SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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HENNESSY ADVISORS, INC.
(Name of Registrant as Specified in Its Charter)
------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[GRAPHIC OMITTED]
LETTER FROM OUR PRESIDENT
AND
PROXY STATEMENT
Year Ended September 30, 2005
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
800-966-5354
www.hennessyadvisors.com
Dear Hennessy Advisors Shareholder: December 2005
As I draft my fourth letter to shareholders, we continue to experience a
volatile financial market environment, with this fiscal year certainly no
exception. In the past year ending Sept. 30, 2005 we have seen tremendous ups
and downs in a number of key economic areas. The price of oil has skyrocketed
from $42 to $70 a barrel, inflation has nearly doubled from 2.5% to 4.7% and the
Federal Funds interest rate has more than doubled, jumping from 1.75% to 4.0%.
The markets have been rising, but at modest levels, with the S&P 500 Index
returning 12.25% and the Dow Jones Industrial Average returning 7.22% for the
twelve months ending Sept. 30, 2005.
In the midst of this erratic market, during fiscal 2005 Hennessy Advisors
increased assets under management in our mutual funds by nearly 50%, growing to
$1.8 billion on September 30, 2005, compared to $1.2 billion on September 30,
2004. Approximately half of the growth in assets is attributable to the
acquisition of The Henlopen Fund, which occurred in the last quarter of the
fiscal year. With those assets, we started our sixth no-load mutual fund, the
Hennessy Cornerstone Growth Fund, Series II. Revenue for 2005 was just under $12
million, an increase of 25.7%, and net income was $3.1 million, an increase of
13.5% over 2004. Fully diluted earnings per share for Hennessy Advisors, Inc.
were $1.20 in 2005, up from $1.09 in the prior fiscal year, an increase of
10.1%. More investors are beginning to understand and see the value in the
investment advisory business model, which we believe helped to drive our stock
price up by approximately 50% in 2005, ending the fiscal year at $26 per share.
We are very pleased to deliver strong year-over-year results, particularly in
light of the volatile market environment and the increasing regulations and
costs associated with managing our funds.
In addition to increasing assets and earnings, acquiring a fund and starting a
new fund, in 2005 we undertook a number of key initiatives to continue to build
our business foundation. We designed and implemented a rigorous compliance
program for our mutual funds and for Hennessy Advisors. We have significantly
upgraded our information technology, increased our systems security and created
a business continuity plan in case of disaster. We transitioned to a strong new
audit firm and strengthened our internal finance department with the addition of
a new senior accountant. We added additional expertise and depth in our
portfolio management team with the addition of a new portfolio trader. We
combined the fiscal year end of our funds, developed a new combined prospectus
and redesigned the bulk of our marketing materials. And, we recently completed
our move to larger office space. All these activities, which position the
company for future growth, were completed with just ten employees, four of whom
also found time to welcome new additions to their own families during the year.
While interest rates and inflation have increased during the past year, current
interest rates at 4.25% and core inflation (net of food and energy costs) flat
for the year at 2.1% are in no way cause for alarm, in my opinion. Yet the
market bears look at the Fed's interest rate hikes and current economic
indicators and predict doom and gloom. The bears say that the economy is not
showing signs of growth and point to recent events, such as terrorism and the
recent hurricanes, to instill a sense of fear among investors. However, these
events were not able to take the market down.
I continue to be a market bull, seeing generally positive economic indicators
across the board. Companies have become leaner, meaning that any increase in
revenue is falling to the bottom line in the form of higher profits. With
increased earnings, companies are increasing capital expenditures, returning
dividends to the shareholders or buying back stock, all of which benefit
shareholders. In the coming year I see a good environment for business, and I
anticipate an increase in corporate earnings in the 10-15% range, which should
translate to strong market performance over time.
In conclusion, I want to remind all of our shareholders that we remain committed
to our primary objective of growing our assets under management. However, our
first concern is for our valued shareholders, and you can be confident that
decisions are made with your best interest in mind. Thank you for your continued
confidence and investment in Hennessy Advisors. Should you have any questions or
want to speak with us directly, please don't hesitate to call us at (800)
966-4354.
Best regards,
Neil Hennessy
President, Chairman and CEO
HENNESSY ADVISORS, INC.
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NOTICE AND PROXY STATEMENT
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 2006
TO THE HOLDERS OF OUR COMMON STOCK:
The annual meeting of shareholders of Hennessy Advisors, Inc. will be
held on Thursday, January 26, 2006, at 6:30 P.M., local time, at StoneTree
Country Club, 9 StoneTree Lane, Novato, California 94945.
The meeting will be held for the following purposes:
1. To elect nine directors to serve terms expiring at the annual meeting
of shareholders to be held in 2007 and until their successors have been
elected and qualified.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The shareholders of record at the close of business on December 9, 2005
will be entitled to vote at the annual meeting.
We hope you will be able to attend the meeting, but in any event we
would appreciate your dating, signing and returning the enclosed proxy as
promptly as possible. If you are able to attend the meeting, you may revoke your
proxy and vote in person.
By Order of the Board of Directors,
Teresa M. Nilsen, Secretary
Dated: December 23, 2005
TABLE OF CONTENTS
Page
VOTING SECURITIES..............................................................2
ELECTION OF DIRECTORS..........................................................5
Section 16(a) Beneficial Ownership Reporting Compliance...............6
Board of Directors and Standing Committees............................7
Policies and Procedures for Director Nominations......................8
AUDIT COMMITTEE REPORT.........................................................9
EXECUTIVE OFFICERS............................................................10
EXECUTIVE COMPENSATION........................................................10
Employment Agreements................................................11
Director Compensation................................................12
CERTAIN TRANSACTIONS..........................................................12
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................12
OTHER MATTERS.................................................................13
SHAREHOLDER PROPOSALS AND COMMUNICATIONS WITH THE BOARD OF DIRECTORS..........13
ANNUAL REPORT.................................................................14
EXPENSES OF SOLICITATION......................................................14
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
-i-
HENNESSY ADVISORS, INC.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD JANUARY 26, 2006
This proxy statement and the enclosed form of proxy are first being
sent to shareholders of Hennessy Advisors, Inc. on or about December 23, 2005 in
connection with the solicitation by our board of directors of proxies to be used
at our 2006 annual meeting of shareholders. The meeting will be held on
Thursday, January 26, 2006, at 6:30 P.M., local time, at StoneTree Country Club,
9 StoneTree Lane, Novato, California 94945.
The board of directors has designated Neil J. Hennessy and Teresa M.
Nilsen, and each or either of them, as proxies to vote the shares of common
stock solicited on its behalf. If you sign and return the enclosed form of
proxy, you may nevertheless revoke it at any time insofar as it has not been
exercised by (1) giving written notice to our corporate secretary, (2)
delivering a later dated proxy, or (3) attending the meeting and voting in
person. The shares represented by your proxy will be voted unless the proxy is
mutilated or otherwise received in such form or at such time as to render it not
votable.
VOTING SECURITIES
The record of shareholders entitled to vote was taken at the close of
business on December 9, 2005. At such date, we had outstanding and entitled to
vote 2,462,963 shares of common stock. Each share of common stock entitles the
holder to one vote. Holders of a majority of the outstanding voting stock must
be present in person or represented by proxy to constitute a quorum at the
annual meeting.
The following table shows information relating to the beneficial
ownership as of the record date of (1) each person known to us to be the
beneficial owner of more than 5% of our voting stock, (2) each director, (3)
each of the executive officers named in the summary compensation table elsewhere
in this proxy statement, and (4) all directors and executive officers as a
group. Except as otherwise indicated, the shareholders listed exercise sole
voting and dispositive power over the shares. All share amounts shown in this
proxy statement have been restated to reflect a 3-for-2 stock split that
occurred on March 8, 2005.
Amount and Nature of Shares Beneficially Owned
Number of Shares Percent
Name(1) Owned(2) of Class
Neil J. Hennessy(3).................... 982,983 39.4%
Teresa M. Nilsen(4).................... 64,200 2.6%
Daniel B. Steadman(5).................. 37,650 1.5%
Charles W. Bennett(6).................. 6,000 0.2%
Henry Hansel........................... 78,750 3.1%
Brian A. Hennessy(7) .................. 130,500 5.2%
Daniel G. Libarle(8)................... 48,750 1.9%
Rodger Offenbach(9).................... 58,305 2.3%
Thomas L. Seavey....................... 48,750 1.9%
All directors and executive officers
as a group (9 persons)............. 1,455,888 52.6%
------------------------
(1) The address of each individual is 7250 Redwood Boulevard, Suite 200,
Novato, California 94945.
(2) Includes shares subject to presently exercisable options, as follows:
Name Number of Options
Neil J. Hennessy.................................. 33,750
Teresa M. Nilsen.................................. 33,750
Daniel B. Steadman................................ 33,750
Charles W. Bennett................................ 0
Henry Hansel...................................... 41,250
Brian A. Hennessy................................. 41,250
Daniel G. Libarle................................. 41,250
Rodger Offenbach.................................. 41,250
Thomas L. Seavey.................................. 41,250
(3) Includes 947,733 shares held through a trust of which Mr. Hennessy is a
trustee and over which Mr. Hennessy has shared voting and dispositive
power.
(4) Includes 30,150 shares held jointly with her spouse and over which Ms.
Nilsen has shared voting and dispositive power and 300 shares held by
her spouse as custodian for their minor children, over which Ms. Nilsen
has shared voting and dispositive power.
(5) Includes 150 shares held jointly with his spouse and over which Mr.
Steadman has shared voting and dispositive power.
(6) Mr. Bennett shares voting and dispositive power over the shares shown,
which are held through a trust of which Mr. Bennett is a trustee.
-2-
(7) Includes 82,500 shares held jointly with his spouse and over which Mr.
Hennessy has shared voting and dispositive power.
(8) Includes 7,500 shares held jointly with his spouse and over which Mr.
Libarle has shared voting and dispositive power.
(9) Includes 14,700 shares held jointly with his spouse and over which Mr.
Offenbach has shared voting and dispositive power.
-3-
ELECTION OF DIRECTORS
At the meeting, nine directors will be elected to serve for a one-year
term, until their successors are elected and qualified. Prior to August 2005,
when the board elected an additional director in order to fill a newly created
position, the board consisted of eight directors. The board of directors has
nominated each of our nine current directors to stand for reelection. Directors
will be elected by a plurality of votes cast by shares entitled to vote at the
meeting. Broker non-votes and votes withheld have no effect on the outcome.
Cumulative voting does not apply unless a shareholder entitled to vote at the
meeting gives notice before the voting begins of the shareholder's intent to
exercise cumulative voting. If cumulative voting applies, each shareholder has
the right to distribute among one or more nominees the number of votes equal to
the number of directors to be elected multiplied by the number of shares that
the shareholder is entitled to vote at the meeting.
The accompanying proxy will be voted, if authority to do so is not
withheld, for the election as directors of each of the board's nominees. Each
nominee is presently available for election. If any nominee should become
unavailable, which is not now anticipated, the persons voting the accompanying
proxy may, in their discretion, vote for a substitute.
Our board of directors recommends a vote "for" the election of each of
its nominees. Proxies solicited by the board will be so voted unless
shareholders specify in their proxies a contrary choice.
Information concerning all incumbent directors and nominees, based on
data furnished by them, is set forth below.
Neil J. Hennessy (age 49) has served as chairman of the board,
president and chief executive officer of Hennessy since 1989 and as director,
president and portfolio manager of our mutual funds since 1996. Mr. Hennessy
started his financial career over 25 years ago as a broker at Paine Webber. He
subsequently moved to Hambrecht & Quist and later returned to Paine Webber. From
1987 to 1990, Mr. Hennessy served as a nominated member of the National
Association of Securities Dealers, Inc.'s District 1 Business Conduct Committee.
From January 1993 to January 1995, Mr. Hennessy served his elected term as
chairman of the District 1 Business Conduct Committee. Mr. Hennessy is the
brother of Dr. Brian A. Hennessy. Mr. Hennessy earned a bachelor of business
administration from the University of San Diego.
Teresa M. Nilsen (age 39) has served as a director, executive vice
president, chief financial officer and secretary of Hennessy since 1989, and is
currently the executive vice president and treasurer of our mutual funds. Ms.
Nilsen has worked in the securities industry for over 16 years. Ms. Nilsen
earned a bachelor of arts in economics from the University of California, Davis.
Daniel B. Steadman (age 49) has served as a director and executive vice
president of Hennessy since 2000 and is currently the executive vice president
and secretary of our mutual funds. Mr. Steadman has been in the banking and
financial services industry for over 29 years, serving as vice president of
WestAmerica Bank from 1995 through 2000, vice president of Novato National Bank
from its organization in 1984 through 1995, assistant vice president and branch
manager of Bank of Marin from 1980 through 1984 and banking services officer of
Wells Fargo Bank from 1974 through 1980.
-4-
Charles W. Bennett (age 62) was elected as a director of Hennessy in
August 2005. Mr. Bennett founded Consolidated Title Services in 1981 and since
then has served as its chief executive officer and as chief executive officer of
its subsidiary, California Land Title of Marin. In 2004, Consolidated Title
Services became a subsidiary of Stewart Information Services Corporation, a
company listed on the New York Stock Exchange.
Henry Hansel (age 57) has served as a director of Hennessy since 2001.
He has been president of The Hansel Dealer Group since 1982, which includes
seven automobile dealerships. Mr. Hansel has served as a director of the Bank of
Petaluma since its organization in 1987. Mr. Hansel earned a bachelor of science
degree in economics from the University of Santa Clara.
Brian A. Hennessy (age 52) has served as a director of Hennessy since
1989 and served as a director of our mutual funds from 1996 to 2001. Dr.
Hennessy has been a self-employed dentist for more than 20 years. Dr. Hennessy
is the brother of our chairman of the board, Neil J. Hennessy. Dr. Hennessy
earned a bachelor of science in biology from the University of San Francisco and
a D.D.S. from the University of the Pacific.
Daniel G. Libarle (age 63) has served as a director of Hennessy since
2001. Mr. Libarle is the owner and president of Lace House Linen, Inc. and has
served as a director and chairman of the board of directors for Bank of Petaluma
since its organization in 1987. Mr. Libarle is currently a director of Greater
Bay Bancorp and serves on Greater Bay Bancorp's audit committee. Mr. Libarle
earned a bachelor of arts in economics from the University of Oregon and San
Jose State University.
Rodger Offenbach (age 54) has served as a director of Hennessy since
2001 and served as a director of our mutual funds from 1996 to 2001. Mr.
Offenbach has been the owner of Ray's Catering and Marin-Sonoma Picnics since
1973. Mr. Offenbach earned a bachelor of science in business administration from
California State University, Sonoma.
Thomas L. Seavey (age 59) has served as a director of Hennessy since
2001. For the majority of Mr. Seavey's business career, he has been involved in
the sales and marketing of athletic and leisure products, as well as marketing
professional athletes. From 1981 to 1993, Mr. Seavey worked for Nike as the vice
president of sales in the Midwest, as well as California, and spent three years
at International Management Group as the vice president of products. In 1980, he
formed Seavey Corp., now Continental Sports Group, which sells sport and leisure
products. Mr. Seavey left Nike in 1993 and formally took over the management of
Continental Sports Group, which he is still managing today. Mr. Seavey earned a
bachelor of arts in English and history from Western Michigan University.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, a Form 4
reporting the acquisition or disposition of Hennessy equity securities by an
officer, director or 10% shareholder must be filed with the Securities and
Exchange Commission no later than the second business day after the date on
which the transaction occurred, unless certain exceptions apply. Most
transactions not reported on Form 4 must be reported on Form 5 within 45 days
after the end of the company's fiscal year. To our knowledge, based solely on a
review of copies of the reports furnished to us and written representations that
no other reports were required, our officers, directors, and greater than 10%
beneficial owners complied with all applicable Section 16(a) filing requirements
during the fiscal year ended September 30, 2005.
-5-
Board of Directors and Standing Committees
The board held four regular meetings and one special meeting during the
fiscal year ended September 30, 2005. All directors attended at least 75% of all
meetings of the board and board committees on which they served during fiscal
2005.
The board of directors has established three standing committees: an
audit committee, a compensation committee and a nominating committee, which are
described below. Members of these committees are elected annually at the regular
board meeting held in conjunction with the annual shareholders' meeting.
Compensation Committee. The compensation committee presently is
composed of Rodger Offenbach (Chairman), Daniel G. Libarle and Thomas L. Seavey,
all of whom are considered independent under Nasdaq rules. The compensation
committee held one meeting during fiscal 2005 to review annual performance. This
committee has the responsibility of approving the compensation arrangements for
our management, including annual bonus and long-term compensation. It also
recommends to the board of directors adoption of any compensation plans in which
our officers and directors are eligible to participate, as well as makes grants
of employee stock options and other stock awards under our incentive plan.
Audit Committee. The audit committee presently is composed of Daniel G.
Libarle (Chairman), Henry Hansel and Thomas L. Seavey, all of whom are
considered independent under Nasdaq rules. The audit committee met four times
during fiscal 2005. The principal responsibilities of and functions to be
performed by the audit committee are established in the audit committee charter,
a copy of which is attached as Appendix A to this proxy statement. The
responsibilities and functions of the audit committee include reviewing our
internal controls and the integrity of our financial reporting, approving the
employment and compensation of and overseeing our independent auditors, and
reviewing the annual audit with the auditors.
Our board of directors has determined that Daniel G. Libarle, who has
served as chairman of our audit committee since 2001, is also an audit committee
financial expert, as defined in the SEC rules and regulations, and is
independent as defined by the rules adopted by the SEC and NASDAQ. Our board
based its determination on the fact that Mr. Libarle has extensive experience
evaluating financial statements prepared in accordance with generally accepted
accounting principles and has also acquired an understanding of internal
controls, procedures for financial reporting and audit committee functions as
the founding chairman of the board of Bank of Petaluma since 1985, and as a
member of the audit committee of the board of directors of Greater Bay Bancorp
for the past five years.
Nominating Committee. The nominating committee is composed of all
directors who qualify as independent under Nasdaq rules, which directors are
presently Charles W. Bennett, Henry Hansel, Daniel G. Libarle, Rodger Offenbach,
and Thomas L. Seavey. The nominating committee was established on September 22,
2005 and did not meet during fiscal 2005. The principal responsibilities of and
functions to be performed by the nominating committee, which includes making
recommendations for director nominees to the full board of directors for the
next annual meeting of shareholders, are established in the nominating committee
charter, which was adopted on September 22, 2005. The nominating committee's
charter is attached as Appendix B to this proxy statement.
-6-
Policies and Procedures for Director Nominations
The nominating committee will consider suggestions for potential
director nominees from many sources, including members of the board, advisors,
and shareholders. Any such nominations, together with appropriate biographical
information, should be submitted to the nominating committee in accordance with
the policies governing submissions of nominees discussed below. Any candidates
submitted by a shareholder or shareholder group will be reviewed and considered
in the same manner as all other candidates.
Qualifications for consideration as a board nominee may vary according
to the particular areas of expertise being sought as a complement to the
existing board composition. However, in making its nominations, the nominating
committee will consider, among other things, an individual's business
experience, industry experience, financial background, breadth of knowledge
about issues affecting Hennessy, time available for meetings and consultation
regarding Hennessy matters and other particular skills and experience possessed
by the individual. We do not currently employ an executive search firm, or pay a
fee to any other third party, to locate qualified candidates for director
positions, although Hennessy may in the future retain a third party search firm,
if the nominating committee deems it appropriate.
A shareholder wishing to nominate a candidate for election to our board
at any annual meeting at which one or more directors will be elected must submit
a written notice of his or her nomination of a candidate to our corporate
secretary at our principal executive offices. The submission must be received at
our principal executive offices not more than 180 calendar days nor less than
120 calendar days before the anniversary date of our last annual meeting. For
the 2007 annual meeting, these dates would be July 31, 2006 and September 28,
2006, respectively. To be timely in the case of a special meeting or in the
event that the date of the applicable annual meeting is changed by more than 30
days from the date of our last annual meeting, a shareholder's notice must be
received at our principal executive offices no later than the close of business
on the tenth day following the earlier of the day on which notice of the meeting
date was mailed or public disclosure of the meeting date was made. In order to
be valid, a shareholder's notice to our corporate secretary must set forth:
* the name and address, as they appear on our records,
of the shareholder nominating the persons, and the
name and address of the beneficial owner, if any, on
whose behalf the nomination is made;
* the class and number of shares of our capital stock
that are owned beneficially and of record by the
shareholder of record and by the beneficial owner, if
any, on whose behalf the nomination is made;
* any material interest or relationship that the
shareholder of record and/or the beneficial owner, if
any, on whose behalf the nomination is made may
respectively have with the nominee; and
any other information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required pursuant to Regulation
14A under the Securities Exchange Act of 1934 relating to any person that the
shareholder proposes to nominate for election or re-election as a director,
including the nominee's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected.
-7-
AUDIT COMMITTEE REPORT
Management is responsible for our internal controls and financial
reporting process. Our independent accountants for fiscal 2005, Stonefield
Josephson, Inc. are responsible for performing an independent audit of our
financial statements in accordance with auditing standards generally accepted in
the United States of America and issuing their report. The audit committee's
responsibility is to monitor and oversee these processes.
In connection with these responsibilities, the audit committee met with
management and the independent accountants to review and discuss the financial
statements for the fiscal year ended September 30, 2005. The audit committee
also discussed with the independent accountants the matters required by
Statement on Auditing Standards No. 61 (communication with audit committees).
The audit committee also received written disclosures from the independent
accountants required by Independence Standards Board Standard No. 1
(Independence discussions with audit committees), and the audit committee
discussed with the independent accountants that firm's independence.
Based upon the audit committee's discussions with management and the
independent accountants, and the audit committee's review of the representations
of management and the independent accountants, the audit committee recommended
that the board of directors include the audited financial statements in
Hennessy's annual report on Form 10-KSB for the fiscal year ended September 30,
2005 filed with the Securities and Exchange Commission.
Daniel G. Libarle, Chairman
Henry Hansel
Thomas L. Seavey
The preceding report shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 (the "1933 Act") or the Securities
Exchange Act of 1934 (the "1934 Act"), except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under the 1933 Act or the 1934 Act.
-8-
EXECUTIVE OFFICERS
Our executive officers are listed below. Biographical information for
each of our executive officers may be found under the heading "Election of
Directors."
Neil J. Hennessy President and Chief Executive Officer
Teresa M. Nilsen Executive Vice President, Chief
Financial Officer and Secretary
Daniel B. Steadman Executive Vice President
EXECUTIVE COMPENSATION
The following table summarizes the compensation for services rendered
for the fiscal year ended September 30, 2005, by our executive officers, each
having received total salary and bonus in excess of $100,000 in fiscal 2005:
Annual Compensation
----------------------------------------------- Long-term
Other Compensation All
Name and Principal Annual Awards - Securities Other
Position Year Salary Bonus Compensation Underlying Options Compensation
Neil J. Hennessy 2005 $ 180,000 $ 643,972 $ 0 11,250 $ 8,968(1)
President and Chief Executive 2004 $ 180,000 $ 555,356 $ 0 0 $ 8,968(1)
Officer 2003 $ 180,000 $ 223,755 $ 0 11,250 $ 8,968(1)
Teresa M. Nilsen 2005 $ 135,000 $ 155,000 $ 0 11,250 $ 0
Executive Vice President, Chief 2004 $ 110,000 $ 105,000 $ 0 0 $ 3,750(2)
Financial Officer and Secretary 2003 $ 96,000 $ 55,000 $ 0 11,250 $ 0
Daniel B. Steadman 2005 $ 120,000 $ 115,000 $ 0 11,250 $ 0
Executive Vice President 2004 $ 105,000 $ 90,000 $ 0 0 $ 0
2003 $ 96,000 $ 50,000 $ 0 11,250 $ 0
-------------------------------------
(1) Premiums for life insurance ($5,828) and disability insurance ($3,140)
in 2003, 2004 and 2005.
(2) 15 year anniversary award.
-9-
We made the following stock option grants to the executive officers
named in the summary compensation table above during the fiscal year ended
September 30, 2005:
Option/SAR Grants In Last Fiscal Year
(Individual Grants)
---------------------------------------------------------------------------------------------------------------------
Number of
Securities Percent Of Total
Underlying Options Granted Exercise Or
Options To Employees In Base Price Expiration
Name Granted(1) Fiscal Year ($/Share) Date
---- ------- ----------- --------- ----
Neil J. Hennessy 11,250 17.9% $16.00 11/08/2014
Teresa M. Nilsen 11,250 17.9% $16.00 11/08/2014
Daniel B. Steadman 11,250 17.9% $16.00 11/08/2014
-------------------------------------
(1) The options, which have an exercise price of $16 per share and a term
of 10 years, were 100% vested on the date of grant.
As shown in the following table, no executive officers exercised
options during the fiscal year ended September 30, 2005:
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
-------------------------------------------------------------------------------------------------------------------------------
Number of Number Of Unexercised Value Of Unexercised
Shares Securities Underlying In-The-Money Options
Acquired On Value Options At FY-End (#) At FY-End ($)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Neil J. Hennessy -- -- 33,750/0 $532,463/$0
Teresa M. Nilsen -- -- 33,750/0 $532,463/$0
Daniel B. Steadman -- -- 33,750/0 $532,463/$0
Employment Agreements
Neil J. Hennessy entered into an employment agreement relating to his
service as chairman of the board of directors and chief executive officer of
Hennessy and as chief investment officer and portfolio manager for our mutual
funds, effective at the completion of our initial public offering in February
2002. Under the employment agreement, Mr. Hennessy is responsible for managing
or overseeing the management of our mutual funds, attracting mutual fund
accounts, attracting or managing accounts for high net worth individuals or
retirement accounts or otherwise generating revenues. Mr. Hennessy receives an
annual salary of $180,000 and any other benefit that other employees receive. In
addition to his base compensation, Mr. Hennessy receives an incentive-based
management fee in the amount of 10% of our pre-tax profit as computed for
financial reporting purposes in accordance with accounting principles generally
-10-
accepted in the United States of America. The term of the employment agreement
extends through the year 2006. The agreement can only be modified with the
consent of our board of directors.
Director Compensation
During fiscal 2005, outside directors have been compensated in cash for
their participation in board meetings ($1,500 per meeting) and committee
meetings ($500 per meeting). Outside directors (other than Charles W. Bennett,
who joined the board in August 2005) have also been granted 41,250 stock options
each, through the fiscal year ended September 30, 2005.
CERTAIN TRANSACTIONS
There have been no transactions of more than $60,000 between Hennessy
and any shareholder, director or executive officer during the last two-year
period ending September 30, 2005.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
On December 30, 2004, we dismissed our auditors, Pisenti & Brinker,
LLP, and appointed Stonefield Josephson, Inc. as our new independent auditors,
effective December 30, 2004. This change was approved by the audit committee.
During the two most recent fiscal years ended September 30, 2004, and
the subsequent interim period through December 30, 2004, there were no
disagreements between us and Pisenti & Brinker on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to Pisenti & Brinker's
satisfaction, would have caused Pisenti & Brinker to make reference to the
subject matter of the disagreement in connection with its reports.
The audit reports of Pisenti & Brinker on our financial statements as
of and for the fiscal years ended September 30, 2004 and September 30, 2003 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
The board of directors has selected Stonefield Josephson, Inc. to serve
as our independent certified public accountants for the current fiscal year
ending September 30, 2006. That firm has served as our auditors beginning on
December 30, 2004 and for the fiscal year ended September 30, 2005.
Representatives of Stonefield Josephson are expected to be present at the annual
meeting of shareholders and will be accorded the opportunity to make a
statement, if they so desire, and to respond to appropriate questions.
The following table provides information relating to the fees KPMG LLP
(our auditors until June 3, 2003), Pisenti & Brinker and Stonefield Josephson
billed to Hennessy Advisors, Inc., for the fiscal years ended September 30, 2005
and 2004.
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Audit Audit-Related Tax All Other Total
Fees Fees Fees((1)) Fees((2)) Fees
Fiscal Year 2005
-- KPMG LLP $ 18,000 $ 0 $ 0 $ 0 $ 18,000
-- Pisenti & Brinker LLP $ 50,106 $ 0 $ 4,746 $ 0 $ 54,852
-- Stonefield Josephson, $ 84,622 $ 0 $ 0 $ 0 $ 84,622
Inc.
Fiscal Year 2004
-- KPMG LLP $ 10,000 $ 0 $ 0 $ 0 $ 10,000
-- Pisenti & Brinker LLP $ 43,380 $ 0 $ 3,500 $ 5,011 $ 51,891
((1)) Tax fees are for preparation of federal and state income tax returns.
((2)) Other fees include attendance at Audit Committee and Shareholder Meetings.
All decisions regarding selection of independent accounting firms and
approval of accounting services and fees are made by our audit committee in
accordance with the provisions of the Sarbanes-Oxley Act of 2002. There are no
exceptions to the policy of securing pre-approval of our audit committee for any
service provided by our independent accounting firm.
OTHER MATTERS
The board of directors does not know of any other matters to come
before the meeting. However, if any other matters properly come before the
meeting, the persons designated as proxies intend to vote in accordance with
their best judgment on such matters. If any other matter should come before the
meeting, action on the matter will be approved if the number of votes cast in
favor of the matter exceeds the number opposed.
SHAREHOLDER PROPOSALS AND COMMUNICATIONS WITH
THE BOARD OF DIRECTORS
Regulations of the Securities and Exchange Commission require proxy
statements to disclose the date by which shareholder proposals must be received
by us in order to be included in our proxy materials for the next annual
meeting. In accordance with these regulations, shareholders are hereby notified
that if, pursuant to Rule 14a-8, they wish a proposal to be included in our
proxy statement and form of proxy relating to the 2007 annual meeting, a written
copy of their proposal must be received at our principal executive offices no
later than September 29, 2006. Proposals must comply with the proxy rules
relating to shareholder proposals in order to be included in our proxy
materials.
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Notice to us of a shareholder proposal submitted otherwise than
pursuant to Rule 14a-8 will be considered untimely under our bylaws if we
receive it after September 29, 2006, and will not be placed on the agenda for
the 2007 annual meeting.
To ensure prompt receipt by Hennessy, proposals should be sent
certified mail, return receipt requested.
Shareholders who wish to communicate with the board of directors or
with a particular director may send a letter to our corporate secretary at our
principal executive offices, at 7250 Redwood Boulevard, Suite 200, Novato,
California 94945. The mailing envelope should contain a clear notation
indicating that the enclosed letter is a "Shareholder-Board Communication" or
"Shareholder-Director Communication." All such letters should identify the
author as a shareholder and clearly state whether the intended recipients are
all members of the board or just certain specified individual directors. Our
corporate secretary will make copies of all such letters and circulate them to
the appropriate director or directors.
Hennessy does not have a formal policy requiring directors to attend
annual meetings. However, because the annual meeting generally is held on the
same day as a regular board meeting, we anticipate that directors would attend
the annual meeting unless, for some reason, they are unable to attend the board
meeting on the same date. All directors (other than Charles W. Bennett, who
joined the board in August 2005) attended the 2005 annual meeting.
ANNUAL REPORT
A copy of our annual report on Form 10-KSB for the fiscal year ended
September 30, 2005 accompanies this proxy statement. Additional copies may be
obtained by writing to Teresa M. Nilsen, at our principal executive offices, at
7250 Redwood Boulevard, Suite 200, Novato, California 94945.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by Hennessy. We may
reimburse brokers and other persons holding stock in their names, or in the
names of nominees, for their expenses for sending proxy material to principals
and obtaining their proxies.
PLEASE SPECIFY YOUR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENCLOSED ENVELOPE, POSTAGE FOR WHICH HAS BEEN PROVIDED. YOUR PROMPT
RESPONSE WILL BE APPRECIATED.
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APPENDIX A
HENNESSY ADVISORS, INC.
AUDIT COMMITTEE CHARTER
REVISED JANUARY 9, 2003
I. Purpose and Authority. The Audit Committee is established to assist the
Board of Directors of Hennessy Advisors, Inc. in fulfilling its oversight
responsibilities for the integrity of the Company's financial reporting process,
system of internal controls over financial reporting, audit process, and process
for monitoring compliance with laws and regulations. The Committee provides an
open avenue of communication between financial management, external auditors and
the Board.
II. Composition. The Committee will consist of at least three members of the
Board. The Board will appoint Committee members. Committee members shall meet
the independence and experience requirements as required by the NASDAQ
Marketplace Rules, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Each member shall be financially literate and at
least one member will have accounting or related financial oversight expertise.
III. Meetings. The Committee will meet at least four times a year, with
authority to convene additional meetings, as circumstances require. The
Committee will invite members of management, auditors or others to attend
meetings and provide pertinent information. It will hold private meetings with
management, and the external auditors in separate executive sessions.
IV. Advisors. The Audit Committee shall have the authority, to the extent it
deems necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to the independent auditor for the
purpose of rendering or issuing an audit report and to any advisors employed by
the Committee.
V. Responsibilities. The Committee is authorized to carry out
responsibilities in the following areas:
A. Financial
1. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices, and the adequacy of internal controls that could significantly affect
the Company's financial statements.
2. Review critical accounting policies and any major accounting policy
changes.
3. Review with management and the external auditors the Company's financial
statements, including the results of the external auditors' reviews of the
quarterly and annual financial statements.
A-1
4. Review with management and the external auditors the Company's report on
Form 10-QSB and Form 10-KSB before filing.
5. Review with management and the external auditors the Company's quarterly
press release regarding results of operations and financial statements before
filing of its report on Form 10-QSB and Form 10-KSB, including the results of
the external auditors' reviews of the quarterly financial statements.
6. Review with management and the auditors the effect of regulatory and
accounting initiatives, as well as review and approve any off-balance sheet
structures on the Company's financial statements.
7. Review any unusual methods of acquiring or holding interests in other
entities.
8. Review with management and the external auditors significant financial
reporting issues and judgments made in connection with the Company's financial
statements, including the effect of alternative GAAP methods on the Company's
financial statements and a description of any transactions as to which
management obtained Statements on Auditing Standards No. 50 letters.
9. Review periodically the capital structure of the Company and to the
extent deemed necessary, recommend to the Board transactions or alterations of
the capital structure of the Company.
10. Review and recommend to the Board changes in the Company's treasury
resolutions and expenditure authorizations.
B. Internal Controls
11. Consider and review with management and the external auditor the
effectiveness of the Company's internal controls over annual and interim
financial reporting, including information technology security and control.
These controls shall provide reasonable assurance of the integrity of the
financial information and assurance that the Company's reported financial
results are presented fairly in conformity with GAAP and section 302 of the
Sarbanes-Oxley Act of 2002 and the rules of the Commission promulgated
thereunder.
12. Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud involving management or other
employees who have a significant role in the Company's internal controls.
13. Understand the scope of external auditors' review of internal controls
over financial reporting and obtain reports on significant findings and
recommendations, together with management's responses.
C. External Audit
14. Review the external auditors' proposed audit scope and approach.
15. Review of the auditor reports required by Section 10A(k) of the Exchange
Act.
A-2
16. Exercise final approval on the appointment or discharge of the external
auditor. The Committee shall be directly responsible for the compensation and
oversight of the work of the independent auditor (including resolution of
disagreements between management and the independent auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work. The independent auditor shall report directly to the Audit Committee.
17. Review the experience and qualifications of the lead partner on the
external audit team and the quality control procedures of the firm. Ensure the
rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for reviewing the
audit as required by law.
18. Review the external auditors' Management Letter and recommendations and
management's response.
19. Preapprove all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Company by its
independent auditor, subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the
Audit Committee prior to the completion of the audit. Review and approve in
advance the annual budget for all audit and non-audit services from the external
auditor, based on budget categories consistent with those used by the SEC. The
following non-audit services are not to be provided by the external auditor:
bookkeeping or other services related to the Company's accounting records or
financial statements; financial information systems design and implementation;
appraisal services; valuation services or fairness opinions; actuarial services;
management or human resource functions; broker dealer, investment adviser or
investment banking services; legal services; or expert services unrelated to the
audit.
20. Review and confirm the independence of the external auditors, including
obtaining statements from the external auditor regarding its independence.
Discuss relationships between the external auditors and the Company with the
auditors and consider whether the independence of auditors complies with Section
10A of the Exchange Act and the rules of the Commission and the Public Company
Accounting Oversight Board.
21. Review and concur with the Company's hiring as an employee or engagement
as a contractor of any employees of the external auditor who participated in any
capacity in the audit of the Company.
D. Compliance
22. Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and follow-up
(including disciplinary action) of any instances of noncompliance.
23. Obtain from the independent auditor assurance that Section 10A(b) of the
Exchange Act has not been implicated.
24. Obtain regular updates from management and the Company's legal counsel
regarding legal matters that may have a material impact on the financial
statements, including any related-party transactions, and any material reports
or inquiries received from regulators or governmental agencies.
A-3
25. Conduct or authorize investigations into any matters within the
Committee's charter. It is empowered to: (i) retain outside counsel,
accountants, or others to advise or assist the Committee in the conduct of an
investigation; (ii) seek any information it requires from external parties or
employees, all of whom are directed to cooperate with the Committee's requests;
(iii) meet with management, external auditors, or outside counsel, as necessary;
and (iv) meet with the Company's financial advisors.
26. Establish procedures to receive, retain and address complaints regarding
accounting, internal accounting controls and auditing matters, including
procedures for receiving the confidential, anonymous submission by employees
regarding questionable accounting or auditing matters.
VI. Reporting. The Committee's reporting responsibilities will include
reports to the Board about Committee activities, issues and related
recommendations, and preparation of the report to be included in the Company's
annual proxy statement describing the Committee and its activities, as required
by the rules of the Securities and Exchange Commission.
VII. Committee Charter. The Committee shall also perform other activities
related to this Committee charter as requested by the Board, including: (i) a
review and assessment of the adequacy of the charter annually and request for
Board approval of any proposed changes; (ii) annual confirmation that the
responsibilities outlined in this charter have been carried out; and (iii)
ensure that this charter is published at least every three years in the
Company's annual proxy statement.
A-4
APPENDIX B
HENNESSY ADVISORS, INC.
NOMINATING COMMITTEE CHARTER
ADOPTED SEPTEMBER 27, 2005
Purpose
The purpose of the Nominating Committee (the "Committee") is:
1. to assist the Board in establishing criteria and qualifications for
potential Board members, and
2. to identify high quality individuals who have the core competencies and
experience to become members of the Company's Board and to recommend to
the Board the director nominees for the next annual meeting of
shareholders.
Committee Membership
The Committee shall consist those directors who qualify as "independent
directors," as defined by NASDAQ rules. The members of the Committee may, if
they so desire, elect a Chair, who shall serve at the pleasure of the Committee.
Meetings
* The Committee shall meet at least twice annually, and more frequently
as circumstances may dictate.
* The Committee will meet at the call of its Chairman or the Chairman of
the Board.
* A majority of the Committee members will be quorum for the transaction
of business.
* The action of a majority of those present at a meeting at which a
quorum is present will be the act of the Committee.
* Any action required to be taken at a meeting of the Committee will be
deemed the action of the Committee without a meeting if all of the
Committee members executed, either before or after the action is taken,
a written consent and the consent is filed with the Corporate
Secretary.
* Minutes shall be taken at each meeting of the Committee and included in
the permanent minutes of the Company.
* A report of the Committee shall be presented to the Board on a regular
basis, and no less frequently than annually.
B-1
Committee Authority and Responsibilities
1. The Committee shall have the sole authority to retain and terminate any
search firm to be used to identify director candidates and shall have
sole authority to approve the search firm's fees and other retention
terms. The Committee shall also have authority to obtain advice and
assistance from internal or external legal, accounting or other
advisors.
2. The Committee shall establish criteria and core competencies for
potential director candidates, actively seek qualified and experienced
individuals to consider as nominees, and recommend nominees to the full
Board, including incumbents standing for re-election.
3. The Committee shall work with the entire Board in assessing board
performance in connection with the nominations process.
4. The Committee shall develop procedures for shareholders to submit
recommendations for nominees. The Committee will consider and apply the
same criteria to, any candidates submitted to the Committee by
shareholders that the Committee applies to its own candidates.
B-2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Please
Mark Here
for Address |_|
Change or
Comments
SEE REVERSE SIDE
1. Election of Directors FOR AGAINST ABSTAIN
Nominees:
01 Neil J. Hennessy [_] [_] [_]
02 Teresa M. Nilsen
03 Daniel B. Steadman
04 Charles W. Bennett WILL
05 Henry Hansel ATTEND
06 Brian A. Hennessy
07 Rodger Offenbach If you plan to attend the annual
08 Daniel G. Libarle meeting,
09 Thomas L. Seavey please mark the WILL ATTEND box |_|
WITHHELD FOR: (Write that nominee's name in the space provided below.)
________________________________________________________________________________
Signature _____________________ Signature _____________________ Date ___________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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^ FOLD AND DETACH HERE ^
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YOUR VOTE IS IMPORTANT!
Mark, sign and date your proxy card and return
promptly in the enclosed envelope.
================================================================================
THANK YOU FOR VOTING.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF HENNESSY ADVISORS, INC.
The undersigned hereby appoints Neil J. Hennessy and Teresa M. Nilsen, and
each of them, with power to act without the other and with power of
substitution, as proxies and attorneys-in-fact and hereby authorizes them to
represent and vote, as provided on the other side, all the shares of Hennessy
Advisors, Inc. common stock which the undersigned is entitled to vote, and, in
their discretion, to vote upon such other business as may properly come before
the annual meeting of shareholders of the company to be held January 26, 2006 or
any adjournment thereof, with all powers which the undersigned would possess if
present at the meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSAL TO ELECT THE DIRECTOR NOMINEES AS LISTED.
Should any other matters requiring a vote of the shareholders arise, including
matters incident to the conduct of the meeting, the above named proxies are
authorized to vote the same in accordance with their best judgment in the
interest of the company.
(Continued, and to be marked, dated and signed, on the other side)
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Address Change/Comments (Mark the corresponding box on the reverse side)
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^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT!
You can vote by mail - by promptly returning your completed
proxy card in the enclosed envelope.