SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[X] Filed by Registrant
|_| Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
|_| Confidential, for use by Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
CONVERSION SERVICES INTERNATIONAL, INC.
(Name of Registrant As Specified in its Charter)
N/A
(Name of Persons Filing Proxy Statement, if other than 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:
N/A
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2) Aggregate number of securities to which transaction applies:
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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.
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| 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 date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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CONVERSION SERVICES INTERNATIONAL, INC.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
July __, 2006
Dear Fellow Stockholder:
The 2006 Annual Meeting of Stockholders (the "Annual Meeting") of
Conversion Services International, Inc. (the "Company" or "CSI") will be held at
10:00 a.m. on Monday, August 7, 2006 at 100 Eagle Rock Avenue, East Hanover, New
Jersey 07936. Enclosed you will find a formal Notice of Annual Meeting, Proxy
Card and Proxy Statement, detailing the matters which will be acted upon.
Directors and Officers of the Company will be present to help host the meeting
and to respond to any questions from our stockholders. I hope you will be able
to attend.
Please sign, date and return the enclosed Proxy without delay in the
enclosed envelope. If you attend the Annual Meeting, you may vote in person,
even if you have previously mailed a Proxy, by withdrawing your Proxy and voting
at the meeting. Any stockholder giving a Proxy may revoke the same at any time
prior to the voting of such Proxy by giving written notice of revocation to the
Secretary, by submitting a later dated Proxy or by attending the Annual Meeting
and voting in person. The Company's Annual Report on Form 10-KSB/A (including
audited financial statements) for the fiscal year ended December 31, 2005
accompanies the Proxy Statement. All shares represented by Proxies will be voted
at the Annual Meeting in accordance with the specifications marked thereon, or
if no specifications are made, (a) as to Proposal 1, the Proxy confers authority
to vote "FOR" all of the seven persons listed as candidates for a position on
the Board of Directors, (b) as to Proposal 2, the Proxy confers authority to
vote "FOR" the ratification of Friedman LLP, as the Company's independent
auditors for the fiscal year ending December 31, 2006, (c) as to Proposal 3, the
Proxy confers authority to vote "FOR" amending the Company's Certificate of
Incorporation, as amended, to increase the amount of the Company's authorized
common stock, par value $.001 per share (the "Common Stock"), from eighty-five
million (85,000,000) to one hundred million (100,000,000), (d) as to Proposal 4,
the Proxy confers authority to vote "FOR" amending the Company's 2003 Incentive
Plan (the "Plan") to increase the number of stock options reserved for issuance
under the Plan from six million six-hundred sixty-six thousand six hundred
sixty-seven (6,666,667) to ten million (10,000,000), and (e) as to any other
business which comes before the Annual Meeting, the Proxy confers authority to
vote in the Proxy holder's discretion.
The Company's Board of Directors believes that a favorable vote for each
candidate for a position on the Board of Directors and for all other matters
described in the attached Notice of Annual Meeting and Proxy Statement is in the
best interest of the Company and its stockholders and recommends a vote "FOR"
all candidates and all other matters. Accordingly, we urge you to review the
accompanying material carefully and to return the enclosed Proxy promptly.
Thank you for your investment and continued interest in Conversion
Services International, Inc.
Sincerely,
Scott Newman
President and Chief Executive Officer
CONVERSION SERVICES INTERNATIONAL, INC.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MONDAY AUGUST 7, 2006
---------------------
To our Stockholders:
Notice is hereby given that the 2006 Annual Meeting (the "Annual Meeting")
of Stockholders of Conversion Services International, Inc. (the "Company" or
"CSI"), a Delaware corporation, will be held at our principal office at 100
Eagle Rock Avenue, East Hanover, New Jersey 07936, on Monday, August 7, 2006 at
10:00 a.m., for the following purposes:
1. To elect seven Directors to the Board of Directors to serve until
the 2007 Annual Meeting of Stockholders or until their successors
have been duly elected or appointed and qualified;
2. To ratify the appointment by the Audit Committee of the Board of
Directors of Friedman LLP, to serve as the Company's independent
auditors for the fiscal year ending December 31, 2006;
3. To amend the Certificate of Incorporation, as amended, to increase
the amount of the Company's authorized Common Stock, par value $.001
per share (the "Common Stock"), from eighty-five million
(85,000,000) to one hundred million (100,000,000);
4. To amend the Company's 2003 Incentive Plan (the "Plan") to increase
the number of stock options reserved for issuance under the Plan
from six million six-hundred sixty-six thousand six hundred
sixty-seven (6,666,667) to ten million (10,000,000); and
5. To consider and take action upon such other business as may properly
come before the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 1, 2006, as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Annual Meeting or any adjournments thereof.
For a period of 10 days prior to the Annual Meeting, a stockholders list
will be kept at the Company's office and shall be available for inspection by
stockholders during usual business hours. A stockholders list will also be
available for inspection at the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
STOCKHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY AND MAIL IT IN THE ENCLOSED STAMPED,
SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU SIGN AND RETURN YOUR
PROXY WITHOUT SPECIFYING YOUR CHOICES IT WILL BE UNDERSTOOD THAT YOU WISH TO
HAVE YOUR SHARES VOTED IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY, IF YOU DESIRE, REVOKE YOUR PROXY AND VOTE IN
PERSON.
By Order of the Board of Directors
Mitchell Peipert, Secretary
July __, 2006
CONVERSION SERVICES INTERNATIONAL, INC.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
PROXY STATEMENT
2006 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors (the "Board of Directors" or "Board") of
Conversion Services International, Inc. of proxies to be voted at the 2006
Annual Meeting of Stockholders to be held at 10:00 a.m. on Monday, August 7,
2006 at our principal office at 100 Eagle Rock Avenue, East Hanover, New Jersey
07936 and at any adjournments thereof (the "Annual Meeting"). In this proxy
statement, Conversion Services International, Inc. is referred to as "CSI",
"we", "us", "our" or "the Company" unless the context indicates otherwise. The
Annual Meeting has been called to consider and take action on the following
proposals: (i) To elect seven Directors to the Board of Directors to serve until
the 2007 Annual Meeting of Stockholders or until their successors have been duly
elected or appointed and qualified; (ii) To ratify the appointment by the Audit
Committee of our Board of Directors of Friedman LLP, as the Company's
independent auditors for the fiscal year ending December 31, 2006; (iii) To
amend the Certificate of Incorporation, as amended, to increase the amount of
the Company's authorized Common Stock, par value $.001 per share (the "Common
Stock"), from eighty-five million (85,000,000) to one hundred million
(100,000,000); (iv) To amend the Company's 2003 Incentive Plan (the "Plan") to
increase the number of stock options reserved for issuance under the Plan from
six million six-hundred sixty-six thousand six hundred sixty-seven (6,666,667)
to ten million (10,000,000), and (v) To consider and take action upon such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
The Board of Directors knows of no other matters to be presented for
action at the Annual Meeting. However, if any other matters properly come before
the Annual Meeting, the persons named in the proxy will vote on such other
matters and/or for other nominees in accordance with their best judgment. The
Company's Board of Directors recommends that the stockholders vote in favor of
each of the proposals. Only holders of record of Common Stock, of the Company at
the close of business on July 1, 2006 (the "Record Date") will be entitled to
vote at the Annual Meeting.
The principal executive offices of the Company are located at 100 Eagle
Rock Avenue, East Hanover, New Jersey 07936 and its telephone number is (973)
560-9400. The approximate date on which this Proxy Statement, the proxy card and
other accompanying materials are first being sent or given to stockholders is
July __, 2006. A copy of the Company's Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 2005 is enclosed with these materials, but should
not be considered proxy solicitation material.
INFORMATION CONCERNING SOLICITATION AND VOTING
As of the Record Date, there were 49,988,634 outstanding shares of Common
Stock, each share entitled to one vote on each matter to be voted on at the
Annual Meeting. As of the Record Date, the Company had approximately 474
beneficial holders of record of Common Stock. Only holders of shares of Common
Stock on the Record Date will be entitled to vote at the Annual Meeting. The
holders of Common Stock are entitled to one vote on all matters presented at the
meeting for each share held of record. The presence in person or by proxy of
holders of record of a majority of the shares outstanding and entitled to vote
as of the Record Date shall be required for a quorum to transact business at the
Annual Meeting. If a quorum should not be present, the Annual Meeting may be
adjourned until a quorum is obtained.
Each nominee to be elected as a director named in Proposal 1 must receive
the vote of a plurality of the votes of the shares of Common Stock present in
person or represented by proxy at the meeting. For the purposes of election of
directors, although abstentions will count toward the presence of a quorum, they
will not be counted as votes cast and will have no effect on the result of the
vote.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the meeting is required for
approval of the ratification of the selection of Friedman LLP as independent
auditors of the Company for the fiscal year 2006 described in Proposal 2.
Abstentions will not be counted as votes entitled to be cast on this matter and
will have no effect on the result of the vote.
The amendment of the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock, as described in Proposal 3,
requires the affirmative vote of the holders of a majority of the Company's
outstanding shares of Common Stock entitled to vote.
The amendment of the Company's Plan to increase the number of stock
options reserved for issuance, as described in Proposal 4, requires the
affirmative vote of the holders of a majority of the Company's outstanding
shares of Common Stock entitled to vote.
"Broker non-votes," which occur when brokers are prohibited from
exercising discretionary voting authority for beneficial owners who have not
provided voting instructions, will not be counted for the purpose of determining
the number of shares present in person or by proxy on a voting matter and will
have no effect on the outcome of the vote. Brokers who hold shares in street
name may vote on behalf of beneficial owners with respect to Proposals 1 and 2.
The approval of all other matters to be considered at the Annual Meeting
requires the affirmative vote of a majority of the eligible votes cast at the
Annual Meeting on such matters.
The expense of preparing, printing and mailing this Proxy Statement,
exhibits and the proxies solicited hereby will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by officers and
directors and regular employees of the Company, without additional remuneration,
by personal interviews, telephone or facsimile transmission. The Company will
also request brokerage firms, nominees, custodians and fiduciaries to forward
proxy materials to the beneficial owners of shares of Common Stock held of
record and will provide reimbursements for the cost of forwarding the material
in accordance with customary charges.
Proxies given by stockholders of record for use at the Annual Meeting may
be revoked at any time prior to the exercise of the powers conferred. In
addition to revocation in any other manner permitted by law, stockholders of
record giving a proxy may revoke the proxy by an instrument in writing, executed
by the stockholder or his or her attorney authorized in writing or, if the
stockholder is a corporation, by an officer or attorney thereof duly authorized,
and deposited either at the corporate headquarters of the Company at any time up
to and including the last business day preceding the day of the Annual Meeting,
or any adjournments thereof, at which the proxy is to be used, or with the
chairman of such Annual Meeting on the day of the Annual Meeting or adjournments
thereof, and upon either of such deposits the proxy is revoked.
Proposals 1, 2, 3 and 4 do not give rise to any statutory right of a
stockholder to dissent and obtain the appraisal of or payment for such
stockholder's shares.
ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES
SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO
CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE
DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS
THAT MAY COME BEFORE THE ANNUAL MEETING.
2
Corporate Governance
The Company's Board of Directors has long believed that good corporate
governance is important to ensure that the Company is managed for the long-term
benefit of stockholders. During the past year, the Company's Board of Directors
has continued to review its governance practices in light of the Sarbanes-Oxley
Act of 2002 and new Securities and Exchange Commission (the "SEC") rules and
regulations. This section describes key corporate governance guidelines and
practices that the Company has adopted. Complete copies of the Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee
charters are posted on the Company's website at www.csiwhq.com. Alternatively,
you can request a copy of any of these documents by writing to the Company. The
contents of our website should not be considered proxy solicitation material.
Code of Conduct and Ethics
Our Board of Directors has adopted a Code of Conduct and Ethics which is
applicable to all our directors, officers, employees, agents and
representatives, including our principal executive officer and principal
financial officer, principal accounting officer or controller, or other persons
performing similar functions. We have made available on our website copies of
our Code of Conduct and Ethics and charters for the committees of our Board and
other information that may be of interest to investors.
Board Meetings and Attendance of Directors
During fiscal year 2005, the Board of Directors held four meetings, all of
which were attended by all of the Company's Directors during the period that
such person was a member of the Board of Directors, and took action by unanimous
written consent on 18 occasions. Directors are expected to attend all meetings.
All of our Directors are expected to attend the Annual Meeting.
Special meetings are held from time to time to consider matters for which
approval of the Board of Directors is desirable or required by law.
Director Independence
The Board has reviewed each of the directors' relationships with the
Company in conjunction with Section 121(A) of the listing standards of the
American Stock Exchange ("AMEX") and has affirmatively determined that two of
our directors, Lawrence K. Reisman and Joseph Santiso, are independent of
management and free of any relationship that would interfere with their
independent judgment as members of the Audit Committee. Frederick Lester and
Thomas Pear, who are being nominated for the first time, if approved, would be
independent of management and free of any relationship that would interfere with
their independent judgment. It is expected that Thomas Pear will become a member
of the Audit Committee.
Committees of the Board of Directors
The Board of Directors has established three standing committees: (1) the
Audit Committee, (2) the Compensation Committee and (3) the Nominating and
Corporate Governance Committee. Each committee operates under a charter that has
been approved by the Board. Copies of the Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee's' charters are
posted on the Company's website. Mr. Reisman and Mr. Santiso are the members of
each of such committees. Mr. Pear, if approved, would be a member of each such
committee as well. Mr. Reisman serves as the Chair of each of such committees.
3
Audit Committee
The Audit Committee was formed in April 2005. The Audit Committee met
three since its formation and each member of the Audit Committee was present at
such meeting. The Audit Committee is responsible for matters relating to
financial reporting, internal controls, risk management and compliance. These
responsibilities include appointing, overseeing, evaluating and approving the
fees of our independent auditors, reviewing financial information which is
included in our Annual Report on Form 10-KSB/A, discussions with management and
the independent auditors the results of the annual audit and our quarterly
financial statements, reviewing with management our system of internal controls
and financial reporting process and monitoring our compliance program and
system.
The Audit Committee operates pursuant to a written charter, which sets
forth the functions and responsibilities of this committee. A copy of the
charter can be viewed on our website. All members of this committee are
independent directors under the SEC rules.
The Board of Directors has determined that Lawrence K. Reisman, the
committee's chairman, meets the SEC criteria of an "audit committee financial
expert", as defined in Item 401(h) of Regulation S-K.
Compensation Committee
The Compensation Committee was formed in May 2005 and did not meet in
fiscal 2005. The Compensation Committee is responsible for matters relating to
the development, attraction and retention of the Company's management and for
matters relating to the Company's compensation and benefit programs. As part of
its responsibilities, this committee evaluates the performance and determines
the compensation of the Company's Chief Executive Officer and approves the
compensation of our senior officers.
The Compensation Committee operates under a written charter that sets
forth the functions and responsibilities of this committee. A copy of the
charter can be viewed on our website.
Pursuant to its charter, the Compensation Committee must be comprised of
at least two (2) Directors who, in the opinion of the Board of Directors, must
meet the definition of "independent director" within the rules and regulations
of the SEC. The Board of Directors has determined that all members of this
committee are independent directors under the SEC rules.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for
providing oversight on a broad range of issues regarding our corporate
governance practices and policies and the composition and operation of the Board
of Directors. These responsibilities include reviewing potential candidates for
membership on the Board and recommending to the Board nominees for election as
directors of the Company.
The Nominating and Corporate Governance Committee was formed in May 2005
and did not meet in fiscal 2005. A complete description of the Nominating and
Corporate Governance Committee's responsibilities is set forth in the Nominating
and Corporate Governance written charter. A copy of the charter is available to
stockholders on the Company's website. All members of the Nominating and
Corporate Governance Committee are independent directors as defined by the rules
and regulations of the SEC. The Nominating and Corporate Governance Committee
will consider director nominees recommended by stockholders. To recommend a
nominee please write to the Nominating and Corporate Governance Committee c/o
the Company, Attn: Secretary. There are no minimum qualifications for
consideration for nomination to be a director of the Company. The nominating
committee will assess all director nominees using the same criteria. Nominations
made by stockholders must be made by written notice received by the Secretary of
the Company within 30 days of the date on which notice of a meeting for the
election of directors is first given to stockholders. The Nominating and
Corporate Governance Committee and the Board of Directors carefully consider
nominees regardless of whether they are nominated by stockholders, the
Nominating and Corporate Governance Committee or existing board-members. Four of
the seven nominees to serve as directors on the Board of Directors of the
Company have previously served in such capacities. During 2005 the Company did
not pay any fees to any third parties to assist in the identification of
nominees. The Company did not receive any director nominee suggestions from
stockholders for the Annual Meeting.
4
Compensation of Directors
Directors of the Company who are not employees of the Company or its
subsidiaries are entitled to receive compensation for serving as directors in
the amount of $10,000 per annum (50% cash and 50% stock), $1,000 per Board
meeting attended in person, $500 per Board meeting attended via teleconference,
$500 per Committee meeting attended, and an annual stock option grant to be
determined by the Board of Directors. Directors may be removed with or without
cause by a vote of the majority of the stockholders then entitled to vote. Other
than as described in "Executive Compensation" below, there were no other
arrangements pursuant to which any director was compensated during fiscal 2005
for any services provided as a director.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an
officer or employee of the Company. In addition, none of the members of the
Compensation Committee had any relationships with the Company or any other
entity that require disclosure under the proxy rules and regulations promulgated
by the SEC.
5
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, seven individuals will be elected to serve as
directors until the next annual meeting or until their successors are duly
elected, appointed and qualified. The Company's Board of Directors currently
consists of four persons. Four of the individuals who are nominated for election
to the Board of Directors are existing directors of the Company. Robert C.
DeLeeuw, Frederick Lester and Thomas Pear are being nominated for the first
time. Unless a stockholder WITHHOLDS AUTHORITY, a properly signed and dated
proxy will be voted "FOR" the election of the persons named below, unless the
proxy contains contrary instructions. Management has no reason to believe that
any of the nominees will not be a candidate or will be unable to serve as a
director. However, in the event any nominee is not a candidate or is unable or
unwilling to serve as a director at the time of the election, unless the
stockholder withholds authority from voting, the proxies will be voted "FOR" any
nominee who shall be designated by the present Board of Directors to fill such
vacancy.
The name and age of each of the seven nominees, his position with the
Company, his principal occupation, and the period during which such person has
served as a director are set out below.
Biographical Summaries of Nominees for the Board of Directors
Name of Nominee Age Position with Principal Occupation Director
the Company Since
Scott Newman 47 President, Chief President and Chief 2004
Executive Executive Officer of
Officer and the Company
Chairman
Glenn Peipert 45 Executive Vice Executive Vice 2004
President, Chief President and Chief
Operating Operating Officer of
Officer and the Company
Director
Lawrence K. Reisman 46 Director CPA at the The 2004
Accounting Offices of
L.K. Reisman
Joseph Santiso 61 Director President of The BCI 2005
Group
Robert C. DeLeeuw 50 Senior Vice Senior Vice President Nominee
President of the Company
Frederick Lester 48 None Consulting Partner, NE Nominee
Banking & Capital
Markets, Teradata, a
division of NCR
Thomas Pear 53 None Principal in Saw Mill Nominee
Sports Management and
management consultant
6
SCOTT NEWMAN has been our President, Chief Executive Officer and Chairman
since January 2004. Mr. Newman founded the former Conversion Services
International, Inc. in 1990 (before its merger with and into the LCS) and is our
largest stockholder. He has over twenty years of experience providing technology
solutions to major companies internationally. Mr. Newman has direct experience
in strategic planning, analysis, design, testing and implementation of complex
big-data solutions. He possesses a wide range of software and hardware
architecture/discipline experience, including, client/server, data discovery,
distributed systems, data warehousing, mainframe, scaleable solutions and
e-business. Mr. Newman has been the architect and lead designer of several
commercial software products used by Chase, Citibank, Merrill Lynch and Jaguar
Cars. Mr. Newman advises and reviews data warehousing and business intelligence
strategy on behalf of our Global 2000 clients, including AT&T Capital, Jaguar
Cars, Cytec and Chase. Mr. Newman is a member of the Young Presidents
Organization, a leadership organization that promotes the exchange of ideas,
pursuit of learning and sharing strategies to achieve personal and professional
growth and success. Mr. Newman received his B.S. from Brooklyn College in 1980.
GLENN PEIPERT has been our Executive Vice President, Chief Operating
Officer and Director since January 2004. Mr. Peipert held the same positions
with the former Conversion Services International, Inc. since its inception in
1990. Mr. Peipert has over two decades of experience consulting to major
organizations about leveraging technology to enable strategic change. He has
advised clients representing a broad cross-section of rapid growth industries
worldwide. Mr. Peipert has hands on experience with the leading data warehousing
products. His skills include architecture design, development and project
management. He routinely participates in architecture reviews and
recommendations for our Global 2000 clients. Mr. Peipert has managed major
technology initiatives at Chase, Tiffany, Morgan Stanley, Cytec and the United
States Tennis Association. He speaks nationally on applying data warehousing
technologies to enhance business effectiveness and has authored multiple white
papers regarding business intelligence. Mr. Peipert is a member of the Institute
of Management Consultants, as well as TEC International, a leadership
organization whose mission is to increase the effectiveness and enhance the
lives of chief executives and those they influence. Mr. Peipert is the brother
of Mitchell Peipert, our Vice President, Chief Financial Officer, Secretary and
Treasurer. Mr. Peipert received his B.S. from Brooklyn College in 1982.
LAWRENCE K. REISMAN has been a Director of our company since February 2004
and was appointed Chairman of the Board's Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee in April 2005. Mr.
Reisman is a Certified Public Accountant who has been the principal of his own
firm, The Accounting Offices of L.K. Reisman, since 1986. Prior to forming his
company, Mr. Reisman was a tax manager at Coopers & Lybrand and Peat Marwick
Mitchell. He routinely provides accounting services to small and medium-sized
companies, which services include auditing, review and compilation of financial
statements, corporate, partnership and individual taxation, designing accounting
systems and management consulting services. Mr. Reisman received his B.S. and
M.B.A. in Finance from St. John's University in 1981 and 1985, respectively.
JOSEPH SANTISO has been a Director of our company since May 2005 and was
appointed by the Board to sit on the Board's Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee in May 2005. Mr.
Santiso founded and is President of The BCI Group, which consists of
Breakthrough Concepts Inc., BCI Systems Inc. and BCI Knowledge Inc., since 1991.
Prior to founding BCI, Mr. Santiso was the Chief Accounting Officer for Citibank
Stock Transfer Services Division, a Financial Analyst in the Comptrollers
Department of the Operational Services Division at Irving Trust and a Professor
of Accounting at Jersey City State College. Mr. Santiso received his B.S. from
Pace University in 1973 with a major in Accounting and Finance.
7
ROBERT C. DELEEUW has been our Senior Vice President and the President of
our wholly owned subsidiary, DeLeeuw Associates, LLC, since March 2004 and is
our third largest stockholder. Mr. DeLeeuw founded DeLeeuw Associates, LLC,
formerly known as DeLeeuw Associates, Inc., in 1991. Mr. DeLeeuw has over
twenty-five years experience in banking and consulting. During this time, he has
managed and supported some of the largest merger projects in the history of the
financial services industry and has implemented numerous large-scale business
and process change programs for his clients. He has been published in American
Banker, Mortgage Banking Magazine, The Journal of Consumer Lending and Bank
Technology News where he has also served as a member of the Editorial Advisory
Board. Mr. DeLeeuw received his B.S. from Rider University in 1979 and received
his M.S. in Management from Stevens Institute of Technology in 1986.
FREDERICK LESTER is a Director-nominee. Presently he is the Regional
Consulting Partner, NE Banking & Capital Markets, Teradata Corporation. From
2005-2006, Mr. Lester was the Consulting Director at Cognos Corporation, and
from 1999-2005, he was the Managing Director at Competitive Advantage, Inc.
Prior to this, Mr. Lester served as Consulting Director for KPMG and Managing
Partner at Teradata. Mr. Lester's undergraduate studies at Columbia University
focused on nuclear physics and mathematics.
THOMAS PEAR is a Director-nominee. Presently he is a principal in Saw Mill
Sports Management and a management consultant. From 1993 to 2006, Mr. Pear
served as chief financial officer of The Atlantic Club, and also served as its
president from 2002 to 2006. Prior to this, Mr. Pear served as vice president
and general manager of DM Engineering, vice president and chief financial
officer of Tennis Equities, and staff accountant at Malkin, Studley and Ramey
CPA, PC. Mr. Pear received his B.S. in Accounting from Nichols College in 1974.
Board members are elected annually by the stockholders and the officers
are appointed annually by the Board of Directors.
Vote Required
Provided that a quorum of stockholders is present at the meeting in
person, or is represented by proxy, and is entitled to vote thereon, Directors
will be elected by a plurality of the votes cast at the meeting. For the
purposes of election of directors, although abstentions will count toward the
presence of a quorum, they will not be counted as votes cast and will have no
effect on the result of the vote.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR Messrs. Newman, Peipert,
Reisman, Santiso, DeLeeuw ,Lester and Pear. Unless otherwise instructed or
unless authority to vote is withheld, the enclosed proxy will be voted FOR the
election of the above listed nominees and AGAINST any other nominees.
8
PROPOSAL 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Also submitted for consideration and voting at the Annual Meeting is the
ratification of the appointment by the Company's Board of Directors upon the
recommendation of the Audit Committee, of Freidman LLP ("Friedman") as
independent auditors for the purpose of auditing and reporting upon the
financial statements of the Company for the fiscal year ending December 31,
2006. The Board of Directors of the Company upon the recommendation of the Audit
Committee, has selected and approved Friedman as independent auditors to audit
and report upon the Company's financial statements. Friedman has no direct or
indirect financial interest in the Company.
Representatives of Friedman are expected to be present at the Annual
Meeting, and they will be afforded an opportunity to make a statement at the
Annual Meeting if they desire to do so. It is also expected that such
representatives will be available at the Annual Meeting to respond to
appropriate questions by stockholders.
On June 1, 2004, Ehrenkrantz Sterling & Co., LLC ("Ehrenkrantz") merged
with Friedman. Freidman was selected by the Board of Directors on June 7, 2004
to audit the Company's financial statements.
For the period since Ehrenkrantz's appointment through June 7, 2004, there
had been no disagreements with Ehrenkrantz on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
Ehrenkrantz would have caused them to make reference thereto in their
independent auditors report. In addition, for the period since Ehrenkrantz's
appointment through June 7, 2004, we did not consult with Friedman regarding any
matter that was the subject of a "disagreement" with Ehrenkrantz, as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions
to Item 304 of Regulation S-K, or with regard to any "reportable event," as that
term is defined in Item 304(a)(1)(v) of Regulation S-K, except as such
consultations as may have been made with former employees of Ehrenkrantz who are
now employees of Friedman.
Vote Required
The affirmative vote of holders of a majority of the votes cast at the
Annual Meeting is required for the ratification of the selection of Friedman as
the Company's independent auditors for the fiscal year ending December 31, 2006.
Recommendation of the Board of Directors
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of Friedman LLP as the Company's independent auditors for the fiscal
year ending December 31, 2006. Unless marked to the contrary, proxies received
from stockholders will be voted in favor of the ratification of the selection of
Freidman LLP as independent auditors for the Company for the fiscal year 2006.
9
Information about Fees Billed by Independent Auditors
The following table sets forth fees billed to us by our independent
registered public accounting firms during the fiscal years ended December 31,
2005 and December 31, 2004 for: (i) services rendered for the audit of our
annual financial statements and the review of our quarterly financial
statements; (ii) services by our independent registered public accounting firms
that are reasonably related to the performance of the audit or review of our
financial statements and that are not reported as Audit Fees; (iii) services
rendered in connection with tax compliance, tax advice and tax planning; and
(iv) all other fees for services rendered.
FY 2005 FY 2004
-------- --------
Audit Fees $319,748 $281,975
Audit Related Fees $ 8,700 $212,480
Tax Fees $ 78,850 $ 36,799
All Other Fees $ 0 $ 0
All Other Fees
For the year ended December 31, 2005, the Company incurred no professional
fees to its independent auditors with respect to all other services. For the
year ended December 31, 2005, there were no fees billed by the Company's
independent auditors for professional services rendered for information
technology services relating to financial information systems design and
implementation.
The Audit Committee has the sole authority to pre-approve all audit and
non-audit services provided by the independent auditors to the Company.
10
PROPOSAL 3
DIRECTORS' PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO EFFECT AN INCREASE IN AUTHORIZED COMMON STOCK
General
We are requesting stockholder approval to grant the Board of Directors the
authority to effect an increase in the Company's authorized Common Stock from
eighty-five million (85,000,000) to one hundred million (100,000,000) (the
"Increase in Authorized"), for the following reasons:
(1) the Company is authorized to issue 85,000,000 shares of Common Stock
of which 49,988,634 shares are currently outstanding and approximately
12,300,000 shares are reserved for issuance under outstanding notes, warrants
and options. Therefore, we currently have only approximately 22,711,366
authorized shares available to be issued or reserved for issuance upon the
granting of new options or upon the issuance of new warrants or other securities
convertible into shares of Common Stock.
The Board of Directors has unanimously adopted an amendment to the
Certificate of Incorporation to effect the Increase in Authorized and declared
that it is advisable for the stockholders to approve such amendment.
Principal Effects Of The Increase in Authorized
The Increase in Authorized was determined by the Company's Board of
Directors, in its sole discretion.
The Company's stockholders will not realize any dilution in their voting
rights as a result of the Increase in Authorized but will experience dilution to
the extent that additional shares would be issued.
Issuance of significant numbers of additional shares of the Company's
Common Stock in the future (i) will dilute stockholders' percentage ownership
and (ii) if such shares are issued at prices below what current stockholders'
paid for their shares, may dilute the value of current stockholders' shares.
When the Board of Directors decides to implement the Increase in
Authorized, the Company will amend Article Fourth Section A of the Company's
certificate of incorporation, relating to the Company's authorized capital, in
its entirety to state as follows:
"FOURTH:
A. AUTHORIZED
The aggregate number of shares of all classes of capital stock with the
Corporation shall have authority to issue shall be one hundred twenty million
(120,000,000) shares, consisting of:
(1) twenty million (20,000,000) shares of preferred stock, par value $.001
per share ("Preferred Stock"); and
(2) one hundred million (100,000,000) shares of common stock, par value
$.001 per share ("Common Stock").
11
Based on stock information as of the Record Date after completion of the
Increase in Authorized, the Company will have approximately 49,988,634 shares of
issued and outstanding Common Stock and 100,000,000 shares of authorized Common
Stock.
The shares of authorized, but unissued Common Stock will be available from
time to time for corporate purposes including raising additional capital,
acquisitions of companies or assets, for strategic transactions, and sales of
Common Stock or securities convertible into Common Stock. The Company does not
have any present intention, plan, arrangement or agreement, written or oral, to
issue shares of Common Stock for any purpose, except for the issuance of shares
of Common Stock upon the exercise of outstanding convertible securities, options
or warrants to purchase Common Stock. Although the Company does not have any
present intention to issue shares of Common Stock, except as noted above, the
Company may in the future raise funds through the issuance of Common Stock when
conditions are favorable, even if the Company does not have an immediate need
for additional capital at such time.
The Company believes that the availability of the additional shares will
provide the Company with the flexibility to meet business needs as they arise,
to take advantage of favorable opportunities and to respond to a changing
corporate environment. If the Company issues additional shares, the ownership
interests of holders of the Company's Common Stock may be diluted.
Procedure For Effecting The Increase in Authorized
The Company will file the certificate of amendment to the Certificate of
Incorporation with the Secretary of State of the State of Delaware at such time
as the Board of Directors has determined the appropriate effective time for the
Increase in Authorized. The form of certificate of amendment to the Certificate
of Incorporation is attached as Exhibit A to this Proxy Statement.
Vote Required
The approval of the Increase in Authorized requires the affirmative vote
of a majority of the shares of voting stock present in person or represented by
proxy at the Meeting.
Recommendation of the Board of Directors
The Board of Directors recommends that the Stockholders vote "FOR"
Proposal 3 to approve the Increase in Authorized.
12
PROPOSAL 4
APPROVAL OF AMENDMENT TO
2003 INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER
2003 Incentive Plan
General
The 2003 Incentive Plan (the "Plan") was approved at a special meeting of
the Company's stockholders on January 23, 2004. The Plan authorizes the Company
to issue 6,666,667 shares of Common Stock for issuance upon exercise of options,
and such shares have been reserved. It also authorizes the issuance of stock
appreciation rights, referred to herein as SARs. The Plan authorizes the Company
to grant:
o incentive stock options to purchase shares of Common Stock,
o non-qualified stock options to purchase shares of Common Stock, and
o SARs and shares of restricted Common Stock.
The Plan may be amended, terminated or modified by the Board of Directors
or the Stock Option Committee at any time, subject to stockholder approval as
required by law, rule or regulation. No such termination, modification or
amendment may affect the rights of an optionee under an outstanding option or
the grantee of an award.
Objectives
The objective of the Plan is to provide incentives to the Company's
officers, other key employees, consultants, professionals and non-employee
directors to achieve financial results aimed at increasing stockholder value and
attracting talented individuals to the Company. Persons eligible to be granted
incentive stock options under the Plan will be those employees, consultants,
professionals and non-employee directors whose performance, in the judgment of
the Stock Option Committee of the Board of Directors, can have a significant
effect on our success.
Oversight
The Stock Option Committee, consisting of independent directors Lawrence
K. Reisman (chairman), Joseph Santiso, and if approved Thomas Pear, administer
the Plan by making determinations regarding the persons to whom options should
be granted and the amount, terms, conditions and restrictions of the awards. The
Board or the Stock Option Committee also has the authority to interpret the
provisions of the Plan and to establish and amend rules for its administration
subject to the Plan's limitations.
Types of grants
The Plan allows the Company to grant incentive stock options,
non-qualified stock options, shares of restricted stock, SARs in connections
with options and independent SARs. The Plan does not specify what portion of the
awards may be in the form of any of the foregoing. Incentive stock options
awarded to our employees are qualified stock options under the Internal Revenue
Code.
13
Eligibility
Under the Plan, the Company may grant incentive stock options only to
officers and employees, and the Company may grant non-qualified options to
officers and employees, as well as directors, independent contractors and
agents.
Statutory Conditions on Stock Options
Exercise Price. To the extent that options designated as incentive stock
options become exercisable by an optionee for the first time during any calendar
year for Common Stock having a fair market value greater than One Hundred
Thousand Dollars ($100,000), the portions of such options which exceed such
amount shall be treated as nonqualified stock options. Incentive stock options
granted to any person who owns, immediately after the grant, stock possessing
more than 10% of the combined voting power of all classes of our stock, or of
any parent or subsidiary of ours, must have an exercise price at least equal to
110% of the fair market value of Common Stock on the date of grant and the term
of the option may not be longer than five years.
Expiration Date. Any option granted under the Plan will expire at the time
fixed by the Board or the Stock Option Committee, which cannot be more than ten
(10) years after the date it is granted or, in the case of any person who owns
more than 10% of the combined voting power of all classes of the Company's stock
or of any parent or subsidiary corporation, not more than five (5) years after
the date of grant.
Exerciseability. The Board or its committee may also specify when all or
part of an option becomes exercisable, but in the absence of such specification,
the option will ordinarily be exercisable in whole or part at any time during
its term. However, the Board or its committee may accelerate the exerciseability
of any option at its discretion.
Assignability. Options granted under the Plan are not assignable, except
by the laws of descent and distribution or as may be otherwise provided by the
Board or its committee.
Payment Upon Exercise Of Options
Payment of the exercise price for any option may be in cash or by broker
assisted exercise.
Stock Appreciation Rights
A Stock Appreciation Right is the right to benefit from appreciation in
the value of Common Stock. A SAR holder, on exercise of the SAR, is entitled to
receive from the Company in cash or Common Stock an amount equal to the excess
of: (a) the fair market value of Common Stock covered by the exercised portion
of the SAR, as of the date of such exercise, over (b) the fair market value of
Common Stock covered by the exercised portion of the SAR as of the date on which
the SAR was granted.
The Board or the Stock Option Committee may grant SARs in connection with
all or any part of an option granted under the Plan, either concurrently with
the grant of the option or at any time thereafter, and may also grant SARs
independently of options.
Tax Consequences
An employee or director will not recognize income on the awarding of
incentive stock options and nonstatutory options under the Plan.
14
An optionee will recognize ordinary income as the result of the exercise
of a nonstatutory stock option in the amount of the excess of the fair market
value of the stock on the day of exercise over the option exercise price.
An employee will not recognize income on the exercise of an incentive
stock option, unless the option exercise price is paid with stock acquired on
the exercise of an incentive stock option and the following holding period for
such stock has not been satisfied. The employee will recognize long-term capital
gain or loss on a sale of the shares acquired on exercise, provided the shares
acquired are not sold or otherwise disposed of before the earlier of:
(i) two years from the date of award of the option, or
(ii) one year from the date of exercise.
If the shares are not held for the required period of time, the employee
will recognize ordinary income to the extent the fair market value of the stock
at the time the option is exercised exceeds the option price, but limited to the
gain recognized on sale. The balance of any such gain will be a short-term
capital gain. Exercise of an option with previously owned stock is not a taxable
disposition of such stock. An employee generally must include in alternative
minimum taxable income the amount by which the price such employee paid for an
incentive stock option is exceeded by the option's fair market value at the time
his or her rights to the stock are freely transferable or are not subject to a
substantial risk of forfeiture.
As of December 31, 2005, options to purchase a total of 4,883,114 shares
of Common Stock were outstanding at exercise prices ranging from $0.825 to $3.45
per share. Generally, one-third of the options granted vest on the first
anniversary, one-third of the options granted vest on the second anniversary and
one-third of the options granted vest on the third anniversary. All options
expire on the ten (10) year anniversary of their grant date.
All options described above have been issued pursuant to the 2003 Incentive Plan
described above.
Vote Required and Recommendation
To amend the Company's Plan (the "Plan Amendment") to increase the number
of stock options reserved for issuance under such plan from 6,666,667 to
10,000,000, an affirmative vote of the majority of shares voting on the proposal
must be obtained. Abstentions and brokers non-votes will have no effect on the
outcome. If the proposal is not approved by the stockholders, the Plan Amendment
will not be effective and the proposal will not be implemented.
Reasons for the Plan Amendment
The purpose of the Plan Amendment is to enable the Company to obtain and
retain competent personnel who will contribute to the Company's success by their
ability, ingenuity and industry knowledge, and to provide incentives to such
personnel and members that are linked directly to increases in stockholder
value, and will therefore, inure to the benefit of all stockholders of the
Company. Eligible recipients of awards under the Plan include employees,
directors, consultants and advisors of the Company.
15
The Board of Directors determined to increase the number of shares of
common stock reserved for issuance under the Plan because it believes that the
current number is insufficient for the purposes of the Plan as stated above. The
market for quality personnel is competitive, and the ability to obtain and
retain competent personnel is of great importance to the Company's business
operations.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO
THE 2003 INCENTIVE PLAN.
16
Executive Compensation
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, paid to or earned by the following type of executive
officers for the fiscal years ended December 31, 2005, 2004 and 2003: (i)
individuals who served as, or acted in the capacity of, our principal executive
officer for the fiscal year ended December 31, 2005; and (ii) our other most
highly compensated executive officer, who together with the principal executive
officer are our most highly compensated officers whose salary and bonus exceeded
$100,000 with respect to the fiscal year ended December 31, 2005 and who were
employed at the end of fiscal year 2005.
SUMMARY COMPENSATION TABLE*
Long Term Compensation
----------------------
Annual Compensation(1) Awards Payouts
----------------------------- ------------------------- -------------------------
Restricted Securities
Name and Principal Position Year Salary Bonus Other Annual Stock Underlying LTIP All Other
--------------------------- ---- ------ ----- Compensation Award(s) Options/SARs Payouts Compensation
------------ ---------- ------------ ------- ------------
($) ($) ($) ($) (#) ($) ($)
Scott Newman 2005 500,000 -- -- -- -- -- 39,809(2)
President, Chief Executive 2004 500,000 -- -- -- -- -- 38,054(2)
Officer and Chairman 2003 244,452 -- -- -- -- -- 206,686(3)
Glenn Peipert 2005 375,000 -- -- -- 250,000 -- 40,779(2)
Executive Vice President, 2004 375,000 -- -- -- -- -- 38,054(2)
Chief Operating 2003 223,016 -- -- -- -- -- 171,309(4)
Officer and Director
Mitchell Peipert, 2005 209,375 -- -- -- 150,000 -- 24,129(2)
Vice President, Chief 2004 190,000 -- -- -- 300,000 -- 14,413(2)
Financial Officer, 2003 10,000 -- -- -- -- -- 1,133(2)
Treasurer and Secretary
Robert C. DeLeeuw, 2005 350,000 -- 56,595(5) -- 250,000 -- 17,736(2)
Senior Vice President 2004 329,400 -- -- -- -- -- 592(6)
William McKnight, 2005 125,047 -- -- -- -- -- 10,494(2)
Senior Vice President,
Data Warehousing
-------------------------
* Salary reflects total compensation paid to these executives (both
before and after the merger described in Item 1).
(1) The annual amount of perquisites and other personal benefits, if
any, did not exceed the lesser of $50,000 or 10% of the total annual
salary reported for each named executive officer and has therefore
been omitted, unless otherwise stated above.
(2) Amounts shown reflect payments related to medical, dental and life
insurance and car payments.
(3) Amounts shown reflect distributions resulting from the operating
entity's past tax status as a Subchapter S corporation of $153,738
in 2003 as well as $66,262 in 2003 of expenses, which include auto,
travel and equipment purchases paid for by the Company.
(4) Amounts shown reflect distributions resulting from the operating
entity's past tax status as a Subchapter S corporation of $101,988
in 2003, as well as $63,645 in 2003 of expenses, which include auto,
travel and equipment purchases paid for by the Company.
17
(5) Incentive compensation received based on profitability of business
units under Mr. DeLeeuw's control.
(6) Amounts shown reflect payment related to life insurance.
Option/SAR Grants During Fiscal 2005
---------------------------------------------------------------------------
Name Number of Percent of Exercise Expiration Date
securities total or base
underlying options/SARs price
options/SARs granted to ($/Sh)
granted (#)(1) employees in
fiscal year
----------------------------------------------------------------------------
Glenn Peipert 250,000 (2) 9.3% $0.83 November 15, 2010
----------------------------------------------------------------------------
Robert C. DeLeeuw 250,000 (2) 9.3% $0.83 November 15, 2010
----------------------------------------------------------------------------
Mitchell Peipert 100,000 (3) 3.7% $0.83 November 15, 2015
----------------------------------------------------------------------------
(1) All options were granted under the Company's 2003 Incentive Plan. All of the
above options were granted on November 16, 2005.
(2) One-third of such options vest upon the one year anniversary of the grant
date, one-third vest on the two year anniversary of the grant date, and
one-third vest on the three year anniversary of the grant date.
(3) One-third of such options vest upon the six month anniversary of the grant
date, one-third vest on the eighteen month anniversary of the grant date, and
one-third vest on the thirty month anniversary of the grant date.
AGGREGATE OPTIONS EXERCISABLE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities
Underlying
Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 2005(1) at December 31, 2005(1)
-------------------- ---------------------------
Name and Principal Position Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ----------- ------------- ----------- -------------
Glenn Peipert 0 250,000 $0 $0
Executive Vice President, Chief
Operating Officer and Director
Robert C. DeLeeuw, Senior Vice 0 250,000 $0 $0
President
Mitchell Peipert 100,000 350,000 $0 $0
Vice President, Chief Financial
Officer, Secretary and Treasurer
----------------------------------------------------------------------------------------
(1) As of December 30, 2005 the market value of a share of Common Stock was
$0.53. No shares were exercised by executive officers or directors in fiscal
year ended December 31, 2005.
Employment Agreements
Scott Newman, our President and Chief Executive Officer, agreed to a
five-year employment agreement dated as of March 26, 2004. The agreement
provides for an annual salary to Mr. Newman of $500,000 and an annual bonus to
be awarded by our Compensation Committee. No bonus was awarded in 2005. The
agreement also provides for health, life and disability insurance, as well as a
monthly car allowance. In the event that Mr. Newman's employment is terminated
other than with good cause, he will receive a lump sum payment of 2.99 times his
base salary.
18
Glenn Peipert, Executive Vice President and Chief Operating Officer,
agreed to a five-year employment agreement dated as of March 26, 2004. The
agreement provides for an annual salary to Mr. Peipert of $375,000 and an annual
bonus to be awarded by our Compensation Committee. No bonus was awarded in 2005.
The agreement also provides for health, life and disability insurance, as well
as a monthly car allowance. In the event that Mr. Peipert's employment is
terminated other than with good cause, he will receive a lump sum payment of
2.99 times his base salary.
Mitchell Peipert, Vice President, Chief Financial Officer, Treasurer and
Secretary, agreed to a three-year employment agreement dated as of March 26,
2004. The agreement provides for an annual salary to Mr. Peipert of $200,000 and
an annual bonus to be awarded by our Compensation Committee. No bonus was
awarded in 2005. In August 2005, Mr. Peipert received an increase to his annual
salary to $225,000. The agreement also provides for health, life and disability
insurance, as well as a monthly car allowance. In the event that Mr. Peipert's
employment is terminated other than with good cause, he will receive a lump sum
payment of 2.99 times his base salary.
Robert C. DeLeeuw, Senior Vice President and President of our wholly owned
subsidiary, DeLeeuw Associates, LLC, agreed to a three-year employment agreement
dated as of February 27, 2004. The agreement provides for an annual salary to
Mr. DeLeeuw of $350,000 and an annual bonus to be awarded by our Compensation
Committee. No bonus was awarded in 2005. The agreement also provides for health,
life and disability insurance. In the event that Mr. DeLeeuw's employment is
terminated other than with good cause, he will receive a lump sum payment of the
longer of (1) one year's base salary or (2) the period from the date of
termination through the expiration date.
William McKnight, Senior Vice President - Data Warehousing, agreed to a
three-year employment agreement dated as of July 22, 2005. The agreement
provides for an annual salary to Mr. McKnight of $250,000 and an annual bonus to
be awarded by our Compensation Committee. No bonus was awarded in 2005. The
agreement also provides for health, life and disability insurance. In the event
that Mr. McKnight's employment is terminated other than with good cause, he will
receive a lump sum payment of the longer of (1) one year's base salary or (2)
the period from the date of termination through the expiration date.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires officers, directors and persons
who own more than ten (10) percent of a class of equity securities registered
pursuant to Section 12 of the Exchange Act to file reports of ownership and
changes in ownership with both the SEC and the principal exchange upon which
such securities are traded or quoted. Officers, directors and persons holding
greater than ten (10) percent of the outstanding shares of a class of Section
12-registered equity securities ("Reporting Persons") are also required to
furnish copies of any such reports filed pursuant to Section 16(a) of the
Exchange Act with the Company. Based solely on a review of the copies of such
forms furnished to the Company, the Company believes that from January 1, 2005
to December 31, 2005 all Section 16(a) filing requirements applicable to its
Reporting Persons were complied with.
19
Security Ownership of Certain Beneficial Owners And Management And Related
Stockholder Matters
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock, our only class of outstanding voting
securities as of July 1, 2006, based on 49,988,634 aggregate shares of Common
Stock outstanding as of such date, by: (i) each person who is known by us to own
beneficially more than 5% of our outstanding Common Stock with the address of
each such person, (ii) each of our present directors, director nominees and
officers, and (iii) all officers, directors and director nominees as a group:
--------------------------------------------------------------------------------
Amount of Common Percentage of Outstanding
Name and Address of Stock Beneficially Common Stock Beneficially
Beneficial Owner(1)(2) Owned Owned
--------------------------------------------------------------------------------
Scott Newman(3) 19,613,056 39.2%
--------------------------------------------------------------------------------
Glenn Peipert(4) 9,346,032 18.7%
--------------------------------------------------------------------------------
Mitchell Peipert(5) 250,000 *
--------------------------------------------------------------------------------
Robert C. DeLeeuw(6) 5,308,334 10.6%
--------------------------------------------------------------------------------
William McKnight(7) 909,091 1.8%
--------------------------------------------------------------------------------
Lawrence K. Reisman(8) 20,000 *
--------------------------------------------------------------------------------
Joseph Santiso(9) 0 --
--------------------------------------------------------------------------------
Frederick Lester(10) 0 --
--------------------------------------------------------------------------------
Thomas Pear(10) 200 *
--------------------------------------------------------------------------------
All directors and officers as
a group (9 persons) 35,446,713 70.6%
--------------------------------------------------------------------------------
--------------------------------------------
* Represents less than 1% of the issued and outstanding Common Stock.
(1) Each stockholder, director and executive officer has sole voting power and
sole dispositive power with respect to all shares beneficially owned by
him, unless otherwise indicated.
(2) All addresses are c/o Conversion Services International, Inc., 100 Eagle
Rock Avenue, East Hanover, New Jersey 07936.
(3) Mr. Newman is the Company's President, Chief Executive Officer and
Chairman of the Board.
(4) Mr. Glenn Peipert is the Company's Executive Vice President, Chief
Operating Officer and Director. Does not include an option to purchase
250,000 shares of Common Stock granted on November 16, 2005 and expiring
on November 16, 2010 at an exercise price of $.83 per share, which vest as
follows: (i) 83,333 on November 16, 2006; (ii) 83,333 on November 16,
2007; (iii) 83,334 on November 16, 2008.
(5) Mr. Mitchell Peipert is the Company's Vice President, Chief Financial
Officer, Secretary and Treasurer. Consists of an option to purchase
300,000 shares of Common Stock granted on March 29, 2004 at an exercise
price of $2.475 per share, 200,000 of which have vested and 100,000 of
which shall vest on March 29, 2007. The option grant expires on March 28,
2014. Consists of an option to purchase 150,000 shares of Common Stock
granted on November 16, 2005 at an exercise price of $.83 per share,
50,000 of which have vested, 50,000 of which vest on May 16, 2007 and
50,000 of which vest on May 16, 2008.
20
(6) Mr. DeLeeuw is the Company's Senior Vice President and the President of
the Company's wholly owned subsidiary, DeLeeuw Associates, LLC and is a
director nominee. Does not include an option to purchase 250,000 shares of
Common Stock granted on November 16, 2005 and expiring on November 16,
2010 at an exercise price of $.83 per share, which vest as follows: (i)
83,333 on November 16, 2006; (ii) 83,333 on November 16, 2007; (iii)
83,334 on November 16, 2008. Does not include an option to purchase
1,000,000 shares of Common Stock granted on January 9, 2006 and expiring
on January 9, 2011 at an exercise price of $.46 per share, which vest as
follows: (i) 333,333 on January 9, 2007; (ii) 333,333 on January 9, 2008;
(iii) 333,334 on January 9, 2009.
(7) Mr. McKnight is the Company's Senior Vice President - Data Warehousing.
(8) Mr. Reisman is a Director. Consists of an option to purchase 20,000 shares
of Common Stock granted on May 28, 2004 at an exercise price of $3.00 per
share, 10,000 of which have vested and 10,000 of which vest on May 28,
2006. Does not include an option to purchase 10,000 shares of Common Stock
granted on May 28, 2004 at an exercise price of $3.00 per share, which
vest on May 28, 2007. The option grant expires on May 27, 2014. Does not
include an portion to purchase 20,000 shares of Common Stock granted on
November 16, 2005 at an exercise price of $.83 which vest as follows: (i)
6,666 on November 16, 2006; (ii) 6,667 on November 16, 2007; (iii) 6,667
on November 16, 2008
(9) Mr. Santiso is a Director. Does not include an option to purchase 10,000
shares of Common Stock granted on November 16, 2005 at an exercise price
of $0.83 per share, which vest as follows: (i) 3,333 on November 16, 2006;
(ii) 3,333 on November 16, 2007; (iii) 3,334 on November 16, 2008.
(10) Mr. Lester and Mr. Pear are director nominees.
Equity Compensation Plan Disclosure
The following table sets forth certain information as of December 31, 2005
regarding our Equity Compensation Plan:
Number of securities Weighted-average Number of securities
to be issued upon exercise price remaining available
exercise of outstanding of outstanding for future issuance
options, warrants options, warrants under equity
Plan Category and rights and rights compensation plans
------------------- ----------------------- --------------------- --------------------
Equity Compensation
Plans Approved by
Security Holders 4,883,114 $ 1.43 1,783,553
Equity Compensation
Plans Not Approved
by Security Holders -- -- --
----------------------- --------------------- --------------------
Total 4,883,114 $ 1.43 1,783,553
======================= ===================== ====================
Certain Relationships and Related Party Transactions
On November 8, 2004, Mr. Newman entered into a stock purchase agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 188,889 shares of Common Stock for a purchase price of
$250,000. As of April 10, 2006, the shares have not been issued to CMKX-treme,
Inc. because it has not yet remitted payment for the shares.
21
On November 8, 2004, Mr. Glenn Peipert entered into a stock purchase
agreement with a private investor, CMKX-treme, Inc. Pursuant to the agreement,
CMKX-treme, Inc. agreed to purchase 377,778 shares of Common Stock for a
purchase price of $500,000. As of June 9, 2005, CMKX-treme, Inc. remitted final
payment for the shares.
On November 10, 2004, the Company and Dr. Michael Mitchell, the former
President, Chief Executive Officer and sole director of LCS, executed a one-year
consulting agreement whereby Dr. Mitchell would perform certain consulting
services on behalf of the Company. Dr. Mitchell will receive an aggregate amount
of $0.25 million as compensation for services provided to the Company. During
2005, an aggregate amount of $175,000 was paid to Mr. Mitchell for services
provided under this consulting agreement.
As of November 16, 2004, Mr. Newman and Mr. Peipert repaid in full to the
Company loans in the aggregate of approximately $0.2 million, including accrued
interest. These loans bore interest at 3% per annum and were due and payable by
December 31, 2005.
As of April 7, 2006, Mr. Newman, Mr. Peipert and Mr. DeLeeuw have agreed
to personally support the Company's cash requirements to enable us to fulfill
our obligations through June 1, 2007, to the extent necessary, up to a maximum
amount of $1.5 million, based upon their ability to sell their Company Common
Stock. Mr. Newman guaranties up to approximately $0.9 million, Mr. Peipert
guaranties up to approximately $0.4 million and Mr. DeLeeuw guaranties
approximately $0.2 million. The Company believes that these written commitments
provide us with the legal right to request and receive such advances from any of
these officers. Any loan by Messrs. Newman, Peipert and DeLeeuw to the Company
would bear interest at 8% per annum. As of December 31, 2005, Mr. Newman's
outstanding loan balance to the Company was $0.9 million, and Mr. Peipert's
outstanding loan balance to the Company was $0.9 million. The unsecured loans by
Mr. Newman and Mr. Peipert each accrue interest at a simple rate of 8% per
annum, and each has a term expiring on April 30, 2007. As of the date of this
filing, the entire $1.5 million was still available pursuant to the guaranties
outlined above.
Other than those described above, during the last two fiscal years, we
have no material transactions which involved or are planned to involve a direct
or indirect interest of a director, executive officer, greater than 5%
stockholder or any family of such parties.
22
GENERAL
The Management of the Company does not know of any matters, other than
those stated in this Proxy Statement, that are to be presented for action at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, proxies will be voted on those other matters in accordance with the
judgment of the persons voting the proxies. Discretionary authority to vote on
such matters is conferred by such proxies upon the persons voting them.
The Company will bear the cost of preparing, printing, assembling and
mailing all proxy materials that may be sent to stockholders in connection with
this solicitation. Arrangements will also be made with brokerage houses, other
custodians, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of the Common Stock of the Company held by such persons. The
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them. In addition to the solicitation of proxies by use of the
mails, officers and regular employees of the Company may solicit proxies without
additional compensation, by telephone or facsimile transmission. The Company
does not expect to pay any compensation for the solicitation of proxies.
A copy of the Company's Form 10-KSB/A for the fiscal year ended December
31, 2005, as filed with the SEC, accompanies this Proxy Statement. Upon written
request, the Company will provide each stockholder being solicited by this Proxy
Statement with a free copy of any exhibits and schedules thereto. All such
requests should be directed to Conversion Services International, Inc., 100
Eagle Rock Avenue, East Hanover, New Jersey 07936, Attn: Mitchell Peipert,
Secretary.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. In voting by proxy in regard to items to be voted upon,
stockholders may (i) vote in favor of, or FOR, the item, (ii) vote AGAINST the
item or, (iii) ABSTAIN from voting on one or more items. Stockholders should
specify their choices on the enclosed proxy. Proxies may be revoked by
stockholders at any time prior to the voting thereof by giving notice of
revocation in writing to the Secretary of the Company or by voting in person at
the Annual Meeting. If the enclosed proxy is properly signed, dated and
returned, the Common Stock represented thereby will be voted in accordance with
the instructions thereon. If no specific instructions are given with respect to
the matters to be acted upon, the shares represented by the proxy will be voted
FOR the election of all Directors, FOR the ratification of the appointment of
Friedman LLP as the Company's independent auditors for the fiscal year ending
December 31, 2006, FOR the amendment of the Company's Certificate of
Incorporation to increase the authorized shares of the Company's Common Stock,
and FOR the amendment of the Company's 2003 Incentive Plan.
Stockholder Proposals For the 2007 Annual Meeting and General Communications
Any stockholder proposals intended to be presented at the Company's 2007
Annual Meeting of Stockholders must be received by the Company at its office in
East Hanover, New Jersey on or before December 31, 2006 in order to be
considered for inclusion in the Company's proxy statement and proxy relating to
such meeting. The Company has received no stockholders nominations or proposals
for the 2006 Annual Meeting.
Stockholders may communicate their comments or concerns about any other
matter to the Board of Directors by mailing a letter to the attention of the
Board of Directors c/o the Company at its office in East Hanover, New Jersey.
Revocability of Proxy
Shares represented by valid proxies will be voted in accordance with
instructions contained therein, or, in the absence of such instructions, in
accordance with the Board of Directors' recommendations. Any person signing and
mailing the enclosed proxy may, nevertheless, revoke the proxy at any time prior
to the actual voting thereof by attending the Annual Meeting and voting in
person, by providing written notice of revocation of the proxy or by submitting
a signed proxy bearing a later date. Any written notice of revocation should be
sent to the attention of the Secretary of the Company at the address above. Any
stockholder of the Company has the unconditional right to revoke his or her
proxy at any time prior to the voting thereof by any action inconsistent with
the proxy, including notifying the Secretary of the Company in writing,
executing a subsequent proxy, or personally appearing at the Annual Meeting and
casting a contrary vote. However, no such revocation will be effective unless
and until such notice of revocation has been received by the Company at or prior
to the Annual Meeting.
23
Method of Counting Votes
Unless a contrary choice is indicated, all duly executed proxies will be
voted in accordance with the instructions set forth on the proxy card. A broker
non-vote occurs when a broker holding shares registered in street name is
permitted to vote, in the broker's discretion, on routine matters without
receiving instructions from the client, but is not permitted to vote without
instructions on non-routine matters, and the broker returns a proxy card with no
vote (the "non-vote") on the non-routine matter. Under the rules and regulations
of the primary trading markets applicable to most brokers, both the election of
directors and the ratification of the appointment of auditors are routine
matters on which a broker has the discretion to vote if instructions are not
received from the client in a timely manner. Abstentions will be counted as
present for purposes of determining a quorum but will not be counted for or
against the election of directors or the ratification of independent auditors.
As to Item 1, the Proxy confers authority to vote for all of the seven persons
listed as candidates for a position on the Board of Directors even though the
block in Item 1 is not marked unless the names of one or more candidates are
lined out. The Proxy will be voted "For" Items 2, 3 and 4 unless "Against" or
"Abstain" is indicated. If any other business is presented at the meeting, the
Proxy shall be voted in accordance with the recommendations of the Board of
Directors.
By order of the Board of Directors
Scott Newman
President and Chief Executive Officer
July __, 2006
24
CONVERSION SERVICES INTERNATIONAL INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Scott Newman and Glenn Peipert with the
power of substitution and resubstitution to vote any and all shares of capital
stock of Conversion Services International, Inc. (the "Company") which the
undersigned would be entitled to vote as fully as the undersigned could do if
personally present at the Annual Meeting of the Company, to be held on August
[7], 2006, at 10:00 A.M. local time, and at any adjournments thereof, hereby
revoking any prior proxies to vote said stock, upon the following items more
fully described in the notice of any proxy statement for the Annual Meeting
(receipt of which is hereby acknowledged):
1. ELECTION OF DIRECTORS
VOTE
|_| FOR ALL nominees listed below EXCEPT as marked to the
contrary below
|_| WITHHOLD AUTHORITY to vote for ALL nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual
nominee strike a line through the nominee's name below.)
Scott Newman, Glenn Peipert, Lawrence K. Reisman, Joseph Santiso, Robert C.
DeLeeuw, Frederick Lester and Thomas Pear.
2. RATIFICATION OF THE APPOINTMENT OF FRIEDMAN LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR FISCAL YEAR 2006.
|_| FOR the ratification of the appointment of Friedman LLP
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
25
3. AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK
|_| FOR the Amendment of the Certificate of Incorporation
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
4. AMENDMENT OF THE COMPANY'S 2003 INCENTIVE PLAN TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
|_| FOR the Amendment of the 2003 Incentive Plan
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED,
THIS PROXY WILL BE VOTED FOR ELECTION OF THE SEVEN (7) NOMINEES NAMED IN ITEM 1,
THE RATIFICATION OF THE APPOINTMENT OF FRIEDMAN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR 2006 IN ITEM 2, THE AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION IN ITEM 3, AND THE AMENDMENT OF THE COMPANY'S 2003
STOCK INCENTIVE PLAN IN ITEM 4.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please mark, sign date and return this Proxy promptly using the
accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF CONVERSION SERVICES INTERNATIONAL INC.
Dated:
-----------------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if jointly owned:
-----------------------------------------
Print name:
-----------------------------------------
26
Please sign exactly as the name appears on your stock certificate. When
shares of capital stock are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee, guardian, or corporate
officer, please include full title as such. If the shares of capital stock are
owned by a corporation, sign in the full corporate name by an authorized
officer. If the shares of capital stock are owned by a partnership, sign in the
name of the partnership by an authorized officer.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
27
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CONVERSION SERVICES INTERNATIONAL, INC.
Pursuant to Delaware General Corporation Law Section 242, Conversion
Services International, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify:
That the board of directors, and stockholders of the Corporation holding a
majority in interest of the outstanding shares of common stock of the
Corporation, approved the following amendments to the Corporation's Certificate
of Incorporation:
Article FOURTH Section A of the Corporation's Certificate of Incorporation is
hereby amended in its entirety to read as follows:
FOURTH:
A. AUTHORIZED
The aggregate number of shares of all classes of capital stock with
the Corporation shall have authority to issue shall be one hundred
twenty million (120,000,000) shares, consisting of:
(1) twenty million (20,000,000) shares of preferred stock, par value
$.001 per share ("Preferred Stock"); and
(2) one hundred million (100,000,000) shares of common stock, par
value $.001 per share ("Common Stock").
IN WITNESS WHEREOF, the undersigned, being the President of the Corporation, has
duly executed this Certificate of Amendment as of the ____ day of _____ 2006.
CONVERSION SERVICES INTERNATIONAL, INC.
By: /s/Scott Newman
---------------------------
Scott Newman
President, Chief Executive Officer and Chairman