SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
|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:
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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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|_| 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.
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CONVERSION SERVICES INTERNATIONAL, INC.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
June __, 2005
Dear Fellow Stockholder:
The 2005 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 _________, July __, 2005 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 (including
audited financial statements) for the fiscal year ended December 31, 2004
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 four 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, 2005, (c) as to Proposal 3, the Proxy
confers authority to vote "FOR" amending the Company's Certificate of
Incorporation, as amended, to effect a reverse split of the Company's issued and
outstanding common stock, par value $.001 per share (the "Common Stock") of
between a one-for-ten (1-10) and a one-for-fifty (1-50) reverse stock split in
the discretion of the Board of Directors and to reduce the amount of the
Company's authorized Common Stock from one billion to between twenty million
(20,000,000) and one hundred million (100,000,000), in the discretion of the
Board of Directors, and (d) 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 ______ JULY __, 2005
---------------------
To our Stockholders:
Notice is hereby given that the 2005 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 ___, July __, 2005 at
10:00 a.m., for the following purposes:
1. To elect four Directors to the Board of Directors to serve until the
2006 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, 2005;
3. To amend the Certificate of Incorporation, as amended, to effect a
reverse split of the Company's issued and outstanding common stock,
par value $.001 per share (the "Common Stock") of between a
one-for-ten (1-10) and a one-for-fifty (1-50) reverse stock split in
the discretion of the Board of Directors and to reduce the amount of
the Company's authorized Common Stock from one billion to between
twenty million (20,000,000) and one hundred million (100,000,000),
in the discretion of the Board of Directors; and
4. 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 June 1, 2005, 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
June __, 2005
CONVERSION SERVICES INTERNATIONAL, INC.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
PROXY STATEMENT
2005 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 2005
Annual Meeting of Stockholders to be held at 10:00 a.m. on _____, July __, 2005
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 four Directors to the Board of Directors to serve until the 2006
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, 2005; (iii) To
amend the Certificate of Incorporation, as amended, to effect a reverse split of
the Company's issued and outstanding common stock, par value $.001 per share
(the "Common Stock") of between a one-for-ten (1-10) and a one-for-fifty (1-50)
reverse stock split in the discretion of the Board of Directors (the "Reverse
Stock Split") and to reduce the amount of the Company's authorized Common Stock
from one billion to between twenty million (20,000,000) and one hundred million
(100,000,000) in the discretion of the Board of Directors (the "Reduction of
Authorized"); and (iv) 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 June 1, 2005 (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
June __, 2004. A copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2004 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 788,474,038 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 488
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 2005 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 effect a
reverse stock split of the issued and outstanding shares of Common Stock and to
reduce 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.
"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 Proposal 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 attached hereto as Exhibits "A", "B", and "C", respectively, and
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 2004, the Board of Directors held three 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 25 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 the
independent judgment as members 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
attached hereto as Exhibits "A", "B" and "C", respectively and are posted on the
Company's website. Mr. Reisman and Mr. Santiso are the members of each of such
committees. Mr. Reisman serves as the Chair of each of such committees.
3
Audit Committee
The Audit Committee was formed in April 2005 and therefore did not meet in
2004. The Audit Committee has met once 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, 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 is attached hereto as Exhibit "A" and 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(e) of Regulation S-B.
Compensation Committee
The Compensation Committee was formed in May 2005 and therefore did not
meet during 2004. 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 is attached hereto as Exhibit "B" and 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 therefore did not meet during 2004. 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
attached hereto as Exhibit "C" and 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.
4
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 considers nominees regardless of whether they are nominated
by stockholders, the Nominating and Corporate Governance Committee or existing
board-members. All of the current nominees to serve as directors on the Board of
Directors of the Company have previously served in such capacity. During 2004
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.
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 2004
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, four 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. All of the individuals who are nominated for election
to the Board of Directors are existing directors of the Company. 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 four 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 the Company Principal Occupation Director
Since
Scott Newman 45 President and Chief President and CEO of the 2004
Executive Officer Company
Glenn Peipert 44 Executive Vice President, Executive Vice President and 2004
Chief Operating Officer COO of the Company
and Director
Lawrence K. Reisman 45 None CPA at the The Accounting 2004
Offices of L.K. Reisman
Joseph Santiso 60 None President of The BCI Group 2005
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
Croporate 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.
Board members are elected annually by the stockholders and the officers
are appointed annually by the Board of Directors.
7
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 and Santiso. 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,
2005. 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, the Registrant's former independent accountants,
Ehrenkrantz, merged with the firm of Friedman. Freidman was selected by the
Board of Directors on June 7, 2004 to audit the Company's financial statements
for the fiscal year ended December 31, 2004.
Ehrenkrantz's reports on the Company's financial statements for the fiscal
year ended December 31, 2003 or any subsequent interim period did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles. During the Company's
fiscal year ended December 31, 2003 and through the date of Ehrenkrantz's
resignation, there were no disagreements with Ehrenkrantz on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Ehrenkrantz's satisfaction, would
have caused Ehrenkrantz to make reference to the subject matter in connection
with its report of the financial statements for such periods and there were no
reportable events as defined in item 304(a)(1)(v) of Regulation S-K during such
period preceding Ehrenkrantz's resignation.
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, 2005.
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, 2005. 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 2005.
9
Information about Fees Billed by Friedman and Ehrenkrantz
Aggregate fees billed to the Company for fiscal years 2004 and 2003 by
Friedman and fees billed to the Company for a portion of fiscal year 2004 and
for fiscal year 2003 by Ehrenkrantz are as follows:
Friedman Ehrenkrantz
FY 2004 FY 2003 FY 2004 FY 2003
------- ------- ------- -------
Audit Fees $281,975 $ 0 $ 0 $ 17,500
Audit Related Fees $212,480 $ 0 $ 0 $ 0
Tax Fees $ 36,799 $ 0 $ 0 $ 0
All Other Fees $ 0 $ 0 $ 0 $ 0
All Other Fees
For the year ended December 31, 2004, the Company incurred no professional
fees to its independent auditors with respect to all other services. For the
year ended December 31, 2004, 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 A REVERSE STOCK SPLIT AND THE REDUCTION IN AUTHORIZED
General
We are requesting stockholder approval to grant the Board of Directors the
authority to effect the Reverse Stock Split and the Reduction in the Authorized
for the following reasons:
(1) the Board of Directors believes a higher stock price may help generate
investor interest in the Company;
(2) the Board of Directors believes this action will attract additional
investment in the Company; and
(3) the Board of Directors believes this action is the next logical step
in the process of restructuring the Company to align the Company's outstanding
shares of capital stock with the Company's existing financial condition and
operations to provide an opportunity for potential realization of stockholder
value, which is currently subject to the dilutive effects of the Company's
capital structure.
The Board of Directors has unanimously adopted a resolution to amend the
Certificate of Incorporation to effect the Reverse Stock Split and the Reduction
in the Authorized and to seek stockholder approval regarding such amendment.
Potential Increased Investor Interest
On June ____, 2005, the Company's Common Stock closed at $____ per share.
In approving the resolution seeking stockholder approval of the Reverse Stock
Split, the Company's Board of Directors considered that the Company's Common
Stock may not appeal to brokerage firms that are reluctant to recommend lower
priced securities to their clients. Investors may also be dissuaded from
purchasing lower priced stocks because the brokerage commissions, as a
percentage of the total transaction, tend to be higher for such stocks.
Moreover, the analysts at many brokerage firms do not monitor the trading
activity or otherwise provide coverage of lower priced stocks. Also, the board
of directors believes that most investment funds are reluctant to invest in
lower priced stocks.
THERE ARE RISKS ASSOCIATED WITH THE REVERSE STOCK SPLIT, INCLUDING THAT
THE REVERSE STOCK SPLIT MAY NOT RESULT IN AN INCREASE IN THE PER SHARE PRICE OF
THE COMPANY'S COMMON STOCK OR THAT ANY INCREASE IN THE PER SHARE PRICE OF THE
COMMON STOCK WILL NOT BE SUSTAINED.
The Company cannot predict whether the Reverse Stock Split will increase
the market price for the Common Stock. The history of similar stock split
combinations for companies in like circumstances is varied. There can be no
assurance that:
(1) the market price per share of the Common Stock after the Reverse Stock
Split will rise in proportion to the reduction in the number of shares of the
Company's Common Stock outstanding before the Reverse Stock Split; and
11
(2) the Reverse Stock Split will result in a per share price that will
attract brokers and investors who do not trade in lower priced stocks.
The market price of the Company's Common Stock will also be based on the
Company's performance and other factors, some of which are unrelated to the
number of shares outstanding. If the Reverse Stock Split is effected and the
market price of the Company's Common Stock declines, the percentage decline as
an absolute number and as a percentage of the Company's overall market
capitalization may be greater than would occur in the absence of the Reverse
Stock Split. Furthermore, the liquidity of the Common Stock could be adversely
affected by the reduced number of shares that would be outstanding after the
Reverse Stock Split.
For illustrative purposes only, the following table shows approximately
the effect on our common stock outstanding, reserved for issuance and available
for future issuances as it relates to the various potential ratios for the
Reverse Stock Split and the Reduction in Authorized:
Prior to After Reverse Stock Split
Reverse
Stock Split 1-for 10 1-for-20 1-for-30 1-for-40 1-for-50
Authorized 1,000,000,000 100,000,000 50,000,000 33,333,333 25,000,000 20,000,000
Issued and outstanding 788,474,038 78,847,404 39,423,702 26,282,468 19,711,851 15,769,481
common stock:
Shares reserved for issuance 180,464,284 18,046,428 9,023,214 6,015,476 4,511,607 3,609,286
Available for future
issuance assuming proportionate
reduction in authorized 31,061,678 3,106,168 1,553,084 1,035,389 776,542 621,233
Available for future issuance
assuming
reduction to 100,000,000
authorized -- 3,106,168 51,553,084 67,702,056 75,776,542 80,621,233
Available for future issuance
assuming
reduction to 75,000,000 authorized -- -- 26,553,084 45,702,056 50,776,542 55,621,233
Available for future issuance
assuming
reduction to 50,000,000 authorized -- -- 1,553,084 17,702,056 25,776,542 30,621,233
(1) Includes 50,000,000 shares reserved for the exercise of options
granted or that may be granted under the Company's stock option plan, 22,166,666
shares issuable upon the exercise of outstanding warrants and 108,297,618 shares
of common stock underlying convertible notes at their current conversion prices.
This table illustrates the amount of shares that would be available for
future issuance after the Reverse Stock Split and Reduction in Authorized if a
proportional ratio were applied to each of the Reverse Stock Split and the
Reduction in Authorized and if such ratios were not proportional. For example,
the Company may determine to apply a 1-for-50 reverse stock split and reduce the
authorized to 100,000,000, which would leave 80,621,233 shares of Common Stock
available for future issuance. Under such circumstances, if the Company then
issues additional shares, the ownership interests of holders of the Company's
Common Stock may be diluted. The Company has not made any determination with
respect to whether the ratios of the Reverse Stock Split and the Reduction in
Authorized will be proportional.
12
Determination Of The Ratio For The Reverse Stock Split And The Amount Of The
Reduction In Authorized
The ratio of the Reverse Stock Split and the Reduction in Authorized will
be determined together by the Company's Board of Directors, in its sole
discretion. The ratio of the Reverse Stock Split will not exceed a ratio of
one-for-fifty (1-50) or be less than a ratio of one-for-ten (1-10). In
determining the Reverse Stock Split, the Company's Board of Directors will
consider numerous factors including the historical and projected performance of
the Company's Common Stock, prevailing market conditions and general economic
trends, and will place emphasis on the expected closing price of the Common
Stock in the period following the effectiveness of the Reverse Stock Split. The
Company's Board of Directors will also consider the impact of the Reverse Stock
Split ratio on investor interest. The purpose of selecting a range is to give
the Company's board of directors the flexibility to meet business needs as they
arise, to take advantage of favorable opportunities and to respond to a changing
corporate environment.
The amount of the Reduction in Authorized will be reduced to a number
between twenty million (20,000,000) and one hundred million (100,000,000). In
determining the amount of the Reduction in Authorized the Board of Directors
will consider numerous factors including the ratio of the Reverse Stock Split,
the historical and projected performance of the Company's Common Stock,
prevailing market conditions and general economic trends, and will place
emphasis on the Company's current and expected growth and projected and
potential acquisition plans and/or financing plans in the period following the
effectiveness of Reduction in Authorized. The Board of Directors will also
consider the impact of the Reduction in Authorized on investor interest. The
purpose of providing the Company's Board of Directors with the discretion to
determine the amount of the Reduction in Authorized is to give the Board of
Directors the flexibility to meet business needs as they arise, to take
advantage of favorable opportunities and to respond to a changing corporate
environment.
Principal Effects Of The Reverse Stock Split And The Reduction In Authorized
If and when the Board of Directors decides to implement the Reverse Stock
Split and the Reduction 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 _____________________________
(__________) shares, consisting of:
(1) Twenty Million (20,000,000) shares of preferred stock, par value $.001
per share ("Preferred Stock"); and
13
(2) ____________________ (_________________) shares of common stock, par
value $.001 per share ("Common Stock").
Upon the effectiveness (the "Effective Date") of the certificate of
amendment to the certificate of incorporation containing this sentence each [*]
shares of the Common Stock issued and outstanding as of the date and time
immediately preceding [date on which the certificate of amendment is filed], the
effective date of a reverse stock split (the "Split Effective Date"), shall be
automatically changed and reclassified, as of the Split Effective Date and
without further action, into one (1) fully paid and nonassessable share of
Common Stock. There shall be no fractional shares issued. A holder of record of
Common Stock on the Split Effective Date who would otherwise be entitled to a
fraction of a share shall have the number of new shares to which they are
entitled rounded up to the next whole number of shares. Stockholders will not
receive cash in lieu of fractional shares."
The Reverse Stock Split will be effected simultaneously for all the
Company's Common Stock and the exchange ratio will be the same for all of the
issued Common Stock. The Reverse Stock Split will affect all of the stockholders
uniformly and will not affect any stockholder's percentage ownership interests
in the Company (except for the immaterial change due to the rounding up). All
shares of issued Common Stock will remain fully paid and nonassessable. The
Reverse Stock Split will not affect the Company's continuing to be subject to
the periodic reporting requirements of the Exchange Act.
The certificate of amendment filed with the Secretary of State of the
State of Delaware will include only those numbers determined by the Board of
Directors to be in the best interests of the Company and its stockholders. The
Board of Directors will not implement any subsequent amendments providing
additional splits.
Based on stock information as of the Record Date after completion of the
Reverse Stock Split and Reduction in Authorized, the Company will have
approximately between _______ and ________ shares of issued and outstanding
Common Stock and between 20,000,000 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 (1) the exercise of outstanding convertible securities,
options or warrants to purchase Common Stock or (2) upon acquisitions of the
stock or assets of other companies. 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.
14
Procedure For Effecting The Reverse Stock Split And Exchange Of Stock
Certificates
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
reverse stock split (the "Split Effective Date"). The form of certificate of
amendment to the Certificate of Incorporation is attached as Exhibit D to this
Proxy Statement and would be tailored to the specific Reverse Stock Split ratio
to be effected. The Reverse Stock Split will become effective on the Split
Effective Date. Beginning on the Split Effective Date, each certificate
representing old shares will be deemed for all corporate purposes to evidence
ownership of new shares.
As soon as practicable after the Split Effective Date, stockholders will
be notified that the Reverse Stock Split has been effected. The Reverse Stock
Split will take place on the Split Effective Date without any action on the part
of the holders of the Common Stock and without regard to current certificates
representing shares of Common Stock being physically surrendered for
certificates representing the number of shares of Common Stock each stockholder
is entitled to receive as a result of the Reverse Stock Split. New certificates
of Common Stock will not be issued.
Any old shares submitted for transfer, whether pursuant to a sale or other
disposition, or otherwise, will automatically be exchanged for new shares.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT
SUBMIT ANY CERTIFICATE(S) UNLESS REQUESTED TO DO SO.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock
Split. Stockholders who would otherwise be entitled to receive fractional shares
as a result of the Reverse Stock Split will have the number of new shares to
which they are entitled rounded up to the next whole number of shares.
Stockholders will not receive cash in lieu of fractional shares.
Effect On CSI Employees and Directors
If you are a CSI employee, the number of shares reserved for issuance
under CSI's existing stock option plan will be reduced proportionately based on
the Reverse Stock Split ratio selected by the Board of Directors. In addition,
the number of shares issuable upon the exercise of options and the exercise
price for such options will be adjusted based on the reverse stock split ratio
selected by the Board of Directors.
If you are a current or former employee or a director of CSI, you may own
CSI restricted securities, which would all be adjusted based on the Reverse
Stock Split ratio selected by the Board of Directors.
Accounting Matters
The Reverse Stock Split will not affect total stockholders' equity on the
Company's balance sheet. However, because the par value of the Company's Common
Stock will remain unchanged on the Split Effective Date, the components that
make up total stockholders' equity will change by offsetting amounts. Depending
on the size of the Reverse Stock Split the Company's Board of Directors decides
to implement, the stated capital component will be reduced to an amount between
one-tenth (1/10) and one-fiftieth (1/50) of its present amount, and the
additional paid-in capital component will be increased with the amount by which
the stated capital is reduced. The per share net income or loss and net book
value of the Company's Common Stock will be increased because there will be
fewer shares of the Company's Common Stock outstanding. Prior periods' per share
amounts will be restated to reflect the Reverse Stock Split.
15
Potential Anti-Takeover Effect
Although the increased proportion of authorized shares of preferred stock
that may be issued could, under certain circumstances, have an anti-takeover
effect (for example, by permitting issuances that would dilute the stock
ownership of a person seeking to effect a change in the composition of the
Company's Board of Directors or contemplating a tender offer or other
transaction for the combination of the Company with another company). The
Reverse Stock Split proposal is not being proposed in response to any effort of
which the Company is aware of to accumulate shares of the Company's Common Stock
or to obtain control of the Company, nor is it part of a plan by management to
recommend a series of similar amendments to the Board of Directors and
stockholders. Other than the Reverse Stock Split and Reduction of Authorized
proposals, the Board of Directors does not currently contemplate recommending
the adoption of any other actions that could be construed to affect the ability
of third parties to take over or change control of the Company.
Federal Income Tax Consequences
The following is a summary of certain material federal income tax
consequences of the Reverse Stock Split and does not purport to be a complete
discussion of all of the possible federal income tax consequences of the Reverse
Stock Split and is included for general information only. Further, it does not
address any state, local or foreign income or other tax consequences. For
example, the state and local tax consequences of the Reverse Stock Split may
vary significantly as to each stockholder, depending upon the state in which
such stockholder resides. Also, it does not address the tax consequences to
holders that are subject to special tax rules, such as banks, insurance
companies, regulated investment companies, personal holding companies, foreign
entities, nonresident alien individuals, broker-dealers and tax-exempt entities.
The discussion is based on the provisions of the United States federal income
tax law as of the date hereof, which is subject to change retroactively as well
as prospectively. This summary also assumes that the old shares were, and the
new shares will be, held as a "capital asset," as defined in the Internal
Revenue Code of 1986, as amended (the "Code") (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder is
urged to consult with such stockholder's own tax advisor with respect to the tax
consequences of the Reverse Stock Split.
No gain or loss should be recognized by a stockholder upon such
stockholder's exchange of old shares for new shares pursuant to the Reverse
Stock Split. The aggregate tax basis of the new shares received in the Reverse
Stock Split (including any fraction of a new share deemed to have been received)
will be the same as the stockholder's aggregate tax basis in the old shares
exchanged therefor. The stockholder's holding period for the new shares will
include the period during which the stockholder held the old shares surrendered
in the Reverse Stock Split.
The Company's view regarding the tax consequence of the Reverse Stock
Split is not binding on the Internal Revenue Service or the courts. Accordingly,
each stockholder should consult with such stockholder's own tax advisor with
respect to all of the potential tax consequences to such stockholder of the
Reverse Stock Split.
16
Dissenter's Rights
Under the DGCL, the Company's stockholders are not entitled to dissenter's
rights with respect to the Reverse Stock Split, and the Company will not
independently provide stockholders with any such right.
Vote Required
The approval of the Reverse Stock Split and Reduction 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" this
Proposal 3 to approve the Reverse Stock Split and the Reduction in Authorized.
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, 2004, 2003 and 2002: (i)
individuals who served as, or acted in the capacity of, our principal executive
officer for the fiscal year ended December 31, 2004; 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
$100,000 with respect to the fiscal year ended December 31, 2004 and who were
employed at the end of fiscal year 2004.
SUMMARY COMPENSATION TABLE*
Long Term Compensation
----------------------
Annual Compensation(1) Awards Payouts
---------------------------------- ----------------------- ---------------------
Name and Principal Position Year Salary Bonus
--------------------------- ---- ------ ----- Other Annual Restricted Securities LTIP All Other
Compensation Stock Underlying Payouts Compensation
------------ Award(s) Options/SARs ------- ------------
-------- ------------
($) ($) ($) ($) (#) ($) ($)
Scott Newman 2004 487,270 -- -- -- -- -- 14,054(2)
President, Chief Executive 2003 244,452 -- -- -- -- -- 206,686(3)
Officer and Chairman 2002 143,750 -- -- -- -- -- 259,418(3)
Glenn Peipert 2004 362,180 -- -- -- -- -- 14,054(2)
Executive Vice President, 2003 223,016 -- -- -- -- -- 171,309(4)
Chief Operating Officer and 2002 143,750 -- -- -- -- -- 199,166(4)
Director
Mitchell Peipert, Vice 2004 193,524 -- -- -- 4,500,000 -- 14,413(2)
President, Chief Financial 2003 10,000 -- -- -- -- -- 1,133(2)
Officer, Treasurer and 2002 138,750 -- -- -- -- -- 13,591(2)
Secretary
Robert C. DeLeeuw, Senior Vice 2004 329,400 -- -- -- -- -- 592(5)
President and President of
DeLeeuw Associates, LLC
Steven Huber, Vice President 2004 273,168 -- -- -- 4,500,000 -- 6,686(2)
and General Manager 2003 170,042 -- -- -- -- -- 6,971(2)
----------
* Salary reflects total compensation paid to these executives (both before
and after the merger described in Item 1).
17
(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.
(3) Amounts shown reflect distributions resulting from the operating entity's
past tax status as a Subchapter S corporation of $209,020 in 2002 and
$153,738 in 2003, as well as $50,398 in 2002 and $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 $134,252 in 2002 and
$101,988 in 2003, as well as $64,914 in 2002 and $63,645 in 2003 of
expenses, which include auto, travel and equipment purchases paid for by
the Company.
(5) Amounts shown reflect payment related to life insurance.
Option/SAR Grants as of December 31, 2004
-------------------------------------------------------------------------------------------------------
Name Number of securities Percent of total Exercise or Expiration Date
underlying options/SARs base price
options/SARs granted granted to ($/Sh)
(#) (1) employees in fiscal
year
-------------------------------------------------------------------------------------------------------
Mitchell Peipert 4,500,000 13.2% $0.165 March 28, 2014
-------------------------------------------------------------------------------------------------------
(1) All options were granted under the Company's 2003 Incentive Plan. Mr.
Peipert's options were granted on March 29, 2004. One-third of such options vest
upon the first anniversary of the grant date, one-third vest on the second
anniversary of the grant date, and one-third vest on the third anniversary of
the grant date.
AGGREGATE OPTIONS EXERCISABLE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 2004 (1) at December 31, 2004 (1)
-------------------------------- ------------------------
Name and Principal Position Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ----------- ------------- ----------- -------------
Mitchell Peipert 0 4,500,000 0 $990,000
Vice President, Chief Financial Officer,
Secretary and Treasurer
--------------------------------------------------------------------------------
(1) As of December 30, 2004 the market value of a share of Common Stock was
$0.22. No shares were exercised by executive officers or directors in fiscal
year ended December 31, 2004.
2003 Incentive Plan
General
The 2003 Incentive Plan was approved at a special meeting of our
stockholders on January 23, 2004. The Plan authorizes us to issue 100 million
shares of Common Stock for issuance upon exercise of options, of which we have
reserved 75 million shares. It also authorizes the issuance of stock
appreciation rights, referred to herein as SARs. The Plan authorizes us to
grant:
18
incentive stock options to purchase shares of our Common Stock,
non-qualified stock options to purchase shares of Common Stock, and
SARs and shares of restricted Common Stock.
The Plan may be amended, terminated or modified by our Board 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 our officers, other
key employees, consultants, professionals and non-employee directors to achieve
financial results aimed at increasing stockholder value and attracting talented
individuals to CSI. 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 a committee of our Board of
Directors, can have a significant effect on our success.
Oversight
The Board, acting as a whole, or a committee thereof appointed by our
Board, will 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 such 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 us 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 Code.
Eligibility
Under the Plan, we may grant incentive stock options only to our officers
and employees, and we may grant non-qualified options to officers and employees,
as well as our directors, independent contractors and agents.
19
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 $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 its 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 our stock or of any parent or
subsidiary corporation, not more than five 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 us 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 its 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.
20
Tax Consequences
An employee or director will not recognize income on the awarding of
incentive stock options and nonstatutory options under the Plan.
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, 2004, options to purchase a total of 41,265,981 shares
of Common Stock were outstanding at an exercise prices ranging from $0.055 to
$0.23 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. However,
8,900,981 options granted during 2004 were immediately vested upon grant and had
a below fair-market value exercise price of $0.055 per share. The Company
recorded $1.4 million of compensation expense with respect to this option grant
during 2004. All options expire on the ten year anniversary of their grant date.
All options described above have been issued pursuant to the 2003
Incentive Plan described above.
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. 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 the longer of (1) three year's base salary
or (2) the period from the date of termination through the expiration date.
21
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. 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 the longer of (1) three year's base
salary or (2) the period from the date of termination through the expiration
date.
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. 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 the longer of (1) three
year's base salary or (2) the period from the date of termination through the
expiration date.
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. 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.
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, 2004
to December 31, 2004 all Section 16(a) filing requirements applicable to its
Reporting Persons were complied with.
22
Security Ownership of Certain Beneficial Owners And Management
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock, our only class of outstanding voting
securities as of June 15, 2005, based on ________ 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 and officers, and (iii) all
officers and directors as a group:
---------------------------------------------------------------------------------------------------------------------
Name and Address of Amount of Common Stock Percentage of Outstanding Common Stock
Beneficial Owner(1)(2) Beneficially Owned Beneficially Owned
---------------------- ------------------ ------------------
---------------------------------------------------------------------------------------------------------------------
Scott Newman(3) 289,195,833 36.7%
---------------------------------------------------------------------------------------------------------------------
Glenn Peipert(4) 144,333,333 18.3%
---------------------------------------------------------------------------------------------------------------------
Mitchell Peipert(5) 1,500,000 *
---------------------------------------------------------------------------------------------------------------------
Robert C. DeLeeuw(6) 80,000,000 10.2%
---------------------------------------------------------------------------------------------------------------------
Lawrence K. Reisman(7) 150,000 *
---------------------------------------------------------------------------------------------------------------------
Joseph Santiso (8) * *
---------------------------------------------------------------------------------------------------------------------
WHRT I Corp. (9) 72,543,956 9.3%
---------------------------------------------------------------------------------------------------------------------
All directors and officers as a group (5
persons) 515,179,166 65.3%
---------------------------------------------------------------------------------------------------------------------
----------
* 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 except for WHRT I Corp. 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.
(5) Mr. Mitchell Peipert is the Company's Vice President, Chief Financial
Officer, Secretary and Treasurer. Consists of an option to purchase
1,500,000 shares of Common Stock granted on March 29, 2004 at an exercise
price of $0.165 per share. Does not include an option to purchase
3,000,000 shares of Common Stock granted on March 29, 2004 at an exercise
price of $0.165 per share, of which 1,500,000 shares vest on March 29,
2006 and 1,500,000 shares vest on March 29, 2007. 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. The option grant expires on March 28, 2014.
(6) Mr. DeLeeuw is the Company's Senior Vice President and the President of
the Company's wholly owned subsidiary, DeLeeuw Associates, LLC.
(7) Mr. Reisman is a Director. Consists of an option to purchase 150,000
shares of Common Stock granted on May 28, 2004 at an exercise price of
$0.20 per share. Does not include an option to purchase 300,000 shares of
Common Stock granted on May 28, 2004 at an exercise price of $0.20 per
share, of which 150,000 shares vest on May 28, 2006 and 150,000 shares
vest on May 28, 2007. 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. The option grant expires on May 27, 2014.
23
(8) Mr. Santiso is a Director.
(9) Based on a Schedule 13G filed with the Securities Exchange Commission on
July 8, 2004. WHRT I Corp.'s address is c/o Tudor Ventures, 50 Rowes
Wharf, 6th Floor, Boston, Massachusetts 02420.
Equity Compensation Plan Disclosure
The following table sets forth certain information as of December 31, 2004
regarding our Equity Compensation Plan:
Number of securities
Number of securities to Weighted-average remaining available for
be issued upon exercise exercise price of future issuance under
of outstanding options, outstanding options, equity compensation
Plan Category warrants and rights warrants and rights plans
----------------------- ----------------------- -------------------- -----------------------
Equity Compensation 41,265,981 $0.15 8,734,019
Plans Approved by
Security Holders
Equity Compensation -- -- --
Plans Not Approved by
Security Holders
---------- ----- ----------
Total 41,265,981 $0.15 8,734,019
========== ===== ==========
Certain Relationships and Related Party Transactions
In November 2003, the Company executed an Independent Contractor Agreement
with LEC, whereby the Company agreed to be a subcontractor for LEC, and to
provide consultants as required to LEC. In return for these services, the
Company receives a fee from LEC based on the hourly rates established for
consultants subcontracted to LEC. In May 2004, the Company acquired 49% of all
issued and outstanding shares of common stock of LEC. The acquisition was
completed through a Stock Purchase Agreement between the Company and the sole
stockholder of LEC. In connection with the acquisition, the Company (i) repaid a
bank loan on behalf of the seller in the amount of $35,000; (ii) repaid an LEC
bank loan in the amount of $38,000; and (iii) satisfied an LEC obligation for
$10,000 of prior compensation to an employee. For the year ended December 31,
2004, the Company invoiced LEC $3.8 million for the services of consultants
subcontracted to LEC by the Company. As of December 31, 2004, the Company had
accounts receivable due from LEC of approximately $0.8 million. There are no
known collection problems with respect to LEC. The majority of their billing is
derived from Fortune 1000 clients. The collection process is slow as these
clients require separate approval on their own internal systems, which extends
the payment cycle. The Company feels confident in the collectibility of these
accounts receivable as the majority of the revenues from LEC derive from Fortune
1000 clients.
24
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 2,833,333 shares of Common Stock for a purchase price of
$250,000. As of June 3, 2005, the shares have not been issued to CMKX-treme,
Inc. because it has not yet remitted payment for the shares.
On November 8, 2004, Mr. Peipert entered into a stock purchase agreement
with a private investor, CMKX-treme, Inc. Pursuant to the agreement, CMKX-treme,
Inc. agreed to purchase 5,666,667 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. As of
June 3, 2005, an aggregate amount of $200,000 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 November 17, 2004, Mr. Newman has agreed to personally support our
cash requirements to enable us to fulfill our obligations through March 31,
2005, to the extent necessary, up to a maximum amount of $0.5 million. We
believe that our reliance on such commitment is reasonable and that Mr. Newman
has sufficient liquidity and net worth to honor such commitment. We believe that
Mr. Newman's written commitment provides us with the legal right to request and
receive such advances. Any loan by Mr. Newman to the Company would bear interest
at 3% per annum. As of December 31, 2004, Scott Newman, our President, Chief
Executive Officer and Chairman, loaned the Company $0.2 million, and Glenn
Peipert, our Executive Vice President, Chief Operating Officer and Director,
loaned the Company $0.125 million. These unsecured loans by Mr. Newman and Mr.
Peipert each accrue interest at a simple rate of 3% per annum, and each has a
term expiring on January 1, 2006. As of May 12, 2005, approximately $0.177
million and $0.374 million remained outstanding to Messrs. Newman and Peipert,
respectively.
As of March 30, 2005, Messrs. Newman, Peipert and Robert C. DeLeeuw have
agreed to personally support our cash requirements to enable us to fulfill our
obligations through May 1, 2006, to the extent necessary, up to a maximum amount
of $2.5 million. Mr. Newman personally guaranties up to $1.4 million, Mr.
Peipert guaranties up to $0.7 million and Mr. DeLeeuw personally guaranties
approximately $0.4 million. We believe that our reliance on such commitment is
reasonable and that Messrs. Newman, Peipert and DeLeeuw have sufficient
liquidity and net worth to honor such commitment. We believe that this written
commitment provides us with the legal right to request and receive such
advances. Any loan by Messrs. Newman, Peipert and DeLeeuw to the Company would
bear interest at 3% per annum. In May 2005, Mr. Newman loaned the Company
$500,000, and Mr. Peipert loaned the Company $500,000. These unsecured loans by
Mr. Newman and Mr. Peipert each accrue interest at a simple rate of 3% per
annum, and has a term expiring on June 1, 2006.
As of June 3, 2005, approximately $688,000 million and $622,000 million
remained outstanding to Messrs. Newman and Peipert, respectively, on all loans
to the Company.
As of June 13, 2005, Messrs. Newman, Peipert and DeLeeuw have agreed to
personally support our cash requirements to enable us to fulfill our obligations
through July 1, 2006, to the extent necessary, up to a maximum amount of $1.5
million. We believe that our reliance on such commitment is reasonable and that
Messrs. Newman, Peipert and DeLeeuw have sufficient liquidity and net worth to
honor such commitment. We believe that this written commitment provides 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.
25
Dr. Michael Mitchell, the former President, Chief Executive Officer and
sole director of LCS, had loaned an aggregate of $0.93 million to us. This loan
was converted into shares of our common stock at the closing of the merger of
LCS and CSI.
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.
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 for the fiscal year ended December 31,
2004, 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, 2005, and FOR the amendment of the Company's Certificate of
Incorporation to effect a reverse stock split and reduce the authorized shares
of the Company's Common Stock.
26
Stockholder Proposals For 2006 Annual Meeting and General Communications
Any stockholder proposals intended to be presented at the Company's 2006
Annual Meeting of Stockholders must be received by the Company at its office in
East Hanover, New Jersey on or before December 31, 2005 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 2005 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.
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 four 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 and 3 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
June __, 2005
27
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 July __,
2005, 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 and Joseph Santiso.
2. RATIFICATION OF THE APPOINTMENT OF FRIEDMAN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR FISCAL YEAR 2005.
|_| FOR the ratification of the appointment of Friedman LLP
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
28
3. AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
OF THE COMPANY'S COMMON STOCK AND REDUCE THE NUMBER OF THE COMPANY'S AUTHORIZED
SHARES OF COMMON STOCK
|_| FOR the Amendment of the Certificate of Incorporation
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED,
THIS PROXY WILL BE VOTED FOR ELECTION OF THE FOUR (4) NOMINEES NAMED IN ITEM 1,
THE RATIFICATION OF THE APPOINTMENT OF FRIEDMAN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR 2005 IN ITEM 2, AND THE AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION IN ITEM 3.
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:
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
29
Exhibit "A"
Audit Committee Charter
The following Audit Committee Charter is to be adopted by the Audit
Committee of the Board of Directors and the Board of Directors of Conversion
Services International, Inc. (the "Company"):
1. Members. The Board of Directors appoints an Audit Committee of at least two
(2) members, consisting entirely of "independent" directors of the Board, and
designates one member as chair. "Independent" means a director who meets the
definition of "independence" under the rules and regulations of the Securities
and Exchange Commission, and The American Stock Exchange or the Over The Counter
Bulletin Board (as applicable) as determined by the Board of Directors.
The chair of the Audit Committee must be financially sophisticated and shall
have past employment experience in finance or accounting, requisite professional
certification in accounting or other comparable experience or background, as
determined by the Board of Directors. Each other member of the Audit Committee
must be financially literate and be able to read and understand fundamental
financial statements, including a balance sheet, income statement and cash flow
statement, as determined by the Board of Directors. Members of the Audit
Committee may not receive fees from the Company except as permitted by rules of
the Securities and Exchange Commission, and The American Stock Exchange or the
Over The Counter Bulletin Board (as applicable). Each appointed member of the
Audit Committee shall be subject to annual reconfirmation and may be removed by
the Board of Directors at any time.
2. Audit Committee Financial Expert. At least one of the independent members of
the Audit Committee shall be an "Audit Committee Financial Expert" under the
rules and regulations of the Securities and Exchange Commission and The American
Stock Exchange, as determined by the Board of Directors.
3. Purposes, Duties, and Responsibilities. The Audit Committee represents the
Board of Directors in discharging its responsibility relating to the accounting,
reporting and financial practices of the Company and its subsidiaries. In such
capacity, the Audit Committee has (i) direct responsibility for the appointment,
compensation, retention (and termination) and oversight of the work of the
independent auditor for the purpose of preparing audit reports or performing
other audit, review or attest services for the Company, and (ii) oversight
responsibility for internal controls, accounting and audit activities and the
Code of Conduct and Ethics of the Company and its subsidiaries. However, the
Audit Committee shall not relieve the Company's management of its
responsibilities for preparing financial statements which accurately and fairly
present the Company's financial results and conditions or the responsibilities
of the independent accountants relating to the audit or review of financial
statements. Specifically, the Audit Committee will:
(a) Have the authority and responsibility with respect to the
appointment, compensation, retention (and termination) and oversight
of the work of the independent public accountants as auditors of the
Company for the purpose of preparing audit reports or performing
other audit, review or attest service and to perform the annual
audit in accordance with the Sarbanes-Oxley Act.
(b) Be the body to which the independent auditor of the Company directly
reports.
(c) Ensure the receipt from the independent accountants of the Company a
written statement delineating all relationships between such
independent accountants and the Company (consistent with
Independence Standards Board Standard 1); discuss and review with
the independent accountants any disclosed relationships or services
which may impact the objectivity and independence of the independent
accountant; and make recommendations to the Board as to appropriate
action to be taken to oversee the independence of the independent
accountant.
(d) Review with the independent accountants the scope of the audit and
the results of the annual audit examination by the independent
accountants and any reports of the independent accountants with
respect to reviews of interim financial statements.
(e) Review information, including written statements from the
independent accountants, concerning any relationships between the
auditors and the Company or any other relationships that may
adversely affect the independence of the auditors and assess the
independence of the outside auditor.
(f) Review and discuss with management and the independent auditors the
Company's annual audited financial statements, including a
discussion with the auditors of their judgments as to the quality of
the Company's accounting principles.
(g) Review the services to be provided by the independent auditors to
assure that the independent auditors do not undertake any engagement
for services for the Company that would constitute prohibited
services or could be viewed as compromising the auditor's
independence.
(h) Review with management and the independent auditors the results of
any significant matters identified as a result of the independent
auditors' interim review procedures prior to the filing of each Form
l0-QSB or as soon thereafter as possible. The Audit Committee Chair
may perform this function on behalf of the Audit Committee.
(i) Review the annual program for the Company's internal audits, if any,
and review audit reports submitted by the internal auditing staff,
if any.
(j) Periodically review the adequacy of the Company's internal controls.
(k) Review changes in the accounting policies of the Company and
accounting and financial reporting proposals that are provided by
the independent accountants that may have a significant impact on
the Company's financial reports, and make comments on the foregoing
to the Board of Directors.
(l) Oversee and review annually the Company's Code of Conduct and
Ethics, as well as Company's procedures related thereto.
(m) Review the adequacy of the Audit Committee Charter on an annual
basis.
(n) Make reports and recommendations to the Board of Directors within
the scope of its functions.
(o) Approve material contracts where the Board of Directors determines
that it has a conflict.
(p) Establish procedures for receipt, retention and treatment of
complaints received regarding accounting, internal accounting
controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
(q) Have authority to engage independent legal counsel and other
advisors which the Audit Committee deems necessary or appropriate to
carryout its duties; prepare a budget for the operations of the
Audit Committee; and maintain a separate bank account for this
purpose.
(r) Satisfy itself that management put into place procedures that
facilitate compliance with the Disclosure and Financial Reporting
Controls provisions of the Sarbanes-Oxley Act.
(s) Review all loans to officers and maintain records of meetings and
other documents.
(t) Review and monitor all related party transactions which may be
entered into by the Company as required by rules of the Securities
and Exchange Commission, The American Stock Exchange or the Over The
Counter Bulletin Board (as applicable).
4. Meetings. The Audit Committee will meet on a regular basis at least once
every quarter, and will hold special meetings as it deems necessary or
appropriate in its judgment. However, the Audit Committee will meet at any time
that the independent accountants believe that communication to the Audit
Committee is required. Meetings may be held in person or telephonically, and
shall be at such times and places as the Audit Committee determines. As it deems
appropriate, but not less than once each year, the Audit Committee will meet in
private session with the independent accountants and with the Internal Audit
Manager. The majority of the members of the Audit Committee constitute a quorum
and shall be empowered to act on behalf of the Audit Committee. Minutes shall be
kept of each meeting of the Audit Committee.
Exhibit "B"
Compensation Committee Charter
The following Compensation Committee Charter was adopted by the Board of
Directors of Conversion Services International, Inc. (the "Company"):
1. Members. The Board of Directors appoints a Compensation Committee of at least
two (2) members, consisting entirely of "outside" directors of the Board and
designates one (1) member as chair. "Outside Director" means a director who
meets the definition of "outside director" under the Regulations to Section
162(m) of the Internal Revenue Code, as determined by the Board of Directors. In
addition, each member of the Compensation Committee must meet the definition of
"independent director" within the rules and regulations of the Securities and
Exchange Commission ("SEC") , and The American Stock Exchange or the Over The
Counter Bulletin Board (as applicable), as determined by the Board of Directors.
Each appointed member of the Compensation Committee will be subject to annual
reconfirmation and may be removed by the Board of Directors at any time.
2. Purposes, Duties and Responsibilities. The Compensation Committee advises the
Board of Directors with respect to the compensation of senior company employees
and determines certain compensation awards for executives. Specifically, the
Compensation Committee will:
(a) Set the compensation for the Chairman of the Board and the Chief
Executive Officer ("CEO").
(b) Set the compensation of other executive officers based upon the
recommendation of the CEO.
(c) Make awards to executives under the 2003 Incentive Plan and other
plans as approved by the Board of Directors.
(d) Review and approve the design of other benefit plans pertaining to
executives of the company.
(e) Approve such reports on compensation as are necessary for filing with
the SEC and other government bodies.
(f) Review, recommend to the Board of Directors, and administer all plans
that require "disinterested administration" under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.
(g) Approve the amendment or modification of any compensation or benefit
plan pertaining to executives of the Company that does not require stockholder
approval.
(h) Review and recommend to the Board of Directors changes to the outside
directors' compensation.
(i) Retain outside consultants and obtain assistance from members of
management as the Compensation Committee deems appropriate in the exercise of
its authority.
(j) Make reports and recommendations to the Board of Directors within the
scope of its functions.
(k) Approve all special perquisites, special cash payments and other
special compensation and benefit arrangements for the Company's executive
officers.
(l) Review the Committee charter from time to time and recommend any
changes thereto to the Board of Directors.
3. Meetings. The Compensation Committee will meet as often as it deems necessary
or appropriate, in its judgment, either in person or telephonically, and at such
times and places as the Committee determines. The majority of the members of the
Compensation Committee constitutes a quorum and shall be empowered to act on
behalf of the Compensation Committee. Minutes will be kept of each meeting of
the Compensation Committee.
Exhibit "C"
Nominating and Corporate Governance Committee Charter
The following Nominating and Corporate Governance Committee Charter was adopted
by the Board of Directors of Conversion Services International, Inc. (the
"Company"):
1. Members. The Board of Directors appoints a Nominating and Corporate
Governance Committee of at least two (2) "independent" directors of the Board
and designates one (1) member as chair. "Independent" means a director who meets
the definition of "independence" under the rules and regulations of the
Securities and Exchange Commission ("SEC") , and The American Stock Exchange or
the Over The Counter Bulletin Board (as applicable), as determined by the Board
of Directors. Each member of the Nomination and Corporate Governance Committee
shall be subject to annual reconfirmation and may be removed by the Board at any
time.
2. Purposes, Duties and Responsibilities. The Nominating and Corporate
Governance Committee assists the Board of Directors in identifying, screening
and recommending qualified candidates to serve as directors of the Company and
in maintaining oversight of the Board of Directors' operations and
effectiveness. Specifically, the Nominating and Corporate Governance Committee
will:
(a) Recommend to the Board of Directors candidates for election or
reelection to the Board of Directors at each Annual Meeting of Stockholders of
the Company.
(b) Recommend to the Board of Directors candidates for election by the
Board of Directors to fill vacancies occurring on the Board of Directors.
(c) Consider stockholder nominees.
(d) Make recommendations to the Board of Directors concerning the
selection criteria to be used by the Nominating and Corporate Governance
Committee in seeking nominees for election to the Board of Directors.
(e) Aid in attracting qualified candidates to serve on the Board of
Directors.
(f) Make recommendations to the Board of Directors concerning the
structure, composition and functioning of the Board of Directors and all Board
of Directors committees.
(g) Review Board of Directors meeting procedures, including the
appropriateness and adequacy of the information supplied to directors prior to
and during Board of Directors meetings.
(h) Review and recommend retirement policies for directors.
(i) Review any outside directorships in other public companies held by
senior company officials.
(j) Periodically receive and consider recommendations from the Chief
Executive Officer ("CEO") regarding succession at the CEO and other senior
officer levels.
(k) Make reports and recommendations to the Board of Directors within the
scope of its functions.
(l) Review the Nominating and Corporate Governance Committee Charter from
time to time and recommend any changes thereto to the Board of Directors.
3. Meetings. The Nominating and Corporate Governance Committee will meet as
often as it deems necessary or appropriate, in its judgment, either in person or
telephonically, and as such times and places as the Committee determines. The
majority of the members of the Nominating and Corporate Governance Committee
constitute a quorum and shall be empowered to act on behalf of the Nominating
and Corporate Governance Committee. Minutes shall be kept of each meeting of the
Nominating and Corporate Governance Committee.
EXHIBIT D
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
_____________________________ (__________) shares, consisting of:
(1) Twenty Million (20,000,000) shares of preferred stock, par value
$.001 per share ("Preferred Stock"); and
(2) ____________________ (_________________) shares of common stock,
par value $.001 per share ("Common Stock").
Upon the effectiveness (the "Effective Date") of the certificate of
amendment to the certificate of incorporation containing this
sentence, each [*] shares of the Common Stock issued and outstanding
as of the date and time immediately preceding [date on which the
certificate of amendment is filed], the effective date of a reverse
stock split (the "Split Effective Date"), shall be automatically
changed and reclassified, as of the Split Effective Date and without
further action, into one (1) fully paid and nonassessable share of
Common Stock. There shall be no fractional shares issued. A holder
of record of Common Stock on the Split Effective Date who would
otherwise be entitled to a fraction of a share shall have the number
of new shares to which they are entitled rounded up to the nearest
whole number of shares. Stockholders will not receive cash in lieu
of fractional shares.
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, has duly executed this Certificate of Amendment as of the ____ day
of _____ 2005.
CONVERSION SERVICES INTERNATIONAL, INC.
By: /s/Scott Newman
---------------------------
Scott Newman
President, Chief Executive Officer and Chairman