Board of Directors April 25, 2007 The undersigned, whose signature appears below, hereby appoints Robert H. Eder, P. Scott Conti, and Robert J. Easton, attorneys each with power of substitution and with all the powers the undersigned would possess if personally present, to vote the Common Stock of Providence and Worcester Railroad Company held of record by the undersigned on March 2, 2007 at the annual meeting of shareholders to be held on April 25, 2007 in Worcester, Massachusetts, and at any adjournments thereof, as follows. PLEASE DATE, SIGN AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE. (Items to be voted appear on reverse side.) [GRAPHIC OMITTED] - ------ X - ------ Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. ================================================================================ Annual Meeting Proxy Card ================================================================================ A. Proposals - The Board of Directors recommends a vote FOR the listed nominees and FOR Proposal 2. 1. Election of Directors. For Withhold For Withhold For Withhold --- -------- --- -------- --- -------- 01-Richard Anderson 02-Robert Eder 03-John Healy For Against Abstain --- ------- ------- 2. Amendment to the Company's Employee Stock Purchase Plan extending the term thereof for an additional ten years. 3. In their discretion, upon such other matters as may properly come before the meeting. B. Non-Voting Items Change of Address - Please print new address below. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- C. Authorized Signatures - This section must be completed for your vote to be counted. Date and Sign Below Sign exactly as your name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full corporate name by duly authorized officer. If a partnership, please sign in partnership name by authorized person. In case of joint tenants or multiple owners, each party must sign. Date (mm/ldd/yyyy) - Signature 1 - Please keep Signature 2 - Please keep Please print date below. signature within the box. signature within the box. - ------------------------- ------------------------- ------------------------- / / - ------------------------- ------------------------- ------------------------- -----END PRIVACY-ENHANCED MESSAGE-----