PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use
of the Commission
Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-(11(c) or Rule 14a-12
SMARTPROS LTD.
(Name of Registrant as Specified in Its Charter)
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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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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date filed:
SMARTPROS LTD.
-------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2006 AT 10:00 A.M.
-------------------------------------------
TO THE STOCKHOLDERS OF SMARTPROS LTD.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
SmartPros Ltd. ("SmartPros") will be held at the Comfort Inn, 20 Saw Mill River
Road, Hawthorne, New York 10532, on Thursday, June 15, 2006 at 10:00 A.M.,
Eastern Time, for the following purposes:
1. To elect two (2) Class II directors, each to serve for a term of
three years.
2. To consider and approve an amendment to our 1999 Stock Option
Plan to provide for awards of shares of SmartPros restricted
common stock.
3. To obtain advisory approval of the appointment of Holtz
Rubenstein Reminick LLP as independent auditors of SmartPros for
the year ending December 31, 2006.
4. To transact such other business as may properly be brought
before the meeting or any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on April 20, 2006
as the record date for the determination of the stockholders entitled to notice
of and to vote at this meeting and at any adjournment or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Allen S. Greene, Chairman
Dated: Hawthorne, New York
April 25, 2006
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IMPORTANT: Whether or not you expect to attend in person, please complete,
sign, date and return the enclosed Proxy at your earliest
convenience. This will ensure the presence of a quorum at the
meeting. PROMPTLY SIGNING, DATING AND RETURNING THE PROXY WILL
SAVE SMARTPROS THE EXPENSE AND EXTRA WORK OF ADDITIONAL
SOLICITATION. An addressed envelope for which no postage is
required has been enclosed for that purpose. Sending in your
Proxy will not prevent you from voting your stock at the meeting
if you desire to do so, as your Proxy is revocable at your
option. If your stock is held through a broker, bank or a
nominee and you wish to vote at the meeting you will need to
obtain a proxy form from your broker, bank or a nominee and
present it at the meeting.
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SMARTPROS LTD.
-------------------
PROXY STATEMENT
-------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, JUNE 15, 2006
This Proxy Statement is furnished to the stockholders of SmartPros Ltd.,
a Delaware corporation ("SmartPros"), in connection with the solicitation by the
Board of Directors (our "Board") of proxies to be used at the 2006 Annual
Meeting of Stockholders of SmartPros to be held at the Comfort Inn, 20 Saw Mill
River Road, Hawthorne, New York 10532, on Thursday, June 15, 2006 at 10:00 A.M.,
Eastern Time, and at any adjournments thereof (the "Annual Meeting"). The
approximate date on which this Statement and the accompanying proxy will be
mailed to stockholders is April 30, 2006.
THE VOTING & VOTE REQUIRED
RECORD DATE AND QUORUM
Only stockholders of record at the close of business on April 20, 2006
(the "Record Date"), are entitled to notice of and vote at the Annual Meeting.
On the Record Date, there were 5,060,274 outstanding shares of common stock, par
value $.0001 per share, ("Common Stock"). Each share of Common Stock is entitled
to one vote. Shares represented by each properly executed, unrevoked proxy
received in time for the meeting will be voted as specified. Shares of Common
Stock were the only voting securities of SmartPros outstanding on the Record
Date. A quorum will be present at the Annual Meeting if a majority of the shares
of Common Stock outstanding on the Record Date are present at the meeting in
person or by proxy.
VOTING OF PROXIES
The persons acting as proxies (the "Proxyholders") pursuant to the
enclosed proxy will vote the shares represented as directed in the signed proxy.
Unless otherwise directed in the proxy, the Proxyholders will vote the shares
represented by the proxy: (i) for the election of the two Class II director
nominees named in this Proxy Statement; (ii) for the amendment of the SmartPros
1999 Stock Option Plan to provide for restricted stock grants; (iii) for the
appointment of the independent auditors for the year ending December 31, 2006 on
an advisory basis; and (iv) in their discretion, on any other business that may
come before the meeting and any adjournments of the meeting.
All votes will be tabulated by the inspector of election appointed for
the Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Under the SmartPros bylaws and Delaware law:
(1) shares represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee that are represented at the meeting,
but with respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum; (2) there is no
cumulative voting, and the director nominees receiving the highest number of
votes, up to the number of directors to be elected, are elected and,
accordingly, abstentions, broker non-votes and withholding of authority to vote
will not affect the election of directors; and (3) proxies that reflect
abstentions or non-votes will be treated as unvoted for purposes of determining
approval of that proposal and will not be counted as votes for or against that
proposal.
1
VOTING REQUIREMENTS
ELECTION OF DIRECTORS. The election of directors requires a plurality of
the votes cast for the election of directors. Accordingly, the directorships to
be filled at the Annual Meeting will be filled by the nominees receiving the
highest number of votes. In the election of directors, votes may be cast in
favor of or withheld with respect to any or all nominees. Votes that are
withheld will be excluded entirely from the vote and will have no effect on the
outcome of the vote.
APPROVAL OF AMENDMENT TO THE SMARTPROS 1999 STOCK OPTION PLAN AND
ADVISORY APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS. The affirmative
vote of a majority of the votes cast for or against the matter by stockholders
entitled to vote at the Annual Meeting is required to approve (i) the amendment
to the SmartPros 1999 Stock Option Plan; and (ii) the appointment of our
independent auditors for the fiscal year ending December 31, 2006. An abstention
from voting on this matter will be treated as "present" for quorum purposes.
However, since an abstention is not treated as a "vote" for or against the
matter, it will have no effect on the outcome of the vote.
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
Our Board currently consists of six members and is divided into three
classes, with two Class I directors, two Class II directors and two Class III
directors. Directors serve for three-year terms with one class of directors
being elected by our stockholders at each annual meeting.
At the Annual Meeting, two Class II directors will be elected to serve
until the annual meeting of stockholders in 2009 and until each director's
successor is elected and qualified. Our Board has nominated Joshua A. Weinreich
and Jack Fingerhut for reelection as the Class II directors. The accompanying
form of proxy will be voted for the election of Messrs. Weinreich and Fingerhut
as directors, unless the proxy contains contrary instructions. Management has no
reason to believe that any of Messrs. Weinreich and Fingerhut will not be a
candidate or will be unable to serve. However, in the event that either one of
them is unable or unwilling to serve as a director, the proxy will be voted for
the election of such person or persons as shall be designated by our Board.
OUR BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE FOREGOING NOMINEES
AND PROXIES THAT ARE SIGNED AND RETURNED WILL BE SO VOTED
UNLESS OTHERWISE INSTRUCTED.
* * * * *
Set forth below is a brief biography of each nominee for election as a
Class II director and all other members of our Board who will continue in
office.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
TERM EXPIRING 2009
JOSHUA A. WEINREICH, age 46. Mr. Weinreich joined our Board in July
2001. Since January 1, 2006 he has been the chairman of our Compensation and
Nominating Committee. He has been a private investor since November 2004. From
March 2001 through November 2004, Mr. Weinreich had been the Chief Executive
Officer and Global Head of Absolute Return Strategies, a unit of Deutsche Bank.
From July 1999 until March 2001, Mr. Weinreich held the position of Regional
Head of Deutsche Asset Management in the Americas. Mr. Weinreich received a B.A.
in Economics from Cornell University in 1982 and an M.B.A. from the Wharton
School of the University of Pennsylvania in 1985.
2
JACK FINGERHUT, age 55. Mr. Fingerhut is one of our founders and has
been a director since 1981. He was appointed President, effective March 1, 2006.
From April 2004 until March 2006 he was Senior Executive Vice President and
during this period, from April 2004 through October 18, 2004, he also served as
our Treasurer. From 1998 through April 2004 he was President of the Accounting
Division and during this period, from July 2002 through October 19, 2004, he was
also our Chief Financial Officer. He served as both our Chief Operating and
Financial, Officers from 1981 through 1998. In 1973, he received a B.A. degree
in History from the University of Maryland and earned his M.B.A. in Accounting
from Rutgers University in 1974. He is certified to practice accounting in New
Jersey. Mr. Fingerhut is a member of the American Institute of Certified Public
Accountants and the New Jersey Society of Certified Public Accountants.
INCUMBENT CLASS I DIRECTORS
TERM EXPIRING 2008
MARTIN H. LAGER, age 54. Mr. Lager has been serving as the Chairman of
our Audit Committee since October 2004 and was appointed a Class I director in
March 2006. From April 2004 through March 2006 he served on our Board as a Class
III director. Since January 1, 2004, Mr. Lager has been operating his own
accounting practice, Martin H. Lager, CPA. From January 1, 1996 through December
31, 2003 Mr. Lager was a partner in the accounting firm of Rubin & Katz LLP
where he was the manager of the tax department. Mr. Lager received a B.S. in
Accounting from Babson College in 1974 and an M.B.A. in Taxation in 1980 from
St. John's University. He is a licensed CPA in the state of New York.
JOHN J. GORMAN, age 51. Mr. Gorman joined our Board in January 2006. Mr.
Gorman has been a partner at Luse, Gorman, Pomerenk & Schick, P.C., a Washington
D.C. law firm, since 1994. He specializes in providing both transactional and
general corporate and securities law advice to public and private companies. Mr.
Gorman is a faculty member of the National Association of Corporate Directors
(NACD), and served as a Commissioner on the 2004 NACD Blue Ribbon Commission on
Board Leadership. Mr. Gorman holds a B.S. degree from Brown University in 1976
and a J.D. from Vanderbilt University School of Law in 1979.
INCUMBENT CLASS III DIRECTORS
TERM EXPIRING 2007
ALLEN S. GREENE, age 59. Mr. Greene is our Chairman of our Board and
Chief Executive Officer, and also Chairman of our Working Values, Ltd. and Skye
Multimedia Ltd subsidiaries. Prior to becoming our Chairman he was our Vice
Chairman and Chief Executive Officer since April 2001. From August 1997 until
December 1999 he was the Senior Executive Vice President, Chief Operating
Officer, and Chief Lending Officer of Medallion Financial Corporation, a
Nasdaq-listed financial holding company lending to small business. Since 1997,
Mr. Greene has been President of Veral & Co. LLC, a private consulting firm that
provided general business, financial and M&A advisory services. Veral is
currently inactive. Mr. Greene holds an M.B.A. from Baruch College of the City
University of New York and a B.B.A. from The Baruch School of the City
University of New York in Finance and Investments.
BRUCE JUDSON, age 47. Mr. Judson has been a director since March 2000.
Mr. Judson is a Senior Faculty Fellow at the Yale School of Management. He was
first appointed a Faculty Fellow in September 2000. Mr. Judson is also the
founder and Chief Executive Officer of Speed Anywhere, Inc., an Internet
marketer of broadband, health plans and other services. Mr. Judson served as
director of Activeworlds Corp. (OTCBB: AWLD), a provider of Internet-based
three-dimensional experiences, from April 2001 through August 2002. He also
served as Activeworld's interim Vice President of Finance and Treasurer from
June2002 through August 2002. During the past five years, Mr. Judson has also
provided business consulting services to various public and private companies.
He is the author of GO IT ALONE!
3
THE SECRET TO BUILDING A SUCCESSFUL BUSINESS ON YOUR OWN (2004), HYPERWARS: 11
STRATEGIES FOR SURVIVAL AND PROFIT IN THE ERA OF ONLINE BUSINESS (1999) and
NETMARKETING: HOW YOUR BUSINESS CAN PROFIT FROM THE ONLINE REVOLUTION (1996).
Mr. Judson received an AB in Policy Studies in 1980 from Dartmouth College, a
J.D. from the Yale Law School and an M.B.A. from the Yale School of Management
in 1984.
Pursuant to our Certificate of Incorporation, our Board is divided into
three classes and none of the classes can have more than one director more than
any other class. In March 2006, upon the resignation of William K. Grollman, our
former President and Class I director, our Board was left with one Class I
director, two Class II directors and three Class III directors. Accordingly, at
a duly called meeting of our Board, on March 7, 2006, Mr. Lager resigned from
his position as a Class III director and was immediately appointed a Class I
director to complete Mr. Grollman's unexpired term.
All directors attended at least 75% of the aggregate number of meetings
of our Board and of all committees of our Board on which that director served
during the last full fiscal year.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and principal positions
of our executive officers as of April 20, 2006:
NAME AGE POSITION
Allen S. Greene 59 Chief Executive Officer, Chairman of the Board of
Directors, Chairman of Working Values, Ltd. and
Chairman of Skye Multimedia Ltd.
Jack Fingerhut 55 President, President of Accounting Division and
Director
Stanley P. Wirtheim 56 Chief Accounting and Financial Officer and Treasurer
David M. Gebler 47 Senior Vice President and President, Working Values,
Ltd.
Joseph R. Fish 40 Chief Technology Officer
The principal occupation and business experience for at least the last
five years for each executive officer is set forth below (except for Messrs.
Greene and Fingerhut, each of whose business experience is discussed above).
STANLEY P. WIRTHEIM. Mr. Wirtheim became our Chief Accounting and
Financial Officer and Treasurer on October 19, 2004, the day our initial public
offering was effective. Mr. Wirtheim is a certified public accountant. He works
for us four full days per week so that he can maintain his independent
accounting practice, Stanley P. Wirtheim, CPA, which he founded in 1997. Prior
to his becoming our Chief Accounting and Financial Officer and since 1981 he has
performed accounting services for us. Mr. Wirtheim received a B.B.A. in
accounting from Baruch College.
DAVID M. GEBLER. Mr. Gebler joined us in April 2003 as a Senior Vice
President and President of our Working Values, Ltd. subsidiary. Mr. Gebler was
the founder of Working Values Group, Ltd. and
4
was its President from December 1993 through March 31, 2003. Mr. Gebler received
his J.D. from the University of California at Davis in 1984.
JOSEPH R. FISH. Mr. Fish joined us in November 1998. From November 1,
1998 through December 31, 1999 his title was Vice President of New Media. Since
January 1, 2000 he has been our Chief Technology Officer. Mr. Fish attended
Embry-Riddle Aeronautical University in Katterbach, Germany.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board has determined that the chairman of the audit committee, Mr.
Lager, is an "audit committee financial expert," as that term is defined in Item
401(e) of Regulation S-B, and "independent" for purposes of current and recently
adopted listing standards of the American Stock Exchange ("AMEX"), where
SmartPros' stock is listed and Section 10A(m)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board established an Audit Committee and a Compensation and
Nominating Committee. The members of both committees are independent for
purposes of current and recently adopted AMEX listing standards.
The chairman of our Audit Committee is Mr. Lager and the other members
of the Committee are Messrs. Weinreich and Gorman. All of the members are
independent as independence is defined in Section 121(A) of the AMEX listing
standards. The Audit Committee meets with management and our independent public
accountants to determine the adequacy of internal controls and other financial
reporting matters and review related party transactions for potential conflict
of interest situations. The Audit Committee met 4 times in 2005.
5
AUDIT COMMITTEE REPORT
The Audit Committee was established to meet with management and our
independent accountants to determine the adequacy of internal controls and other
financial reporting matters. Our Board has adopted a written charter for the
Audit Committee. The Audit Committee reviewed our audited financial statements
for the year ended December 31, 2005 and met with our management to discuss such
audited financial statements. The Audit Committee has discussed with our
independent accountants, Holtz Rubenstein Reminick LLP, the matters required to
be discussed pursuant to Statement on Accounting Standards No. 61, as may be
modified or supplemented. The Audit Committee has received the written
disclosures and the letter from Holtz Rubenstein Reminick LLP required by the
Independence Standards Board Standard No. 1, as may be modified or supplemented.
The Audit Committee has discussed with Holtz Rubenstein Reminick LLP its
independence from SmartPros and its management. Holtz Rubenstein Reminick LLP
had full and free access to the Audit Committee. Based on its review and
discussions, the Audit Committee recommended to our Board that the audited
financial statements be included in the SmartPros Annual Report on Form 10-KSB.
AUDIT COMMITTEE:
Martin H. Lager
Joshua A.Weinreich
John J. Gorman
The chairman of the Compensation and Nominating Committee is Mr.
Weinreich and the other members of the committee are Messrs. Gorman and Judson.
The committee reviews and recommends the compensation and benefits payable to
our officers, reviews general policy matters relating to employee compensation
and benefits, and administers our various stock option plans and other incentive
compensation arrangements. The committee also identifies individuals qualified
to become members of our Board and makes recommendations to our Board of new
nominees to be elected by stockholders or to be appointed to fill vacancies on
our Board. The Compensation and Nominating Committee met 1 time in 2005. Prior
to its official formation, members of the committee met on an unofficial basis
to discuss committee matters. A copy of the Compensation and Nominating
Committee Charter has been posted on our Web site at www.smartpros.com.
In identifying and recommending nominees for positions on our Board, the
Compensation and Nominating Committee places primary emphasis on (i) a
candidate's judgment, character, expertise, skills and knowledge useful to the
oversight of our business; (ii) a candidate's business or other relevant
experience; and (iii) the extent to which the interplay of the candidate's
expertise, skills, knowledge and experience with that of other members of our
Board will build a board of directors that is effective, collegial and
responsive to our needs.
The Compensation and Nominating Committee will consider director
candidates recommended by stockholders. In considering candidates submitted by
stockholders, the committee will take into consideration the needs of our Board
and the qualifications of the candidate. Under our bylaws to have a candidate
considered by the committee, a stockholder must timely notify our Secretary,
Karen Stolzar, by written notice delivered to, or mailed to and received at, our
principal executive offices not less than thirty (30) days and not more than
sixty (60) days prior to the scheduled annual meeting date, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
PROVIDED, HOWEVER, that if less than forty (40) days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the tenth (10th) day following the earlier of the
day on which such
6
notice of the date of the scheduled annual meeting was mailed or the day on
which such public disclosure was made. A stockholder's notice to the Secretary
shall set forth (i) as to each person whom the stockholder proposes to nominate
for election to our Board, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to the
Exchange Act, including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; (ii) the name and address of the stockholder making the nomination and
any other stockholders known by such stockholder to be supporting such
nomination; (iii) the class and number of shares of stock owned by the
stockholder on the date of such stockholder's notice and by any other
stockholders known by such stockholder to be supporting such nomination on the
date of such stockholder's notice and (iv) any financial interest of the
stockholder in such nomination.
The Compensation and Nominating Committee believes that the minimum
qualifications for service as a director of SmartPros are that a nominee possess
an ability, as demonstrated by recognized success in his or her field, to make
meaningful contributions to our Board's oversight of our business and affairs
and an impeccable reputation of integrity and competence in his or her personal
or professional activities. The committee's evaluation of potential candidates
shall be consistent with our Board's criteria for selecting new directors. Such
criteria include an understanding of our business environment and the possession
of such knowledge, skills, expertise and diversity of experience so as to
enhance our Board's ability to manage and direct our affairs and business,
including when applicable, to enhance the ability of committees of our Board to
fulfill their duties and/or satisfy any independence requirements imposed by
law, regulation or listing requirements. The committee may also receive
suggestions from current members of our Board, executive officers or other
sources, which may be either unsolicited or in response to requests from the
committee for such candidates. In addition, the committee may also, from time to
time, engage firms that specialize in identifying director candidates.
Once a person has been identified by the committee as a potential
candidate, the committee may collect and review publicly available information
regarding the person to assess whether the person should be considered further.
If the committee determines that the candidate warrants further consideration,
the chairman or another member of the committee may contact the person.
Generally, if the person expresses a willingness to be considered and to serve
on our Board, the committee may request information from the candidate, review
the person's accomplishments and qualifications and may conduct one or more
interviews with the candidate. The committee will consider all such information
in light of information regarding any other candidates that the committee might
be evaluating for membership on our Board. In certain instances, the committee
members may contact one or more references provided by the candidate or may
contact other members of the business community or other persons that may have
greater first-hand knowledge of the candidate's accomplishments. The committee's
evaluation process does not vary based on whether or not a candidate is
recommended by a stockholder.
COMMUNICATIONS WITH DIRECTORS
Our Board has established a process to receive communications from
stockholders. Stockholders and other interested parties may contact any member
(or all members) of our Board, or the non-management directors as a group, any
Board committee or any chair of any such committee by mail or electronically. To
communicate with our Board, any individual director or any group or committee of
directors, correspondence should be addressed to our Board or any such
individual directors or group or committee of directors by either name or title,
care of the Secretary. All such correspondence should be sent to our principal
executive offices or by e-mail to the Secretary at info@smartpros.com. All
communications received as set forth in the preceding paragraph will be opened
by the Secretary for the sole purpose of determining whether the contents
represent a message to our directors. Any contents that are not in the nature of
advertising, promotions of a product or service, patently offensive material or
7
matters deemed inappropriate for our Board will be forwarded promptly to the
addressee. In the case of communications to our Board or any group or committee
of directors, the Secretary will make sufficient copies of the contents to send
to each director who is a member of the group or committee to which the envelope
or e-mail is addressed.
It is our policy that directors are invited and encouraged to attend the
Annual Meeting.
ENGAGEMENT OF NEW INDEPENDENT ACCOUNTANTS
On November 22, 2004 (the "Engagement Date"), we engaged Holtz
Rubenstein Reminick LLP as our new independent public accountants and dismissed
McGladrey & Pullen, LLP. The decision to change accountants was recommended and
approved by our Audit Committee.
The audit reports of McGladrey & Pullen, LLP on our financial statements
for the years ended December 31, 2002 and 2003 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with their audits of the
years ended December 31, 2002 and 2003 and reviews of our financial statements
for year 2004 through November 22, 2004, there were no disagreements with them
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to their satisfaction would have caused them to make reference thereto in their
report on the financial statements for such years.
For the years ended December 31, 2002 and 2003 and through the
Engagement Date in year 2004, we have not consulted with Holtz Rubenstein
Reminick LLP on any matter that (i) involved the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, in each
case where a written report was provided or oral advice was provided that Holtz
Rubenstein Reminick LLP concluded was an important factor considered by us in
reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) was either the subject of a disagreement, as that term is defined in
Item 304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of
Regulation S-B, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-B.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accounting firm, Holtz
Rubenstein Reminick LLP, for the fiscal years ended December 31, 2005 and 2004
are as follows:
2005 2004
---------- -----------
Audit fees $55,500(1) $ 60,185(2)
---------- -----------
Audit-related fees
TOTAL AUDIT AND AUDIT-RELATED FEES $55,500 $ 60,185
Tax fees -- --
All other fees $ 1,400 $150,238(3)
---------- -----------
TOTAL FEES $56,900 $210,423
========== ===========
------------
(1) Includes $10,500 of fees billed for services rendered in connection with
their review of our Form 10-QSBs for the quarters ended March 31, June 30, and
September 30, 2005.
(2) Includes $15,185 of fees billed by McGladrey & Pullen, LLP for services
rendered in connection with their review of our Form 10-QSB for the quarter
ended September 30, 2004.
(3) Includes the following fees billed by McGladrey & Pullen, LLP: (1) $140,238
for services rendered in connection with our October 2004 initial public
offering; and (2) $10,000 for services rendered in connection with our Form
10-KSB for the year ended December 31, 2004.
8
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee charter provides that the Audit Committee will
pre-approve audit services and non-audit services to be provided by our
independent auditors before the accountant is engaged to render these services.
The Audit Committee may consult with management in the decision-making process,
but may not delegate this authority to management. The Audit Committee may
delegate its authority to pre-approve services to one or more committee members,
provided that the designees present the pre-approvals to the full committee at
the next committee meeting.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE 1999 STOCK OPTION PLAN
TO PROVIDE FOR AWARDS OF RESTRICTED STOCK
On March 7, 2005, our Board adopted resolutions approving an amendment
to our 1999 Stock Option Plan (the "Plan") to include grants of up to 200,000
shares of SmartPros restricted common stock ("Restricted Stock") from the number
of shares available for issuance thereunder and directing that the proposed
amendment be submitted to a vote of the stockholders at the Annual Meeting. Our
Board determined that the amendment is in our best interest and the best
interest of our stockholders, and unanimously recommends approval by the
stockholders.
BACKGROUND AND REASONS FOR THE PROPOSAL
Our Board believes that ability to grant shares of Restricted Stock as
well as options will enhance our ability to provide incentives to employees,
directors and consultants whose performance contribute to our long-term success
and growth, to strengthen our ability to attract and retain employees, directors
and consultants of high competence, to increase the identity of interests of
such people with those of stockholders and to help build loyalty to SmartPros
through recognition and the opportunity for stock ownership.
In 1999, our Board adopted the Plan which was subsequently approved by
our stockholders. We registered under the Securities Act of 1933, as amended
(the "Securities Act"), the shares issuable upon the exercise of options granted
or to be granted pursuant to the Plan in a Registration Statement on Form S-8,
File No. 333-123943, filed on April 8, 2005. As a result of this registration
under the Securities Act, an optionee who is not an "affiliate" may resell the
shares of the Common Stock received upon exercise immediately and an optionee
who is an "affiliate" (I.E., a director or an executive officer) may resell
pursuant to the exemption of Rule 144 under the Securities Act without
compliance with any holding period under paragraph (d) of Rule 144. The Plan
originally provided for the grant of options to purchase shares of Common Stock
to directors, officers, employees and consultants of SmartPros. Non-qualified
stock options may be granted to directors, officers, employees and consultants.
Incentive stock options, as such form is defined in Section 422 of the Internal
Revenue Code (the "Code"), may be granted only to employees. The term of the
Plan is for ten years and it provides for the grants of options to purchase an
aggregate of 882,319 shares of Common Stock. The Plan is administered by our
Board (and not the Compensation Committee).
TERMS OF GRANTS
RESTRICTED STOCK AWARDS
As amended, Restricted Stock may be granted under the Plan to employees,
directors and consultants in addition to incentive stock options, which may be
granted only to employees, and to non-qualified stock options, which may be
granted to employees, directors and consultants. Restricted Stock awards are
subject to forfeiture unless certain time and/or performance requirements are
satisfied.
9
OPTIONS AWARDS
The Plan, consistent with the provisions of the Code, provides that the
exercise price of an incentive stock option shall not be less than the fair
market value of Common Stock on the date of grant, except that, if the employee
owns stock possessing more than 10% of the total combined voting power of all
classes of stock, the exercise price of the option must be at least 110% of the
fair market value of Common Stock on the date of grant and the incentive stock
option cannot be exercised after five years from the date of grant. No stock
option granted has, and no option to be granted under the Plan may have, a term
in excess of ten years. The exercise price of a non-statutory or non-qualified
option may be less than the fair market value on the date of grant.
The number of shares subject to an outstanding option and the exercise
price thereof are subject to adjustment in the event of a stock dividend, stock
split, reorganization, recapitalization, combination of shares, change in
corporate structure or similar events. No fractional shares will be issued upon
exercise and we have no obligation to pay for such fractional share.
The provisions described in this paragraph are applicable to future
options: If the optionee's employment terminates for any reason other than his
or her death or disability, he or she may, for a period of up to three months,
may exercise the option to the extent exercisable upon the date of termination.
If the optionee's employment terminates because of his or her total and
permanent disability (as defined in the Internal Revenue Code), the optionee
will have 12 months within which he or she can exercise the stock option to the
extent it was exercisable on the date of termination. In the event of other
disability causing termination, the optionee may have six months (three months
in the event the optionee wants continuous treatment of the stock option as an
incentive stock option) to exercise the stock option to the extent exercisable
upon the date of termination. If the optionee dies, his estate may exercise the
stock option to the extent exercisable upon the date of death of the optionee,
whether it occurred during the initial term or during the three, six or 12-month
periods described in the three preceding sentences. In no event may a stock
option be exercised beyond its original expiration date. Similar provisions are
applicable to optionees who are not employees.
For a consultant to be eligible to receive a grant of a stock option
under the Plan, the optionee must be a natural person and the services rendered
to us must be of a bona fide nature and not in connection with the offer or sale
of our securities in a capital raising transaction and do not directly or
indirectly promote or maintain a market for our securities.
FEDERAL INCOME TAX CONSEQUENCES
NON-QUALIFIED STOCK OPTIONS. The grant of non-qualified stock options
will have no immediate tax consequences to us or the optionee. The exercise of a
non-qualified stock option will require the optionee to include in his gross
income the amount by which the fair market value of the acquired shares on the
exercise date (or the date on which any substantial risk of forfeiture lapses)
exceeds the option price. Upon a subsequent sale or taxable exchange of the
shares acquired upon exercise of a non-qualified stock option, the optionee will
recognize long or short-term capital gain or loss equal to the difference
between the amount realized on the sale and the tax basis of such shares.
We will be entitled (provided applicable withholding requirements are
met) to a deduction for Federal income tax purposes at the same time and in the
same amount as the optionee is in receipt of income in connection with the
exercise of a non-qualified stock option.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option will
have no immediate tax consequences to the employee. Beginning in 2006, companies
will be required to recognize an immediate expense from the grant of incentive
stock options. If the employee exercises an incentive
10
stock option and does not dispose of the acquired shares within two years after
the grant of the incentive stock option nor within one year after the date of
the transfer of such shares to him (a "disqualifying disposition"), he will
realize no compensation income and any gain or loss that he realizes on a
subsequent disposition of such shares will be treated as a long-term capital
gain or loss. For purposes of calculating the employee's alternative minimum
taxable income, however, the option will be taxed as if it were a non-qualified
stock option.
RESTRICTED COMMON STOCK. Generally, unless the participant elects,
pursuant to Section 83(b) of the Code to recognize income in the taxable year
which the Restricted Stock had been awarded, the participant is required to
recognize income for federal income tax purposes in the first taxable year
during which the participant's rights over the Restricted stock are transferable
or are not subject to a substantial risk of forfeiture, whichever occurs
earlier. At such time, we will be entitled (provided applicable withholding
requirements are met) to a deduction for Federal income tax purposes.
Immediately following approval, the approximate number of employees who
will be eligible to participate in the Plan is 75, the approximate number of
non-employee board members who will be eligible to participate in the Plan is
four and we do not currently have any consultants that we are considering for
participation in the Plan. At April 1, 2006, options covering a total of 371,496
shares of the Common Stock were outstanding under the Plan at a weighted average
exercise price of $4.72 per share, leaving a balance of 481,363 shares eligible
for future grants.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
AMENDMENT TO THE 1999 STOCK OPTION PLAN TO PROVIDE FOR AWARDS OF RESTRICTED
STOCK
* * * * *
PROPOSAL 3
ADVISORY APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Holtz Rubenstein Reminick LLP has been our independent auditors since
November of 2004. Their audit report appears in our annual report for the fiscal
year ended December 31, 2005. A representative of Holtz Rubenstein Reminick LLP
will be at the Annual Meeting and will have an opportunity to make a statement
if he or she desires to do so and will be available to respond to appropriate
questions.
Selection of the independent accountants is not required to be submitted
to a vote of our stockholders for ratification. In addition, the Sarbanes-Oxley
Act of 2002 requires the Audit Committee to be directly responsible for the
appointment, compensation and oversight of the audit work of the independent
auditors. The Audit Committee expects to appoint Holtz Rubenstein Reminick LLP
to serve as independent auditors to conduct an audit of SmartPros' accounts for
the 2006 fiscal year.However, our Board is submitting this matter to SmartPros
stockholders as a matter of good corporate practice. If the stockholders fail to
vote on an advisory basis in favor of the selection, the Audit Committee will
take that into consideration when deciding whether to retain Holtz Rubenstein
Reminick LLP, and may retain that firm or another without re-submitting the
matter to the stockholders. Even if stockholders vote on an advisory basis in
favor of the appointment, the Audit Committee may, in its discretion, direct the
appointment of different independent auditors at any time during the year if it
determines that such a change would be in the best interests of SmartPros and
the stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
AND PROXIES THAT ARE SIGNED AND RETURNED WILL BE SO VOTED
UNLESS OTHERWISE INSTRUCTED
* * * * *
11
EXECUTIVE COMPENSATION AND TRANSACTIONS WITH DIRECTORS, OFFICERS AND
PRINCIPAL HOLDERS
The following table sets forth information regarding compensation
awarded to, earned by, or paid to our Chief Executive Officer and our four most
highly compensated executive officers, whose compensation exceeded $100,000 in
2005 (the "Named Executives"), for all services rendered to us in all capacities
during the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1)
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Allen S. Greene, Chairman of the 2005 $ 254,140 $ ---- ---
Board, Chief Executive Officer and 2004 $ 230,208 $ 148,000(3) ---
Chairman of Working Values, Ltd. (2) 2003 $ 225,000 $ ---- ---
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
William K. Grollman, President, 2005 $ 207,681 $ ---- ---
Secretary and Director (4) 2004 $ 201,015 $ 1,000 ---
2003 $ 201,522 $ ---- ---
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Jack Fingerhut, President, President 2005 $ 174,765 $ --- ---
of Accounting Division and Director (5) 2004 $ 155,181 $ 5,000 ---
2003 $ 151,522 $ ---- ---
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Joseph R. Fish, Chief Technology 2005 $ 154,140 $ ---- 15,000
Officer 2004 $ 141,667 $ 3,250 ---
2003 $ 121,468 $ ---- ---
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
David M. Gebler, Senior Vice 2005 $ 189,706 $ ---- ---
President, President of Working 2004 $ 181,015 $ 3,250 ---
Values, Ltd. (6) 2003 $ 135,000 $ ---- 25,850
----------------------------------------------------------------------------------------------------------------------
-------------------
(1) Common Stock
(2) Appointed to the position of Chairman of the Board, effective January 1,
2006
(3) Includes, a cash bonus of $6,000 and the assumed value of 40,000 shares of
restricted common stock granted on October 19, 2004, based on the $3.55
closing price of the common stock on November 22, 2004, the first day it
traded on the AMEX. 10,000 shares vested immediately and 10,000 shares will
vest on each of October 19, 2005 - 2007.
(4) Resigned from all positions, effective as of March 1, 2006.
(5) Appointed to the position of President of SmartPros, effective as of March
1, 2006 upon the resignation of William Grollman. Mr. Fingerhut served as
our Chief Financial Officer through October 19, 2004.
(6) Employment commenced in April 2003.
12
OPTIONS HELD BY NAMED EXECUTIVES
OPTION GRANTS IN 2005
The following tables show certain information with respect to incentive
and non-qualified stock options granted in 2005 to the Named Executives under
SmartPros' 1999 Stock Option Plan who received options and the aggregate value
at December 31, 2005 of such options. The per share exercise price of all
options is equal to the fair market value of a share of Common Stock on the date
of grant. No options granted to any Named Executives have been exercised.
INDIVIDUAL GRANTS OF OPTIONS
NUMBER OF SHARES OF PERCENT OF TOTAL
COMMON STOCK OPTIONS GRANTED TO EXERCISE PRICE
NAME UNDERLYING OPTION # EMPLOYEES IN 2005 ($/SH) EXPIRATION DATE
--------------- ----------------------- ------------------- -------------- ----------------
Joseph R. Fish (1) 15,000 100% $3.44 October 3, 2015
---------
(1) The stock option granted on 10/03/05 vests as follows: i) for 3,750 shares
on the grant date and ii) for 3,750 additional shares on each of the 1st
2nd and 3rd anniversaries of the grant date, respectively.
2005 YEAR-END OPTION VALUES
The table below provides information with respect to the number and
aggregate value of unexercised options held by those executives as of December
31, 2005. The per share exercise price of all options was equal to, or above,
the estimated fair market value of a share of common stock on the date of grant.
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-THE-MONEY
YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)(1)
--------------------------------------- -----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- ---------------- ------------------- ---------------- ---------------------
Allen S. Greene 129,249 -- $20,422(2) --
Joseph R. Fish 38,647 11,250 $0 $0
David M. Gebler 10,340 15,510 $0 $0
---------
(1) The closing market price of our common stock on December 31, 2005 was $3.20
per share.
(2) For the purposes of this calculation, value is based upon the difference
between the exercise price of the exercisable options and the per share
stock price at December 31, 2005.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of the Named Executives and our
Chief Financial Officer.
13
The employment agreement with (i) Allen S. Greene, dated as of May 1,
2004, is for a term of three years but renews automatically for a new three-year
term at the end of the first year of each three-year term unless either party
gives notice before the end of the first year of each three year term of its
intention not to renew the agreement. Mr. Greene's annual base salary for 2006
is $262,500; (ii) William K. Grollman, dated as of April 1, 2003, was for a term
of three years with an annual base salary of $210,000. On March 1, 2006, Mr.
Grollman resigned from the positions he held with us but remained our employee
through March 31, 2006; (iii) David M. Gebler, upon renewal in 2006, was
extended by us through March 31, 2008. Mr. Gebler's annual base salary is
$180,000; (iv) Jack Fingerhut, dated as of October 1, 2005, is for a term of
three years with an annual base salary of $185,000; (v) Joseph Fish, dated as of
October 1, 2005, is for a term of two years with an annual base salary of
$162,500; and (vi) Stanley Wirtheim, our Chief Financial Officer, dated as of
July 1, 2005, is for a term of three years starting with an annual base salary
of $117,000 which automatically increases annually as he devotes more time to us
during the term of his agreement up to a maximum of $147,000. Generally, the
base salary of each of the aforementioned executives are reviewed annually by
our Board and will be subject to increase based on their review.
Generally, each employment agreement provides, among other things, for
additional compensation and benefits including bonuses at times and amounts
determined in the discretion of our Board, for fringe benefits commensurate with
the executive's duties and responsibilities and for participation in all
employee benefit programs or plans maintained by SmartPros on the same basis as
other similarly situated executive employees. In addition to the foregoing, Mr.
Gebler was entitled to a non-discretionary bonus equal to 23.335% of the net
profits of Working Values in excess of $10,000 in each of the two years
beginning April 1, 2003, but in no event more than $175,000 in the aggregate.
Upon the expiration of the two year period no amount has been earned or paid to
Mr. Gebler.
Under each agreement, we, for cause or without cause, may terminate
employment immediately and without notice. Termination by us without cause or in
the case of Mr. Gebler, by him for good reason, would subject us to liability
for liquidated damages. Generally, liquidated damages include payment of an
amount equal to the base salary at the then current rate for the remaining term
of their respective employment agreements, a bonus equal to the highest annual
bonus received in the last five years multiplied by the number of years or
fraction thereof and, for the remaining term of the employment agreement, the
right to the same benefits at the same levels. In addition to the foregoing, Mr.
Gebler will be entitled to receive a non-discretionary bonus, if any, and all of
his stock options will immediately become exercisable. Finally, the employment
agreements for Mr. Greene and Mr. Grollman provide that if we do not extend the
employment term for at least one three-year term after the expiration of the
initial term at a fixed minimum base salary defined in the agreement, the
executive is entitled to a lump sum payment equal to 50% of his then base
salary. Upon Mr. Grollman's resignation from the positions he held with us on
March 1, 2006, he agreed to waive his rights to an extension under his
employment agreement.
In addition to the foregoing, in the case of Messrs. Greene, Wirtheim
and Fish, upon the occurrence of a change in control (as defined in their
respective employment agreements) we would also be subject to liability for
liquidated damages of varying amounts if any of their positions change and or
salaries reduced.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of individual
directors for specified breaches of their fiduciary duty. The effect of this
provision is to eliminate the liability of directors for monetary damages
arising out of their failure, through negligent or grossly negligent conduct, to
satisfy their duty of care, which requires them to exercise informed business
judgment. The liability of directors under the federal securities laws is not
affected. A director may be liable for monetary damages only if a claimant can
show receipt of financial benefit to which the director is not entitled,
intentional infliction of harm on
14
us or on our shareholders, a violation of section 174 of the Delaware General
Corporation Law (dealing with unlawful distributions to shareholders effected by
vote of directors), and any amended or successor provision thereto, or an
intentional violation of criminal law.
Our certificate of incorporation also provides that we will indemnify
each of our directors or officers, and their heirs, administrators, successors
and assigns against any and all expenses, including amounts paid upon judgments,
counsel fees, and amounts paid or to be paid in settlement before or after suit
is commenced, actually and necessarily incurred by such persons in connection
with the defense or settlement of any claim, action, suit or proceeding, in
which they, or any of them are made parties, or which may be asserted against
them or any of them by reason of being, or having been, directors or officers of
the corporation, except in relation to such matters in which such director or
officer shall be adjudged to be liable for his own negligence or misconduct in
the performance of his duty.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which we are required or permitted
to provide indemnification, except as set forth under Certain Relationships and
Related Party Transactions. We are also not aware of any threatened litigation
or proceedings that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons under our
certificate of incorporation, we have been informed that, in the opinion of the
SEC, indemnification is against public policy as expressed in the Securities Act
and is unenforceable.
COMPENSATION OF DIRECTORS
Our directors receive an annual fee of $5,000, payable in equal
quarterly installments, and $500 plus reimbursement for actual out-of-pocket
expenses in connection with each board meeting attended in person and $200 for
each board meeting attended telephonically. The head of the Audit Committee
receives an annual fee of $1,000, payable in equal quarterly installments. Each
member of the audit, compensation and nominating committees receives $500 for
each committee meeting he attends in person and $200 for each audit committee
meeting attended telephonically unless the meeting immediately precedes or
follows a board meeting, in which case he will receive $200 for attending in
person or $100 if he attends by telephone.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial
ownership of our common shares as of April 1, 2006:
o each person, or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our outstanding common shares;
o each of our directors:
o each Named Executive in the Summary Compensation Table above; and
o all of our directors and executive officers as a group.
Except as otherwise indicated, the persons listed below have sole
voting and investment power with respect to all of the common shares owned by
them. The individual shareholders have furnished all information concerning
their respective beneficial ownership to us.
NAME AND ADDRESS OF COMMON SHARES PERCENT OF COMMON SHARES
BENEFICIAL OWNER (1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED
----------------------- --------------------- ----------------------------
Allen S. Greene 305,728(3) 5.9%
Jack Fingerhut 156,193 3.1%
David M. Gebler 15,510(4) *
Joseph R. Fish 38,647(4) *
Stanley P. Wirtheim 5,000(4) *
Martin H. Lager 8,000(5) *
Bruce Judson 10,132(6) *
Joshua A. Weinreich 223,531(7) 4.4%
John J. Gorman 27,250(8) *
All directors and
executive officers
as a group (9 persons) 789,911(9) 15.1%
------------------------
*Less than 1%
(1) All addresses are c/o SmartPros Ltd., 12 Skyline Drive, Hawthorne, New York
10532.
(2) According to the rules and regulations of the SEC, common stock that a
person has a right to acquire within 60 days of the date of this report are
deemed to be beneficially owned by that person and outstanding for the
purpose of computing the percentage ownership of that person, but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Includes 129,249 shares underlying outstanding options and 20,000 shares of
common stock that will vest ratably on each of October 19, 2006-2007.
(4) Reflects shares underlying outstanding options.
(5) Includes 5,000 shares underlying outstanding options and 1,000 shares held
by the Irwin lager Trust of which Mr. Lager is a co-trustee and a 1/3rd
beneficiary. Mr. Lager disclaims beneficial ownership of the shares held by
the trust except to the extent of his pecuniary interest therein.
(6) Includes 6,979 shares underlying outstanding options.
(7) Includes 9,306 shares underlying outstanding options.
(8) Includes 2,250 shares underlying outstanding options.
(9) Includes 211,941 shares underlying outstanding options.
16
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
To attract and retain the personnel necessary for our success, our
Board and our stockholders adopted our 1999 Stock Option Plan. A total of
882,319 shares of common stock have been reserved for issuance upon exercise of
options granted under the plan. As of April 1, 2006 options covering 371,496
shares are issued and outstanding. The compensation committee of our Board
administers the plan. The plan covers employees and others who perform services
for us, which would include directors and consultants. The administrator of the
plan, whether our Board or the compensation committee, determines who is
eligible to receive these incentive stock options, how many options they will
receive, the term of the options, the exercise price and other conditions
relating to the exercise of the options. Stock options granted under the plan
must be exercised within a maximum of 10 years from the date of grant at an
exercise price that is not less than the fair market value of the common shares
on the date of the grant. Options granted to stockholders owning more than 10%
of our outstanding common shares must be exercised within five years from the
date of grant and the exercise price must be at least 110% of the fair market
value of the common shares on the date of the grant.
The following table sets forth information as of December 31, 2005
relating to all of our equity compensation arrangements.
NUMBER OF SECURITIES TO WEIGHTED AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS FUTURE ISSUANCE UNDER
AND WARRANTS AND WARRANTS EQUITY COMPENSATION PLANS
------------------------- --------------------- --------------------------
Equity compensation plans
approved by stockholders (1) 406,531 $4.67 470,886
(1) The 1999 Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2002, we sold 2,000 shares of our Series A Convertible
Preferred Stock to our President, William K. Grollman. The purchase price for
these shares, $200,000, was reflected in a secured promissory note in the
original principal amount of $200,000. The note accrues interest at the rate of
5.5% per annum and the entire principal amount and all accrued interest is due
and payable on February 14, 2007. As security for the repayment of this note,
Mr. Grollman pledged 41,359 shares of common stock that he owns and 2,000 shares
of Series A Convertible Preferred Stock, which has since been converted into
82,719 shares of common stock.
In April 2003, we acquired assets from Working Values Group, Ltd. David
Gebler, Senior Vice President and the President of our Working Values
subsidiary, was the principal stockholder of Working Values Group. As part of
the purchase price, we agreed to pay Mr. Gebler a non-discretionary bonus equal
to 26.665% of the net profits (as defined) of Working Values in excess of
$10,000 in each of the two years beginning April 1, 2003, but in no event more
than $200,000 in the aggregate. This is in addition to any amount payable to Mr.
Gebler under his employment agreement. Upon the expiration of the two year
period no amount has been earned or paid to Mr. Gebler.
17
Before joining us in 2004 as our Chief Accounting and Financial Officer
and Treasurer, Stanley P. Wirtheim provided us with accounting services. We paid
him at the rate of $5,000 per month, or $60,000 per year.
On August 3, 2004, our Board authorized the issuance of 40,000 shares
of common stock to Allen S. Greene, our chief executive officer for services
rendered. The shares were issued to Mr. Greene on October 19, 2004. Of the
40,000 shares issued, 10,000 shares vested immediately and 10,000 shares will
vest on each of October 19, 2005, 2006 and 2007. Mr. Greene is deemed the owner
of these shares as of the date of grant and, as such, will be entitled to vote
them on all matters presented to stockholders for a vote and will be entitled to
dividends, if any, payable on our common stock. If Mr. Greene terminates his
employment with us voluntarily or we terminate him for "cause," as defined in
his employment agreement, any unvested shares will be forfeited and will revert
back to us. If Mr. Greene's employment with us is terminated without "cause," or
if his employment is terminated as a result of his death or disability (as
defined in his employment agreement), or if we experience a change in control
(as defined in his employment agreement) any unvested shares will immediately
vest. The issuance was exempt from registration under Sections 4(2) and 4(6) of
the Act.
Our Board approved the issuance of shares to Mr. Greene on the basis of
its belief that the stock grant is appropriate and meets four important business
needs. First, the grant recognizes Mr. Greene's outstanding performance by
achieving positive cash flows, profitability in the second quarter of 2004 and
positioning the company for an initial public offering. Second, it provides a
meaningful retention tool. Third, it ties his personal financial benefit to that
of the company. Fourth, it is a positive factor for future investors who want to
see top management having a substantial personal financial interest in the
future of the company.
LEGAL PROCEEDINGS
SmartPros is not aware of any legal proceedings in which any director,
officer or affiliate of SmartPros, any beneficial owner of record of more than
five percent of any class of voting securities of SmartPros, or any associate of
any such director, officer, affiliate, or security holder is a party adverse to
SmartPros or has a material interest adverse to SmartPros.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires SmartPros' officers and
directors, and persons who own more than ten percent (10%) of a registered class
of the SmartPros' equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent (10%) stockholders are required by SEC
regulations to furnish SmartPros with copies of all Section 16(a) forms they
file.
To the best of our knowledge, based solely on review of the copies of
such forms furnished to us, or written representations that no other forms were
required, we believe that all Section 16(a) filing requirements applicable to
our officers, directors and greater than ten percent (10%) stockholders were
complied with during 2005. With respect to any former directors, officers, and
ten percent (10%) stockholders, we do not have any knowledge of any known
failures to comply with the filing requirements of Section 16(a).
18
MISCELLANEOUS
OTHER MATTERS
The management knows of no other business which will be presented for
consideration at the Annual Meeting other than that stated in the notice of
meeting.
STOCKHOLDER PROPOSALS
Stockholders interested in presenting a proposal for consideration at
the annual meeting of stockholders in 2007 must follow the procedures found in
Rule 14a-8 under the Exchange Act and our bylaws. To be eligible for inclusion
in our 2007 proxy materials, all qualified proposals must be received by our
Secretary no later than December 24, 2006. Stockholder proposals submitted
thirty (30) or more, but less than sixty (60), days before the scheduled date
for the 2007 annual meeting may be presented at the annual meeting if such
proposal complies with our bylaws, but will not be included in our proxy
materials; PROVIDED, HOWEVER, that if less than forty (40) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or made,
notice by the stockholder, to be timely, must be so delivered or received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which such notice of the date of the scheduled annual meeting was
mailed or the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election to our Board, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors in an election contest, or is otherwise
required, in each case pursuant to the Exchange Act including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; (ii) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting and, if such business
includes a proposal or nomination to amend our bylaws, the language of the
proposed amendment; (iii) the name and address of the stockholder making the
proposal or nomination and any other stockholders known by such stockholder to
be supporting such proposal; (iv) the class and number of shares of stock owned
by the stockholder on the date of such stockholder's notice and by any other
stockholders known by such stockholder to be supporting such proposal or
nomination on the date of such stockholder's notice; and (v) any financial
interest of the stockholder in such proposal or nomination.
SOLICITATION OF PROXIES
The cost of this proxy solicitation and any additional material relating to
the meeting which may be furnished to the stockholders will be borne by us. In
addition, solicitation by telephone, telegraph or other means may be made
personally, without additional compensation, by our officers, directors and
regular employees. We also will request brokers, dealers, banks and voting
trustees and their nominees holding shares of record but not beneficially to
forward proxy soliciting material to beneficial owners of such shares, and upon
request, will reimburse them for their expenses in so doing.
EVERY STOCKHOLDER, WHETHER OR NOT HE OR SHE EXPECTS TO ATTEND THE
ANNUAL MEETING IN PERSON, IS URGED TO EXECUTE THE PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED BUSINESS REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Allen Greene
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Allen Greene, Chairman
Dated: Hawthorne, New York
April 25, 2006
19
APPENDIX I (FORM OF PROXY)
SMARTPROS LTD.
P R O X Y
FOR ANNUAL MEETING OF THE STOCKHOLDERS
JUNE 15, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Allen S. Greene and Jack Fingerhut, and
each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of the
Stockholders of SmartPros Ltd. ("SmartPros ") to be held at the Comfort Inn, 20
Saw Mill River Road, Hawthorne, New York 10532, on Thursday, June 15, 2006 at
10:00 A.M., Eastern Time and at any adjournments thereof, hereby revoking any
proxies heretofore given, to vote all shares of common stock of SmartPros held
or owned by the undersigned as indicated on the proposals as more fully set
forth in the Proxy Statement, and in their discretion upon such other matters as
may come before the meeting.
Please mark "X" your votes as indicated:
1. ELECTION OF CLASS II DIRECTORS: Joshua A. Weinreich and Jack Fingerhut
FOR election of all nominees [ ]
WITHHOLD vote from all nominees [ ]
FOR all nominees, [ ]
EXCEPT for nominee(s) listed below from whom Vote is withheld.
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2. Approval of an amendment to the SmartPros 1999 Stock Option Plan to provide
for awards of shares of SmartPros restricted common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Advisory approval of the appointment of Holtz Rubenstein Reminick LLP as
independent auditors for SmartPros for the year ending December 31, 2006.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED, AND TO BE SIGNED, ON THE REVERSE SIDE)
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FOLD HERE
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THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
The undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual Meeting.
Dated: , 2006
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Signature of Stockholder
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Signature of Stockholder
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
IMPORTANT - PLEASE FILL IN, SIGN AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.