UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |_| Filed by a Party other than the Registrant |X|
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|_| Preliminary Proxy Statement
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THINKENGINE NETWORKS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
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April 5, 2007
Dear Stockholder:
We will hold our 2007 annual meeting of stockholders at 10:00 a.m. on Thursday,
May 10, 2007, at the Embassy Suites Hotel, 123 Boston Post Road West,
Marlborough, Massachusetts.
The Notice of Annual Meeting, Proxy Statement and proxy card accompanying this
letter describe in detail the matters to be acted upon at the meeting.
It is important that your shares be represented at the meeting. Whether or not
you plan to attend, please sign, date and return your proxy card in the enclosed
envelope as soon as possible.
We look forward to seeing you at the meeting.
Sincerely yours,
Robert C. Fleming
Chairman of the Board
THINKENGINE NETWORKS, INC.
------------------------------
NOTICE OF ANNUAL MEETING
------------------------------
The annual meeting of stockholders of ThinkEngine Networks, Inc. will be held at
10:00 a.m. on Thursday, May 10, 2007, at the Embassy Suites Hotel, 123 Boston
Post Road West, Marlborough, Massachusetts.
The items of business at the annual meeting are:
1. Election of five directors.
2. Ratification of selection of Carlin, Charron & Rosen, LLP as our
independent public accounting firm for 2007.
3. Such other matters as may properly come before the meeting, including
any continuation of the meeting caused by any adjournment or any
postponement of the meeting.
March 22, 2007 is the record date for the meeting.
This Proxy Statement and accompanying proxy card are being distributed on or
about April 9, 2007.
By order of the Board of Directors.
Amy M. Tefft
Secretary
April 5, 2007
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE.
THINKENGINE NETWORKS, INC.
100 NICKERSON ROAD
MARLBOROUGH, MASSACHUSETTS 01752
PROXY STATEMENT
THE ANNUAL MEETING AND VOTING
Our board of directors is soliciting proxies to be used at the annual meeting of
stockholders to be held on Thursday, May 10, 2007, or at any adjournment of the
meeting. This proxy statement contains information about the items being voted
on at the annual meeting.
WHO IS ENTITLED TO VOTE?
Record stockholders of ThinkEngine common stock at the close of business on
March 22, 2007 (the record date) can vote at the meeting. As of the record date,
6,694,604 shares of ThinkEngine common stock were outstanding. Each stockholder
has one vote for each share of common stock owned as of the record date. A list
of all stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose germane to the meeting at our
office at 100 Nickerson Road, Marlborough, Massachusetts, for the ten-day period
immediately preceding the annual meeting.
HOW DO I VOTE?
A form of proxy card and a return envelope for the proxy card are enclosed.
Giving your proxy means that you authorize the persons named in the enclosed
proxy card to vote your shares at the ThinkEngine annual meeting in the manner
you direct. You may vote by proxy or in person at the annual meeting. To vote by
proxy, if you are a registered holder, please complete, sign and return your
proxy card in the accompanying postage-paid return envelope.
If any proxy is returned without indication as to how to vote, the ThinkEngine
common stock represented by the proxy will be voted by the persons named on the
proxy in favor of each proposal and in accordance with their best judgment on
any other matters which may come before the meeting.
HOW DO I VOTE IF MY SHARES ARE HELD IN STREET NAME?
If your broker holds your shares of ThinkEngine common stock in street name, you
must either direct your broker on how to vote your shares or obtain a proxy from
your broker to vote in person at the annual meeting. If your shares are held in
street name, you should check the voting form that you receive to determine
whether shares may be voted by telephone or the Internet.
MAY I CHANGE MY VOTE?
You may revoke your proxy at any time before it is voted at the meeting in
several ways. You may send in a revised proxy dated later than the first; or you
may vote in person at the meeting; or you may notify our Assistant Secretary in
writing prior to the meeting that you have revoked your proxy. Our Assistant
Secretary, Harold F. Mayer, may be reached at ThinkEngine Networks, Inc., 3
Corporate Drive, Danbury, CT 06810, by telephone at 203-830-3494, or by email at
hmayer@thinkengine.com.
WHAT CONSTITUTES A QUORUM?
The holders of a majority of the outstanding shares entitled to vote at the
meeting, present in person or represented by proxy, constitute a quorum.
Abstentions, broker non-votes and votes withheld from director nominees are
included in the count to determine a quorum. If a quorum is present, the five
director candidates who receive a plurality of the votes of the shares present
in person or represented by proxy and entitled to vote on the election of
directors will be elected. Proposal 2 will be approved if a quorum is present
and a majority of the votes cast by holders present in person or represented by
proxy are cast in favor of the proposal.
WHAT IS THE EFFECT OF BROKER NON-VOTES AND ABSTENTIONS?
Under American Stock Exchange ("AMEX") rules, if your broker holds your shares
in its "street" name, the broker may under certain circumstances vote your
shares on the agenda items even if it does not receive instructions from you.
Because broker non-votes and abstentions are not considered votes cast on the
matters before the meeting, neither will have an effect on the voting for the
proposals.
STOCKHOLDER PROPOSALS FOR THE 2008 ANNUAL MEETING
If a stockholder wants to submit a proposal for inclusion in our proxy material
for the 2008 annual meeting, it must be received by our Secretary by December 1,
2007. Also, under our Bylaws, a stockholder can present other business at the
2008 annual meeting, including the nomination of candidates for director, only
if written notice of the business or candidates is received by our Secretary
between January 10, 2008 and February 9, 2008. There are other procedural
requirements in the Bylaws pertaining to stockholder proposals and director
nominations. Any stockholder may obtain a copy of the Bylaws without charge by
writing to our Secretary.
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WHICH STOCKHOLDERS OWN AT LEAST 5% OF THINKENGINE?
Other than a former executive officer listed in the director and officer
ownership table below, the only persons or groups known to us to be beneficial
owners of more than five percent of ThinkEngine's outstanding common stock are
reflected in the chart below. The following information is based solely upon
Schedules 13D and 13G, respectively, filed with the Securities and Exchange
Commission by the persons and entities shown as of the respective dates
appearing below.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------------- -------------------- ----------------
Prism Venture Partners III, LLC 1,149,705 (a) 17.2 %
100 Lowder Brook Drive, Suite 2500
Westwood, MA 02090
Bruce Galloway 555,932 (b) 8.3 %
c/o Galloway Capital Management, LLC
720 Fifth Avenue, 10th Floor
New York, NY 10019
(a) Information set forth in a Schedule 13D filed with the SEC on November
25, 2005 by Prism Venture Partners III, L.P. ("PVP III"), which owns
of record 1,116,134 shares of common stock and Prism Venture Partners
III-A, L.P. ("PVP III-A"), which owns of record 33,571 shares of
common stock, and additional information provided by PVP III and PVP
III-A on October 26, 2006. The 13D was also filed by Prism Venture
Partners III, LLC ("PVP LLC"), John L. Brooks, III, Robert C. Fleming
and William M. Seifert. Messrs. Brooks and Seifert have shared voting
and dispositive power over all of the shares. Messrs. Brooks and
Seifert are members of PVP LLC which is the sole general partner of
PVP III and PVP III-A.
(b) Information set forth in a Schedule 13G, Amendment No. 2 filed with
the SEC on December 20, 2006 by Strategic Turnaround Equity Partners,
LP, Bruce Galloway and Gary Herman reflects (i) 92,100 shares of
common stock owned by Mr. Galloway, (ii) 4,000 shares of common stock
held by Mr. Galloway's child for which Mr. Galloway has the power to
vote and dispose, (iii) 21,100 shares of common stock owned by
RexonGalloway Capital Growth, an investment company in which Mr.
Galloway is a 50% owner ("RexonGalloway") and for which Mr. Galloway
retains full investment and voting discretion, (iv) 103,007 shares of
common stock owned by Jacombs Investment Inc. of which Mr. Galloway is
an officer and primary shareholder, and (v) 335,725 shares of common
stock held by Strategic Turnaround Equity Partners, LP Cayman
("STEP"). Mr. Galloway is a managing member and the majority equity
holder of Galloway Capital Management, LLC, the general partner of
STEP. Mr. Galloway disclaims beneficial ownership of the shares of
common stock directly beneficially owned by STEP (except for (i)
indirect interests therein by virtue of being a member of Galloway
Capital Management LLC, and (ii) the indirect interests of Mr.
Galloway by virtue of being a limited partner of STEP).
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HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows beneficial ownership of ThinkEngine common stock by
directors and executive officers as of March 22, 2007. The named executive
officers are the chief executive officer, chief financial officer and the other
officer who was the highest paid in 2006, together with our former officers
listed below in the Summary Compensation Table.
SHARES DEEMED TO
BE BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
------------------------ ----- --------
Robert C. Fleming(a) 0 -
William A. Merritt 90,487(b) 1.3 %
Michael G. Mitchell 200,000 3.0 %
Robert H. Scott 9,375(c) *
William J. Stuart 63,770(d) 1.0 %
John E. Sweeney 9,375(c) *
Paul J. Gagne 83,333(c) 1.2 %
John E. Steinkrauss 75,000 1.1 %
Brian J. Kelley 654,480(e) 9.3 %
Garrett Sullivan 120,102(f) 1.8 %
Kenneth G. Brix 1,090 *
Michael N. Keefe 115,262(g) 1.7 %
All executive officers and directors
as a group, consisting of 8 persons 531,340 7.7 %
* less than one percent
(a) Mr. Fleming is the designated board representative of PVP III and PVP III-A.
(b) Includes 38,875 shares which may be acquired within 60 days upon exercise of
stock options. Also includes stock units recorded as deferred compensation
pursuant to which 41,912 shares of common stock are issuable to Mr. Merritt
within 60 days.
(c) Consists of shares which may be acquired within 60 days upon exercise of
stock options.
(d) Includes 39,125 shares which may be acquired within 60 days upon exercise of
stock options. Also includes 15,000 shares held in Mr. Stuart's IRA account,
1,000 shares held in his spouse's IRA account, 500 shares held by his son and
8,145 shares held jointly with his spouse.
(e) Includes 342,500 shares which may be acquired within 60 days upon exercise
of stock options. The above information is effective as of August 16, 2006: (i)
with respect to 110,133 of the shares of common stock, voting and investment
power is shared with Mr. Kelley's spouse; and (ii) 3,000 shares are held in Mr.
Kelley's name as custodian for two of his children.
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(f) Includes 45,000 shares which may be acquired within 60 days upon exercise of
stock options..
(g) With respect to 2,955 of the shares, voting and investment power is shared
with Mr. Keefe's spouse.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors and persons who are considered "officers" of ThinkEngine for purposes
of Section 16(a) of the Securities Exchange Act of 1934 and greater than ten
percent stockholders (referred to as reporting persons) are required to file
reports with the Securities and Exchange Commission showing their holdings of
and transactions in ThinkEngine securities. It is generally our practice to file
the forms on behalf of our reporting persons who are directors or officers. We
believe that all such forms have been timely filed for 2006, except that Messrs.
Gagne and Scott each failed to file Form 3 on a timely basis and Messrs.
Connors, Mayer, Meehan, Merritt and Stuart each failed to file Form 4 on a
timely basis with respect to one automatic stock option grant.
PROPOSAL 1: ELECTION OF DIRECTORS
Our board of directors currently has six members, five of whom are nominees for
election. William A. Merritt is not running for re-election at the annual
meeting. Unless otherwise directed, the persons appointed in the accompanying
form of proxy intend to vote at the annual meeting for the election of the five
nominees named below as our directors to serve until the next annual meeting or
until their successors are duly elected and qualified. Should any nominee become
unable to accept nomination or election as a director (which is not now
anticipated), the persons named in the enclosed proxy will vote for a substitute
nominee as may be selected by the board of directors, unless the size of the
board is reduced. With respect to Mr. Fleming, the contractual terms in
connection with the acquisition of ThinkEngine Networks, Inc. in November 2005
provide that, so long as Prism or one of its affiliated funds holds 400,000 or
more shares of ThinkEngine's common stock, ThinkEngine shall cause an individual
designated by Prism and acceptable to our board to be elected a director.
The affirmative vote of a plurality of the shares of our outstanding common
stock represented and voting at the annual meeting is required to elect the
directors.
Information about each nominee for director follows, including each nominee's
name and age, all positions and offices with ThinkEngine currently held by him,
and his principal occupation over the last five years (including other
directorships and business experience), and the period during which he has
served as a director of ThinkEngine. Should you choose not to vote for a
nominee, you should write on the proxy the name of the nominee for whom you
choose not to vote and mark your proxy under Proposal No. 1 "For All Except".
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NAME, AGE, POSITIONS, PRINCIPAL OCCUPATION, DIRECTOR
DIRECTORSHIPS AND BUSINESS EXPERIENCE SINCE
--------------------------------------------------------------------------------
ROBERT C. FLEMING, 50, is a co-founder of Prism Venture Partners 2005
("Prism"), a venture capital investment firm, and was a partner
of the firm from 1996 until March 1, 2006.
MICHAEL G. MITCHELL, 46, has been President and Chief Executive 2006
Officer of the Company since August 2006. Previously he had been
Executive Vice President, Business Development of ThinkEngine
Networks, Inc., a subsidiary of Cognitronics Corporation prior to
the merger, from November 2005 to April 2006 and President and
Chief Executive Officer of ThinkEngine Networks, Inc., prior to
the merger with Cognitronics Corporation, from 2001 until
November 2005.
ROBERT H. SCOTT, 52, has been President and Chief Executive 2006
Officer of Xelor Software Inc. since September 2004. Previously
he was President and Chief Executive Officer of IPeria, Inc. from
2003 to 2004 and Chairman of Octave Communications Inc. from 1998
to 2003.
WILLIAM J. STUART, 55, has been Senior Vice President and Chief 2001
Financial Officer of Avici Systems Inc. since August 2006.
Previously he had been a general partner of Still River Funds
since September 2001.
JOHN E. SWEENEY, 49, has been Vice President and General Manager 2006
of RSA, the Information and Security Division of EMC Corp. since
September 2006 and President and Chief Executive Officer of its
predecessor, Network Intelligence Corporation, since 2004.
Previously he was President and Chief Executive Officer of
Stargus Communications, Inc. during 2004 and a partner of Prism
Venture Partners from 2000 to 2003.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NOMINEES
DESCRIBED IN PROPOSAL 1.
BOARD INFORMATION AND COMMITTEES
The board met eight times in 2006 and acted five times by unanimous written
consent. Each incumbent director attended at least 75 percent of the total
number of board meetings and meetings held by the board committees on which he
served during 2006. The board has determined that each of our non-employee
directors currently serving on the board or who served on the board during 2006
is independent based upon the criteria provided by AMEX rules.
Members of the board serve on one or more of the three committees described
below, except for directors who are also employees of the company, who do not
serve on any of these committees.
The AUDIT COMMITTEE, which met four times in 2006, monitors our financial
reporting standards and practices and our internal financial controls to ensure
compliance with the policies and objectives established by the board of
directors. The committee directly retains and recommends for stockholder
ratification an independent accounting firm to conduct the annual audit, and
discusses with our independent accountants the scope of their
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examinations, with particular attention to areas where either the committee or
the independent accountants believe special emphasis should be directed. The
committee reviews the quarterly and annual financial statements and the annual
independent accountants' report, invites the accountants' recommendations on
internal controls and on other matters, and reviews the evaluation given and
corrective action taken by management. It reviews the independence of the
accountants and pre-approves audit and permissible non-audit services. It also
reviews our internal accounting controls and the scope and results of our
internal auditing activities. Members of the Audit Committee are William A.
Merritt, Robert H. Scott, and William J. Stuart (Chairman). John T. Connors and
Jack Meehan served on the Audit Committee until their resignations from the
board on September 5, 2006 and October 16, 2006, respectively. Mr. Scott joined
the Audit Committee on October 19, 2006.
Each member of the committee is independent under Rule 10A-3 of the Securities
and Exchange Commission and AMEX listing standards. The board of directors has
determined that Mr. Stuart, Chairman of the committee, qualifies as an "audit
committee financial expert" as that term is defined in Regulation S-K of the
Securities and Exchange Commission. None of the members of the Audit Committee
serves simultaneously on the audit committees of more than three publicly
registered companies.
The COMPENSATION COMMITTEE, which met twice in 2006, and acted seven times by
unanimous consent, oversees our executive and director compensation programs,
including establishing our executive and director compensation policies and
annually reviewing all components of compensation to ensure that our objectives
are appropriately achieved. These functions are not delegated to our officers or
to third-party professionals, although the committee may from time to time
retain third-party consultants to provide advice regarding compensation issues.
No consultants were utilized in 2006. The committee also considers input from
our executive officers although final decisions regarding executive compensation
are made by the committee. The committee is also responsible for certain
administrative aspects of our compensation plans and stock plans, and approves
or recommends changes in these plans. It also approves performance targets and
grants under our incentive plans and our stock plan for our executive officers.
The committee also reviews officers' potential for growth, and, with the chief
executive officer, will be responsible for succession planning and ensuring
management continuity. Members of the Compensation Committee are Messrs.
Merritt, Stuart (Chairman) and Sweeney. John T. Connors and Jack Meehan served
on the Compensation Committee until their resignations from the board on
September 5, 2006 and October 16, 2006, respectively. Mr. Sweeney joined the
Compensation Committee on December 14, 2006.
The NOMINATING COMMITTEE, which met three times in 2006, recommends nominees for
election to the board of directors. Members of the Nominating Committee are
Messrs. Fleming (Chairman), Scott, and Sweeney. John T. Connors and Jack Meehan
served on the Nominating Committee until their resignations from the board on
September 5, 2006 and October 16, 2006, respectively. Messrs. Scott and Sweeney
joined the Nominating Committee on December 14, 2006.
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The three committees described above are each governed by a written charter.
Copies of each committee charter are available on our website at
www.thinkengine.com.
DIRECTORS' COMPENSATION
DIRECTORS' FEES AND OTHER COMPENSATION. Directors who were not ThinkEngine
employees in 2006 were entitled to payment of (a) an annual fee of $8,000, (b)
$1,000 for each board meeting attended, of which there were eight during 2006,
and for each meeting of a committee of the board not held in conjunction with a
board meeting, of which there was one in 2006, and (c) $1,000 for each
substantive part of a business day that a director is requested to assist
management in the future development of our business, of which there were no
such occasions in 2006. Directors were able to voluntarily defer the receipt of
such fees to a future year. Also, directors could elect to be paid in cash or in
shares of common stock. If a director elected to be paid in shares, he was
entitled to 125% of the equivalent value in shares. In 2006, none of the
directors elected to defer receipt of such fees or to be paid in shares of
common stock. Directors are also entitled to reimbursement of reasonable travel
expenses.
Directors receive option grants pursuant to the Directors' Stock Option Plan.
The terms of the Directors' Plan provide for (1) an automatic award on August 1
of each year to each person who is a participant of options to purchase 6,000
shares of common stock and (2) sixty days following the initial election of a
director by the board of directors a pro rata portion of the annual award. The
option exercise price is 100% of the fair market value per share of common stock
on the date of the award, as defined in the Directors' Plan. Generally, the
options become exercisable one year after the date of award and expire ten years
after the date of award. During 2006, Messrs. Connors, Meehan, Merritt and
Stuart were each awarded options to purchase 6,000 shares of common stock on
August 1, 2006 at an exercise price of $2.05 per share. Mr. Scott was awarded an
option to purchase 1,000 shares of common stock on December 19, 2006 at an
exercise price of $2.81 per share.
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DIRECTOR COMPENSATION TABLE. The following table shows all compensation paid or
granted, during or with respect to the 2006 fiscal year to each of the
non-employee directors for services rendered to ThinkEngine and its subsidiaries
during 2006.
2006 DIRECTOR COMPENSATION
FEES EARNED OR PAID
NAME(A) IN CASH ($) OPTION AWARDS ($) TOTAL ($)
------- ----------- ----------------- ---------
John T. Connors $15,000 $7,263 $22,263
Robert C. Fleming -- -- --
Jack Meehan $17,000 $7,263 $24,263
William A. Merritt $17,000 $16,323 $33,323
Robert H. Scott $1,000 $108 $1,108
William J. Stuart $18,000 $16,323 $34,323
John E. Sweeney -- -- --
(a) As of December 31, 2006: Mr. Merritt held options to purchase 35,500
shares of ThinkEngine common stock; Mr. Scott held options to purchase
1,000 shares of ThinkEngine common stock; Mr. Stuart held options to
purchase 35,750 shares of ThinkEngine common stock; and Messrs.
Connors and Meehan each held options to purchase 29,500 shares of
ThinkEngine common stock. The other listed directors did not hold any
options to purchase our common stock.
(b) Dollar amounts with regard to option awards for each individual are
those recognized for financial statement reporting purposes for 2006
in accordance with FAS 123R.
COMMUNICATIONS WITH DIRECTORS
In order to provide our security holders and other interested parties with a
direct and open line of communication to the board of directors, the board of
directors has adopted the following procedures. ThinkEngine security holders and
other interested persons may communicate with the chairmen of our Nominating
Committee, Compensation Committee or Audit Committee or with the non-management
directors as a group by sending an email to directors@thinkengine.com. The email
should specify which of the foregoing is the intended recipient. Communications
may also be sent by mail addressed in care of the Corporate Secretary,
ThinkEngine Networks, Inc., 100 Nickerson Road, Marlborough, Massachusetts
01752.
All communications received in accordance with these procedures will be reviewed
initially by our Corporate Secretary. The Secretary will relay all such
communications to the appropriate director or directors unless the Secretary
determines that the communication:
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o does not relate to the business or affairs of ThinkEngine or the
functioning of the board of directors or any of its committees;
o relates to routine or insignificant matters that do not warrant the
attention of the board of directors;
o is an advertisement or other commercial solicitation or communication;
o is frivolous or offensive; or
o is otherwise not appropriate for delivery to directors.
The director or directors who receive any such communication will have
discretion to determine whether the subject matter of the communication should
be brought to the attention of the full board of directors or one or more of its
committees and whether any response to the person sending the communication is
appropriate. Any response will be made only in accordance with applicable law
and regulations relating to the disclosure of information.
Our Secretary will retain copies of all communications received pursuant to
these procedures for a period of at least one year. The Nominating Committee of
the board of directors will review the effectiveness of these procedures from
time to time and, if appropriate, recommend changes.
We have not established a formal policy regarding director attendance at our
annual meetings of stockholders, but our directors generally do attend the
annual meeting. The chairman of the board presides at the annual meeting of
stockholders, and the board of directors generally holds one of its regular
meetings in conjunction with the annual meeting of stockholders. Accordingly,
unless one or more members of the board are unable to attend, all members of the
board are present for the annual meeting. Four of the six members of the board
at the time of our 2006 annual meeting of stockholders attended that meeting.
NOMINATION OF DIRECTORS
The Nominating Committee will consider stockholder recommendations of candidates
to serve as directors when the recommendations are properly submitted. In
evaluating a prospective candidate, the Nominating Committee considers the
extent to which the candidate possesses the following qualifications,
characteristics and skills:
o achievement in the individual's career;
o breadth of experience;
o soundness of judgment;
o high personal and professional ethics, integrity and values;
o ability to make independent, analytical inquiries;
o ability to contribute to a diversity of viewpoints among board
members;
o willingness and ability to devote the time required to adequately
perform board activities; and
o ability to represent the corporate interests of the company.
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The Nominating Committee will consider nominees recommended by stockholders for
election at the 2008 annual meeting of stockholders that are submitted prior to
February 9, 2008 to the Corporate Secretary at ThinkEngine's offices at 100
Nickerson Road, Marlborough, Massachusetts 01752. Any recommendation must be in
writing and must include a detailed description of the business experience and
other qualifications of the recommended nominee as well as the signed consent of
the nominee to serve if nominated and elected, so that the candidate may be
properly considered. All stockholder recommendations will be reviewed in the
same manner as other potential candidates for board membership.
Other than the nomination of Mr. Fleming in accordance with our agreement with
Prism Ventures, the Nominating Committee has not received any nominees for
election to the board at the 2007 annual meeting from any stockholder or group
that has held more than 5% of our common stock for a period of one year.
CODE OF ETHICS
Our board of directors has approved a Code of Business Conduct in accordance
with the rules of the Securities and Exchange Commission and the American Stock
Exchange that governs the conduct of each of our employees and directors,
including our principal executive officer, principal financial officer,
principal accounting officer and controller. Our Code of Business Conduct is
maintained on our website at www.thinkengine.com. Any amendments to or waivers
of the Code of Business Conduct that apply to our principal executive officer,
principal financial officer or principal accounting officer and that relates to
any element of the definition of the term "code of ethics," as the term is
defined by the Securities and Exchange Commission, will be posted on our website
at www. thinkengine.com. There are currently no such amendments or waivers.
EXECUTIVE OFFICER COMPENSATION
EXECUTIVE CONTRACTS AND SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
On August 16, 2006, we entered into an Employment Agreement with Michael G.
Mitchell under which he serves as our President and Chief Executive Officer. The
terms of the agreement provide for (i) employment "at will", (ii) compensation
at a base salary at the annual rate of $250,000 payable in installments and
(iii) an "inducement" grant of 200,000 shares of ThinkEngine's common stock,
which will vest on the fourth anniversary of his employment or, if sooner, upon
a change of control of ThinkEngine. Further, if Mr. Mitchell's employment is
terminated (i) by ThinkEngine without Serious Cause or (ii) by him for Good
Reason, we will continue to pay his then-current base salary for a period of six
months from the date of such termination, and also the company-paid portion of
his medical and dental insurance coverages. The cost to the company would
approximate $132,800 for the six-month period. Also, if his employment is
terminated without Serious Cause or for Good Reason within two years following a
change of control of ThinkEngine, he will be entitled to receive his
then-current base salary for a period of one year from the date of such
termination, and also the company-paid portion of his medical and dental
11
insurance coverages. The cost to the company would approximate $265,700 for the
twelve-month period.
On November 21, 2006, we entered into an Employment Agreement with John E.
Steinkrauss under which he serves as our Vice President, Chief Financial Officer
and Treasurer. The terms of the agreement provide for (i) employment "at will",
(ii) compensation at a base salary at the annual rate of $165,000 and
eligibility for an annual cash bonus as determined at the sole discretion of the
Compensation Committee of the board and (iii) an "inducement" grant of 75,000
shares of ThinkEngine common stock, which will vest on the fourth anniversary of
his employment or, if sooner, upon a change of control of ThinkEngine. Further,
if Mr. Steinkrauss' employment is terminated (i) by ThinkEngine without Serious
Cause or (ii) by him for Good Reason, we will continue to pay his then-current
base salary for a period of six months from the date of such termination, and
also the company-paid portion of his medical and dental insurance coverages. The
cost to the company would approximate $87,800 for the six-month period. Also, if
his employment is terminated without Serious Cause or for Good Reason within two
years following a change of control of ThinkEngine, he will be entitled to
receive his then-current base salary for a period of one year from the date of
such termination, and also the company-paid portion of his medical and dental
insurance coverages. The cost to the company would approximate $175,600 for the
twelve-month period.
On August 16, 2006, in connection with his resignation as President and Chief
Executive Officer and as a director, we entered into a Severance and Release
Agreement with Brian J. Kelley (the "Severance Agreement"). Pursuant to the
Severance Agreement, we paid Mr. Kelley a lump sum of $390,723 (which amount
includes accrued vacation and other expenses) and arranged to provide Mr. Kelley
with payment of such amounts under COBRA as are required to maintain existing
health insurance coverage until August 2007 (less amounts payable by Mr. Kelley
had he remained employed by ThinkEngine). We also allowed Mr. Kelley the
continued use of his company automobile for ninety days and agreed to reimburse
Mr. Kelley for his legal and accounting expenses of up to an aggregate of
$10,000. Mr. Kelley and the company also provided each other with a general
release of claims. Further, we also extended the period for Mr. Kelley to
exercise his outstanding stock options to two years from the date of the
Severance Agreement and accelerated the vesting of previously unvested options
to purchase 53,333 shares of common stock. We also agreed to remove the
restrictions on 62,550 shares of unvested restricted common stock. Mr. Kelley
also agreed to repay his outstanding loan to us in the amount of $524,133.27 by
tendering to us for cancellation 259,472 shares of common stock (valued at the
closing price on the American Stock Exchange on the date immediately preceding
the date of the Severance Agreement). Pursuant to the Severance Agreement, Mr.
Kelley will continue to provide certain consulting services to ThinkEngine with
respect to sales and marketing of our CX product line for a period of twelve
(12) months. In consideration for these services, Mr. Kelley will receive a
consulting fee equal to five percent (5%) of any revenues received by
ThinkEngine as a result of new orders of our CX product line ("Qualified Sales")
during the consulting period. During 2006, Mr. Kelley earned $106,951 in
consulting fees.
12
On March 31, 2006, Michael Keefe's employment as Vice President, Engineering
terminated. Under the terms of his severance, we paid severance compensation,
including accrued vacation, in installments aggregating $110,385 through
December 31, 2006. Further, we provided Mr. Keefe with payment of such amounts
under COBRA as were required to maintain his existing health insurance coverage
until the end of the severance period (less amounts payable by him had he
remained employed by ThinkEngine).
On June 30, 2006, Kenneth Brix's employment as Vice President, Sales terminated.
Under the terms of his severance, we paid severance compensation, including
accrued vacation, in installments aggregating $80,385 through December 31, 2006.
Further, we also allowed Mr. Brix the continued use of his company automobile
through December 2006.
On February 16, 2007, Garrett Sullivan's employment terminated. Mr. Sullivan was
our Treasurer and Chief Financial Officer until November 20, 2006. Under the
terms of his severance, we will pay severance compensation, including accrued
vacation, in installments aggregating $80,000 through August 17, 2007.
COMPENSATION DISCUSSION AND ANALYSIS
Our Compensation Committee, which is comprised of three independent non-employee
directors, has formulated a compensation philosophy that is designed to enable
us to attract, retain and reward capable employees who can contribute to the
success of ThinkEngine, principally by setting overall compensation at the
median of the marketplace through a combination of (1) base salaries, (2) annual
incentive opportunities and (3) a significant long term incentive opportunity
for senior management. We believe that implementation of a system of
compensation that emphasizes performance-based compensation provides a strong
alignment to stockholders' interests. Five key principles serve as the guiding
framework for compensation decisions for all employees of ThinkEngine:
o to attract and retain the most highly qualified management and
employee team;
o to pay competitively compared to similar telecommunications industry
companies;
o to encourage superior employee performance by aligning rewards with
stockholder interests, especially through the use of tangible
performance targets;
o to motivate senior executives to achieve ThinkEngine's annual and
long-term business goals by providing equity-based incentive
opportunities;
o to strive for fairness in administration by emphasizing
performance-related contributions as the basis for pay decisions.
To implement these policies, we have designed the framework for a four-part
executive compensation program consisting of base salary, annual incentives,
long-term incentive opportunities for senior management, and other employment
benefits.
BASE SALARY. We will seek to maintain levels of compensation that are
competitive with similar telecommunications industry companies. Base salary
represents the fixed component of the executive compensation program.
ThinkEngine's philosophy regarding base salaries is to maintain salaries for the
aggregate officer group at the competitive industry average. Periodic
13
increases in base salary will relate to individual contributions evaluated
against established objectives, length of service, and the industry's annual
competitive pay practice movement. We believe that base salaries during 2006 for
our chief executive officer and for the other executive officers were generally
at the competitive industry average.
Based upon review, we increased salaries effective January 1, 2007 for Mr.
Mitchell, the president and chief executive officer to $275,000 from $250,000,
and Mr. Steinkrauss, the treasurer and chief financial officer, to $185,000 from
$165,000.
ANNUAL INCENTIVE PROGRAM. In 2007, the Company awarded discretionary bonuses
based upon evaluation of each officer's performance in 2006: Mr. Mitchell -
$25,000 and Mr. Steinkrauss - $5,000. No bonuses were awarded in 2006 to the
former executive officers.
In 2007, we designed an annual incentive program pursuant to which key
ThinkEngine officers and employees will be eligible to receive performance
bonuses in a range based upon a percentage of their annual base salary. Michael
G. Mitchell, our President and Chief Executive Officer, is eligible for an
annual target award of 40% of his annualized base salary, and John E.
Steinkrauss, our Vice President and Chief Financial Officer, is eligible for an
annual target award of 30% of his annualized base salary. Actual awards may be
earned in greater or lesser percentages based upon levels of achievement of
specific company financial performance targets that have been established by the
Compensation Committee for each award period in the 2007 fiscal year. Payments
may be earned on a semi-annual basis as follows: 37.5% of the allocated award
amount may be earned based upon our financial performance during the first six
months of the 2007 fiscal year, and the remaining 62.5% may be earned based upon
our financial performance during the second six months of the 2007 fiscal year.
LONG-TERM EQUITY INCENTIVES. We believe that the pay program should provide
senior executives with an opportunity to increase their ownership and
potentially gain financially from ThinkEngine stock price increases. By this
approach, the best interests of stockholders and senior executives will be
closely aligned. Therefore, senior executives are eligible to receive restricted
stock and are also eligible to receive stock options, giving them the right to
purchase shares of common stock at a specified price in the future. These grants
will vest based upon the passage of time, the achievement of performance
metrics, or both. We believe that the use of restricted stock and stock options
as the basis for long-term incentive compensation meets our defined compensation
strategy and business needs by achieving increased value for stockholders and
retaining key employees. During 2006, awards of restricted stock were made as
follows: 200,000 shares to Mr. Mitchell, President and Chief Executive Officer,
and 75,000 shares to Mr. Steinkrauss, Vice President, Treasurer and Chief
Financial Officer. In addition, in March 2007, incentive stock option grants
were made as follows: 100,000 shares to Mr. Mitchell, and 25,000 shares to Mr.
Steinkrauss.
OTHER BENEFITS. Our philosophy is to provide competitive health- and
welfare-oriented benefits to all employees, but to maintain a conservative
posture relative to executive benefits. The only benefit not made available to
all employees is that we provide company automobiles to certain executive
officers.
14
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE. Section 162(m) of
the Internal Revenue Code generally disallows a tax deduction to a public
corporation for compensation over $1 million paid to a corporation's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation will not be subject to the cap if
certain requirements are met. We intend to structure the compensation of our
executive officers in a manner that should ensure that ThinkEngine does not lose
any tax deductions because of the $1 million compensation limit in the
foreseeable future.
The salaries for our highest paid executives will be set, in part based on
independent studies, at levels approximating the average for companies of
comparable size in similar industries and are not expected to reach $1 million
in the near future. We are a proponent of using more performance and
equity-based compensation, which can often be designed to ensure that tax
deductibility is not compromised.
Our option and restricted stock plans incorporate maximum limitations on
individual annual stock option and restricted stock grants so as to meet the
requirements of Section 162(m). The plans also identify performance measures to
be used if we decide to use performance-based vesting restricted stock in the
future to meet the requirements of Section 162(m).
COMPENSATION DISCLOSURE TABLES
SUMMARY COMPENSATION TABLE. The following table (Table I) shows all compensation
paid or granted, during or with respect to the 2006 fiscal year to the chief
executive officer, the chief financial officer and to the other highest paid
executive officer for services rendered to ThinkEngine and its subsidiaries
during 2006. In accordance with applicable SEC rules, the table also includes
our former chief executive officer, former chief financial officer and two other
former officers. Persons in this group are referred to individually as a "named
executive officer" and collectively as the "named executive officers," and,
unless otherwise noted, the titles listed are the titles held as of the end of
the 2006 fiscal year, or if earlier, their termination dates.
15
TABLE I
2006 SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
NAME AND PRINCIPAL STOCK OPTION PLAN COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
-------- ---- ------ ----- ------ ------ ------------ -------- ------------ -----
($) ($) ($)(1) ($)(2) ($) ($) ($)(3) ($)
Michael G. 2006 278,522 25,000 38,437 -- -- -- -- 341,959
Mitchell
President and Chief
Executive Officer
John E. 2006 18,602 5,000 4,164 -- -- -- -- 27,766
Steinkrauss
Vice President,
Treasurer, and Chief
Financial Officer
Paul J. 2006 215,894 -- -- 60,372 -- -- -- 276,266
Gagne
Vice President -
Engineering, Chief
Technology Officer
Brian J. 2006 207,415 -- -- 220,341 -- -- 505,550 933,306
Kelley(4)
former President
and Chief Executive
Officer
Garrett 2006 157,692 -- -- 33,620 -- -- -- 191,312
Sullivan(5)
former Treasurer and
Chief Financial
Officer
Kenneth G. 2006 106,538 -- -- (12,841) -- -- 80,385 174,082
Brix(6)
former Vice
President - Sales
Michael N. 2006 37,692 -- -- (8,403) -- -- 110,385 139,674
Keefe(7) former
Vice President -
Engineering
(1) Dollar amounts set forth with regard to restricted stock grants for each
individual are those recognized for financial statement reporting purposes for
2006 in accordance with FAS 123R disregarding the estimate of forfeitures
related to service-based vesting conditions. Share value utilized for purposes
of this determination is the applicable market value on the date of grant. For a
further discussion of the assumptions underlying these amounts, reference is
made to the footnotes to ThinkEngine's financial statements as set forth in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
(2) Dollar amounts with regard to option grants for each individual are those
recognized for financial statement reporting purposes for 2006 in accordance
with FAS 123R disregarding the estimate of forfeitures related to service-based
vesting conditions. The amounts set forth herein are based on a Black-Scholes
calculation assuming a 4.8% risk free interest rate, volatility of 51.4%, a
16
expected holding period of 2.5 years and an annual dividend rate of 0.0%. For a
further discussion of the assumptions underlying these amounts, reference is
made to the footnotes to ThinkEngine's financial statements as set forth in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
(3) These amounts represent (a) payments of severance and vacation pay paid, (b)
consulting fees earned by Mr. Kelley in accordance with his severance agreement
in the amount of $106,951, (c) reimbursement for life insurance premiums and
other expenses in the amount of $25,000 paid to Mr. Kelley in accordance with
his severance agreement, and (d) $7,876 for personal use of automobile by Mr.
Kelley.
(4) On August 16, 2006, Mr. Kelley's employment as President and Chief Executive
Officer terminated. Under the terms of his severance, we paid severance
compensation, including accrued vacation, of $365,723 in a lump sum.
(5) On November 20, 2006, Mr. Sullivan's employment as Treasurer and Chief
Financial Officer terminated. He continued to serve as an employee-consultant
until February 16, 2007.
(6) On June 30, 2006, Mr. Brix's employment as Vice President, Sales terminated.
Under the terms of his severance, we paid severance compensation, including
accrued vacation, in 2006 in the aggregate amount of $80,385.
(7) On March 31, 2006, Mr. Keefe's employment as Vice President, Engineering
terminated. Under the terms of his severance, we paid severance compensation,
including accrued vacation, in 2006 in the aggregate amount of $110,385.
17
GRANTS OF PLAN-BASED AWARDS TABLE. The following table (Table II) shows all
plan-based equity and non-equity grants made by ThinkEngine during the 2006
fiscal year to the named executive officers.
TABLE II
2006 GRANTS OF PLAN-BASED AWARDS
ALL OTHER
STOCK ALL OTHER EXERCISE
AWARDS: AWARDS: OR BASE GRANT DATE
NUMBER OF NUMBER OF PRICE OF FAIR VALUE
SHARES OF SECURITIES OPTION OF STOCK
ESTIMATED FUTURE PAYOUTS UNDER STOCK OR UNDER-LYING AWARDS AND OPTION
NAME GRANT DATE NON-EQUITY INCENTIVE PLAN AWARDS UNITS (#) OPTIONS (#) ($/SH) AWARDS
---- ---------- -------------------------------- --------- ----------- ------ ------
THRESHOLD TARGET MAXIMUM
--------- ------ -------
($) ($) ($)
Michael G. Mitchell 8/16/06 -- -- -- 200,000 -- -- $410,000
John E. Steinkrauss 11/21/06 -- -- -- 75,000 -- -- $153,750
Paul J. Gagne -- -- -- -- -- -- -- --
Brian J. Kelley 8/16/06 -- -- -- -- 67,500 (a) $9.06 --
8/16/06 -- -- -- -- 75,000 (a) $5.00 --
8/16/06 -- -- -- -- 60,000 (a) $1.55 $30,000
8/16/06 -- -- -- -- 60,000 (a) $2.20 --
8/16/06 -- -- -- -- 80,000 (a) $2.70 --
Garrett Sullivan -- -- -- -- -- -- -- --
Kenneth G. Brix -- -- -- -- -- -- -- --
Michael N. Keefe -- -- -- -- -- -- -- --
(a) All indicated option grants to Mr. Kelley reflect amendments of prior grants
to extend the termination date thereof to August 16, 2008, and the acceleration
of the vesting of prior outstanding grants.
18
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE. Shown in Table III below is
information with respect to outstanding equity-based awards (consisting of
unexercised options to purchase ThinkEngine common stock and unvested restricted
ThinkEngine common stock) held by the named executive officers at December 31,
2006
TABLE III
OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR END
OPTION AWARDS STOCK AWARDS
NUMBER
NUMBER OF OF
SECURITIES SECURITIES NUMBER OF MARKET VALUE OF
UNDERLYING UNDERLYING OPTION OPTION SHARES OR UNITS SHARES OR UNITS
UNEXERCISED UNEXERCISED EXERCISE EXPIRATION OF STOCK THAT OF STOCK THAT
NAME OPTIONS OPTIONS PRICE DATE HAVE NOT VESTED HAVE NOT VESTED
---- --------------- -------------------- ----- ---- --------------- ---------------
(#) EXERCISABLE (#) UNEXERCISABLE(1) ($) (#) ($)(2)
Michael G. Mitchell -- -- -- -- 200,000 $618,000
John E. Steinkrauss -- -- -- -- 75,000 $231,750
Paul J. Gagne 41,667 83,333 $2.55 10/25/15 -- --
Brian J. Kelley 67,500 -- $9.06 8/16/08 -- --
75,000 -- $5.00 8/16/08
60,000 -- $1.55 8/16/08
60,000 -- $2.20 8/16/08
80,000 -- $2.70 8/16/08
Garrett Sullivan 20,000 -- $9.06 5/24/10 17,200 53,148
25,000 -- $5.00 6/13/11
25,000 -- $1.55 10/23/12
25,000 -- $2.20 10/24/13
6,666 13,334 $2.70 10/25/15
Kenneth G. Brix -- -- -- -- -- --
Michael N. Keefe -- -- -- -- -- --
(1) Mr. Gagne's unvested options become exercisable in two equal installments on
May 1, 2007 and May 1, 2008. Mr. Sullivan's unvested options become exercisable
in two equal installments on April 25, 2007 and April 25, 2008.
(2) These values are based on $3.09 per share, the market price of a share of
ThinkEngine common stock as of December 29, 2006 (the final trading day of
2006). OPTION EXERCISES AND STOCK VESTED TABLE. The following table (Table IV)
shows information with respect to all stock options exercised by the named
executive officers during 2006 and information regarding restricted stock held
by those persons that vested during 2006.
19
TABLE IV
2006 OPTION EXERCISES AND STOCK VESTED TABLE
OPTION AWARDS STOCK AWARDS
NUMBER OF
NUMBER OF SHARES VALUE SHARES VALUE
ACQUIRED ON REALIZED ON ACQUIRED ON REALIZED ON
NAME EXERCISE EXERCISE VESTING VESTING
---- -------- -------- ------- -------
(#) ($) (#) ($)
Michael G. Mitchell -- -- -- --
John E. Steinkrauss -- -- -- --
Paul J. Gagne -- -- -- --
Brian J. Kelley -- -- 160,000 $414,400
Garrett Sullivan -- -- 60,000 $155,400
Kenneth G. Brix -- -- 60,000 $155,400
Michael N. Keefe 41,668 $44,168 -- --
20
PENSION BENEFITS TABLE. Shown in Table V below is information as of December 31,
2006 with respect to each plan that provides retirement-based payments or other
benefits to the named executive officers.
TABLE V
PENSION BENEFITS AT DECEMBER 31, 2006
NUMBER OF YEARS PRESENT VALUE PAYMENTS DURING
CREDITED OF ACCUMULATED LAST FISCAL YEAR
NAME PLAN NAME SERVICE (#) BENEFIT ($) ($)
---- --------- ----------- ----------- ---
Michael G. Mitchell -- -- -- --
John E. Steinkrauss -- -- -- --
Paul J. Gagne -- -- -- --
Brian J. Kelley -- -- -- --
Garrett Sullivan Cognitronics 5 $47,000 $0
Corporation
Pension
Plan
Kenneth G. Brix -- -- -- --
Michael N. Keefe Cognitronics 14 $41,000 $0
Corporation
Pension
Plan
In 1977, we adopted the Cognitronics Corporation Pension Plan, a
non-contributory, defined benefit pension plan covering substantially all
employees in the United States. Our funding policy is to contribute amounts to
the plan sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional amounts as
the Company may determine to be appropriate from time to time.
In 1994, we amended the pension plan to eliminate future benefit accruals after
June 30, 1994. Accordingly, new employees are not eligible to participate in the
plan and the accrued pension benefit of earlier participants will remain at the
level earned based on service through June 30, 1994.
21
EQUITY COMPENSATION PLAN TABLE. The following table (Table VI) sets forth
general information concerning our equity compensation plans as of December 31,
2006.
TABLE VI
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (B))
------------- ------------------- ------------------- ------------------------
(COL. A) (COL. B) ($)(COL. C) (COL. D)
Equity compensation plans 1,139,383 $3.44 1,168,683(1)
approved by security holders
Equity compensation plans not 956,578(2) $1.55 0
approved by security holders
Total 2,095,961 $2.59 1,168,683
(1) Consists of 590,733 shares available for grant of stock options under the
1990 Stock Option Plan, 182,750 shares available for grant under the Directors
Option Plan, and 395,200 shares for grant under the Restricted Stock Plan.
(2) Consists of shares available for issuance, as follows:
(a) Rights granted in 2002 to one executive to receive 60,000 shares of
Common Stock which vested on January 2, 2006. The total value of the
rights at the date of grant was $93,000 based on the fair market value
of the Common Stock ($1.55 per share) on the date of grant; $0 was
charged to expense in 2006 related to this grant.
(b) Rights of directors to receive 41,912 shares of common stock.
Directors may elect to receive their fees in shares of common stock
and defer receipt of such shares to a future date. If a director
elects to be paid in shares, he is entitled to 125% of the equivalent
value of the fees in shares. This policy was discontinued in 2007.
(c) Rights granted in 2001 to two executives to receive 13,000 shares of
common stock, the receipt of which has been voluntarily deferred by
the executives to a future year. The total value of the rights was
$61,880 based on the average fair market value of the common stock as
the shares vested during 2001 ($4.76 per share), which amount was
charged to expense in 2001.
22
(d) Employment inducement stock options granted to newly hired employees
during 2005 and 2006 to purchase 566,666 shares of Common Stock at an
average exercise price of $2.62 per share; the exercise price is equal
to the fair market value of the common stock on the date of grant.
(e) Rights granted in 2006 to two executives to receive 275,000 shares of
Common Stock vesting during 2010. Such rights are subject to immediate
vesting in the event of a change in control of the Company and
pro-rata vesting in the event of involuntary termination for reasons
other than cause. The total value of the rights at the date of grant
was $563,750 based on the fair market value of the Common Stock ($2.05
per share) on the grant dates; $41,640 was charged to expense in 2006
related to these grants.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is comprised of three independent non-employee
directors. As members of the Compensation Committee, it is our responsibility to
administer ThinkEngine's executive compensation programs, monitor corporate
performance and its relationship to compensation of executive officers, and make
appropriate recommendations concerning matters of executive compensation.
In this context, the Compensation Committee has reviewed and discussed with
management the section of this proxy statement above entitled "Compensation
Discussion and Analysis". Based on this review and discussion, the Compensation
Committee recommended to the board of directors, and the board has approved,
that the Compensation Discussion and Analysis be incorporated by reference into
ThinkEngine's Annual Report on Form 10-K for the year ended December 31, 2006.
Compensation Committee
of the Board of Directors
William A. Merritt
William J. Stuart, Chairman
John E. Sweeney
AUDIT COMMITTEE REPORT
The Audit Committee reviews ThinkEngine's financial reporting process on behalf
of the board of directors. Management has the primary responsibility for the
financial statements and the reporting process. ThinkEngine's independent
accountants are responsible for expressing an opinion on the fair presentation
of our audited financial statements in conformity with accounting principles
generally accepted in the United States.
In this context, the Audit Committee has reviewed and discussed with management
and the independent accountants the audited financial statements for the fiscal
year ended December 31, 2006. The Audit Committee has discussed with the
independent accountants the matters
23
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). In addition, the Audit Committee has
received from the independent accountants the written disclosures and letter
required by Independence Standards Board No. 1 (Independence Discussions with
Audit Committees) and discussed with them their independence from ThinkEngine
and its management. The Audit Committee has also considered whether the
independent accountants' provision of non-audit services to ThinkEngine is
compatible with the accountants' independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the board of directors, and the board has approved,
that the audited financial statements for the fiscal year ended December 31,
2006 be included for filing in ThinkEngine's Annual Report on Form 10-K for the
year ended December 31, 2006.
Audit Committee of the Board of Directors
William A. Merritt
Robert H. Scott
William J. Stuart, Chairman
AUDIT COMMITTEE PRE-APPROVAL POLICY
Pursuant to its charter, the Audit Committee is responsible for selection,
approving compensation and overseeing the independence, qualifications and
performance of the independent accountants. Also, the Audit Committee has
adopted a pre-approval policy pursuant to which certain permissible audit and
non-audit services may be provided by the independent accountants. Pre-approval
is generally provided for up to one year, is detailed as to the particular
service or category of services and may be subject to a specific budget. The
Audit Committee may also pre-approve particular services on a case-by-case
basis. In assessing requests for services by the independent accountants, the
Audit Committee considers whether: such services are consistent with the
auditor's independence; whether the independent accountants are likely to
provide the most effective and efficient service based upon their familiarity
with the company; and whether the service could enhance our ability to manage or
control risk or improve audit quality.
Notwithstanding the pre-approval policy, all of the services provided by Carlin,
Charron & Rosen, LLP in fiscal year 2006 and related fees were approved in
advance by the Audit Committee.
PROPOSAL 2: APPROVAL OF APPOINTMENT OF THINKENGINE'S INDEPENDENT ACCOUNTANTS
The Audit Committee of our board of directors has selected Carlin, Charron &
Rosen, LLP as our independent registered public accounting firm for the year
ending December 31, 2007, and has directed that the selection of independent
accountants be submitted for ratification by stockholders at the annual meeting.
Carlin, Charron & Rosen, LLP has audited the Company's financial statements
since 2003, and the Audit Committee considers Carlin, Charron & Rosen,
24
LLP to be well qualified. A representative of Carlin, Charron & Rosen, LLP is
expected to be present at the annual meeting and will have an opportunity to
make a statement if he or she desires and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Carlin, Charron & Rosen, LLP as our
independent accountants is not required by our Bylaws or otherwise. However, the
Audit Committee is submitting the selection of Carlin, Charron & Rosen, LLP to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee will reconsider
whether or not to retain that firm. Even if the selection were ratified, the
Audit Committee in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Audit Committee
determines that such a change would be in the best interests of ThinkEngine and
its stockholders.
AUDIT FEES
Aggregate fees billed by Carlin, Charron & Rosen, LLP for professional services
rendered for the audit of our annual consolidated financial statements included
in the annual report on Form 10-K and the review of interim consolidated
financial statements included in quarterly reports on Form 10-Q and the review
and audit of the application of new accounting pronouncements and SEC releases
were $107,200 and $138,600 for the years ended December 31, 2006 and 2005,
respectively.
AUDIT-RELATED FEES
There were no fees billed by Carlin, Charron & Rosen, LLP for assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements, and that are not disclosed above for the
years ended December 31, 2006 and 2005.
TAX FEES
There were no fees billed by Carlin, Charron & Rosen, LLP for professional
services rendered to ThinkEngine for tax compliance, tax advice and tax planning
for the years ended December 31, 2006 and 2005.
ALL OTHER FEES
There were no fees billed by Carlin, Charron & Rosen, LLP for all other products
and services provided to ThinkEngine for the years ended December 31, 2006 and
2005.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPOINTMENT OF
CARLIN, CHARRON & ROSEN, LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR 2007.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to August 2002, we advanced amounts to officers primarily for personal
income taxes related to various stock awards. The amounts outstanding at
December 31, 2006 and 2005 were $444,000 and $2,029,000, respectively, including
interest accrued on the advances. This indebtedness bears interest based on
applicable Federal rates, and is payable upon demand. During 2006, certain
former officers, including Messrs. Brix, Keefe and Kelley repaid loans and
accumulated interest aggregating approximately $1,630,000. Repayment consisted
of $124,000 in cash and 597,144 shares of our common stock, valued at the
closing market price at the date of the repayment of the loans. In February
2007, a former officer, Mr. Sullivan, repaid loans and accumulated interest of
$431,000; repayment consisted of 140,813 shares of ThinkEngine common stock,
valued at the closing market price at the date of the repayment of the loans.
Other than as set forth in our Code of Business Conduct, our board does not have
a specific policy regarding review of transactions involving directors,
management or other related parties. However, we discourage such transactions
and have historically limited the approval of any such transactions to specific
and rare instances with the full disclosure to, and approval of, the
disinterested members of the board.
SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be solicited by the directors,
officers, and employees of the company without additional compensation in
person, or by telephone, facsimile, email or otherwise. Arrangements will also
be made with brokerage firms and other custodians, nominees, and fiduciaries for
the forwarding of solicitation material to the beneficial owners of ThinkEngine
common stock, and we will reimburse these brokers, custodians, nominees, and
fiduciaries for reasonable out-of-pocket expenses incurred. The cost of
solicitation will be borne entirely by ThinkEngine.
OTHER MATTERS
Management knows of no other matters which may be presented for consideration at
the meeting. However, if any other matters properly come before the meeting, it
is the intention of the individuals named in the enclosed proxy to vote in
accordance with their judgment.
By order of the board of directors.
Amy M. Tefft
Secretary
26
WITH-
|X| PLEASE MARK VOTES PROXY HOLD FOR ALL
AS IN THIS EXAMPLE THINKENGINE NETWORKS, INC. FOR AUTHORITY EXCEPT
PROXY SOLICITED ON BEHALF OF 1. ELECTION OF DIRECTORS |_| |_| |_|
THE BOARD OF DIRECTORS NOMINEES: ROBERT C.
FLEMING, MICHAEL G.
The undersigned hereby appoints R. C. Fleming and M. G. Mitchell MITCHELL, ROBERT H. SCOTT,
as Proxies, each with the power to appoint his substitute, and WILLIAM. J. STUART AND
hereby authorizes them to represent and to vote as designated hereon JOHN E. SWEENEY
all shares of Common Stock of ThinkEngine Networks, Inc. held of
record by the undersigned on March 22, 2007 at the Annual Meeting of INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
Stockholders to be held at the Embassy Suites Hotel, 123 Boston Post INDIVIDUAL NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT
Road West, Marlborough, Massachusetts, on May 10, 2007 at 10:00 NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
a.m., and any adjournments thereof.
2. TO RATIFY THE SELECTION OF FOR AGAINST ABSTAIN
This Proxy when properly executed will be voted in the manner CARLIN, CHARRON & ROSEN, |_| |_| |_|
directed herein by the undersigned stockholder. IF NO DIRECTION IS LLP, as independent
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. auditors of the Company.
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Please be sure to sign and date Date 3. IN THEIR DISCRETION, THE
this Proxy in the box below. PROXIES ARE AUTHORIZED TO
VOTE SUCH OTHER BUSINESS
AS MAY PROPERLY COME
BEFORE THE MEETING,
INCLUDING ANY ADJOURNMENTS
THEREOF.
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Stockholder sign above Co-holder (if any) sign
above
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DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
THINKENGINE NETWORKS, INC.
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Please sign exactly as name appears at left. Where shares are held by joint
tenants, each should sign. When signing as attorney, executor, administrator,
trustee or guardian please sign 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 by authorized person.
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
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If your address has changed please correct the address in the space provided
below and return this portion with the Proxy in the envelope provided.
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