PART
III
Item
10.
Directors,
Executive Officers and Corporate Governance.
Board
of Directors; Committees
Our
board
of directors currently consists of nine members and is currently comprised
of
Messrs. Fisher, Bushley, Mathieson, Brown, Dhaliwal, Elinsky, McGuinn,
Khan and
Garg. Our board of directors has reviewed and considered transactions and
relationships between each director or any member of his immediate family
and
the company and its subsidiaries and affiliates. Our board of directors
has
determined that Messrs. Fisher, Bushley, Mathieson, Brown and Dhaliwal
are
independent under the criteria for independence set forth in the NASDAQ
listing
standards.
The
names, ages as of October 28, 2008, and existing positions with us of the
directors, if any, are as follows:
|
Name
|
Age
|
Office
or Position Held
|
|
|
|
|
|
Edwin
J. McGuinn, Jr.
|
57
|
Chairman
and Chief Executive Officer
|
|
Raza
Khan
|
31
|
Co-Founder,
Co-President and Director
|
|
Vishal
Garg
|
30
|
Co-Founder,
Co-President, Secretary and Director
|
|
Richmond
T. Fisher
|
50
|
Director
|
|
C.
David Bushley
|
66
|
Director
|
|
Andrew
Mathieson
|
45
|
Director
|
|
Michael
M. Brown
|
36
|
Director
|
|
Sunil
Dhaliwal
|
32
|
Director
|
|
Gregory
N. Elinsky
|
44
|
Director
|
The
name,
principal occupation for the last five years, selected biographical information
and the period of service as our director of each of our directors are
set forth
below.
Edwin
J. McGuinn, Jr.
—Mr.
McGuinn has served as our Chairman since April 2004 and our Chief Executive
Officer, or CEO, since October 2004.
In
addition to his duties at the Company, Mr. McGuinn is also the President
of
eLOT, Inc., and its subsidiary interest eLottery.com (formerly known as
Executone, Inc), an intellectual property services and
e-commerce
consultant for the governmental lottery industry. Prior to joining eLOT,
Mr.
McGuinn was President and CEO of Automated Trading Systems, Inc.
(LimiTrader.com), an institutional electronic trading system for new issue
and
secondary corporate bonds. From 1992 to 1997, Mr. McGuinn was Senior Managing
Director and Head of the Equity Products for Rodman & Renshaw and Mabon
Securities, specializing in mid-cap research and corporate finance for
consumer
services, specialty finance, health care and technology companies. From
1981 to
1992, Mr. McGuinn was a Managing Director and member of Lehman Brothers
Fixed
Income Operating Committee. While at Lehman Brothers, Mr. McGuinn was
responsible for developing Lehman’s global presence in U.S. fixed income
arbitrage and international fixed income trading, sales and research. During
1973 to 1981, Mr. McGuinn was a Senior Manager with Ernst & Young in the
audit and management consulting divisions. Mr. McGuinn sits on the advisory
board of a venture capital company, and the board of directors of eLot,
Inc. and
Enigma Software Group, Inc., a New York City based public company developer
of
software and Internet-based systems. Mr. McGuinn received a Bachelor of
Arts in
Mathematics and Economics from Colgate University and a Master of Science
in
Accounting from New York University. He holds NASD Series 7, 8, and 24
licenses
along with a Certified Public Accounting license from the State of New
York
(inactive). Mr. McGuinn has served on our board of directors since July
8,
2004.
Raza
Khan
—Mr.
Khan
has served as our President since July 2004 and became Co-President with
Mr.
Garg in May 2008. Prior to the Company, Mr. Khan co-founded Silk Road
Interactive, a consulting company advising clients on business and financial
strategy, brand development and marketing, and technology. Mr. Khan worked
with
clients such as Sony Music, the White House Historical Association,
Computers4Sure, Blades Board Skate, and RMH, a subsidiary of Advanta, among
others. Mr. Khan has collaborated on the development of various innovations
in
the financial services sector including the development of human capital
based
investment instruments for which he has been cited in numerous articles
and news
segments including the Financial Times and CNN. He has lectured at the
CATO
Institute
and
the
Harvard Business Club regarding investing in human capital. Mr. Khan attended
New York University. Mr. Khan has served on our board of directors since
July 8,
2004.
Vishal
Garg
—Mr.
Garg
served as our Chief Financial Officer, or CFO, from July 2004 until the
promotion of Jonathan Coblentz to the position in May 2008, at which time
Mr.
Garg become Co-President along with Mr. Khan. Prior to the Company, Mr.
Garg was
a Founder & Managing Partner at 1/0 Capital LLC and Schwendiman Technology
Partners LLC—hedge funds focused on investments in emerging markets with
approximately $125 million in combined firm assets. At Schwendiman, Mr.
Garg
managed a group of funds focused on emerging markets for large clients
such as
Bank Julius Baer, Credit Suisse Group, Republic National Bank/HSBC, Pictet
&
Cie., among others. In addition, he was the portfolio manager for a $15
million
frontier markets managed account for Goldman Sachs Commodities Corp. Prior
to
1/0 and Schwendiman, Mr. Garg was with Morgan Stanley in the Latin America
Investment Banking and M&A groups with a focus on telecom, technology and
media companies. Prior to Morgan Stanley, he was with VZB Partners, as
the Asia
Pacific Portfolio Manager for the Strategos Fund, managing an investment
portfolio of approximately $50 million, and co-managing a $10 million managed
account for Rockefeller & Co. Mr. Garg graduated Beta Gamma Sigma with
highest honors from the Stern School of Business at New York University.
Mr.
Garg has served on our board of directors since July 8, 2004.
Richmond
T. Fisher
—Mr.
Fisher is the Co-Founder and the Managing Director of RaceRock Capital
Partners,
LLC, a closely held private equity firm located in Stamford, Connecticut
that
provides expansion and acquisition capital to growth companies. Prior to
joining
RaceRock Capital Partners, Mr. Fisher was Founder and Managing Partner
of Race
Point Partners, LLC, a specialized business consulting firm serving private
equity, venture capital, banks, and other organizations in need of specialized
executive skills in the area of risk assessment, distressed portfolio
assessment, interim executive leadership and business turnaround. Prior
to
founding Race Point Partners, Mr. Fisher was Senior Vice President of Global
Sales with Standard and Poors Investment Services and a member of their
senior
operating committee from
January
2000 through April 2002. In addition, Mr. Fisher held the position of President
and CEO at Standard and Poors Securities, Inc. in 1998 and 1999. Mr. Fisher
has
served on our board of directors since March 22, 2005.
C.
David Bushley
—Mr.
Bushley recently retired as Senior Vice President and Director of Global
Compensation for Bank of New York Mellon and was formerly on the board
of
directors at Education Lending Group, Inc. Prior to the merger of Mellon
Financial Corp. and Bank of New York, Mr. Bushley was Global Director of
Compensation and Benefits for Mellon Financial Corporation. Prior to Mellon,
he
served as Financial Services Industry National Practice Leader, Compensation
Consulting, for PriceWaterhouseCoopers LLP, the Senior Vice President and
CFO of
Amdura Corporation and as the Senior Vice President and the Chief Lending
Officer of Dime Savings Bank. Prior to this, Mr. Bushley spent nine years
with
Merrill Lynch & Co. where he held a variety of senior management positions,
including the position of President of Merrill Lynch Mortgage Company,
Chief
Credit Officer and President of Merrill Lynch Private Capital. Mr. Bushley
has
served on our board of directors since July 8, 2005.
Andrew
Mathieson
—Mr.
Mathieson is President and Founder of Fintura Corporation. Previously,
Mathieson
was a Managing Director of InfiStar Corporation of Atlanta, Georgia and
also
served as a Director of InfiCorp Holdings, Inc., the parent corporation
of
InfiStar and InfiBank, N.A, and a wholly owned subsidiary of First National
of
Nebraska, Inc. Prior to joining InfiStar in September 1994, Mr. Mathieson
was
the founder and Principal of Mathieson Consulting, a strategy and general
management consultancy based in Chicago. In that position, he assisted
First
Data Corporation with a number of projects, including the development of
its
three-year strategic plan. Prior to launching Mathieson Consulting, Mr.
Mathieson was the director of Blue Cross and Blue Shield Association’s national
consulting practice. He has also worked for The Graycon Group, United Airlines
and Citicorp Diners Club. Mr. Mathieson holds an MBA from the University
of
Chicago with a double specialization in marketing and business economics
and an
undergraduate degree from the University of Michigan. Mr. Mathieson has
served
on our board of directors since January 25, 2006.
Michael
M. Brown
—Mr.
Brown is a General Partner at Battery Ventures, which he joined in 1998.
Additionally, Mr. Brown is a member of the board of directors at the following
companies: Fingerhut Direct Marketing, J. Hilburn, Panjiva, TradeKing and
Trading Machines. In addition, Mr. Brown has been actively involved with
Battery’s investments in ChemConnect, The London International Financial Futures
and Options Exchange (acquired by Euronext), OutlookSoft (acquired by SAP)
and
Pedestal, Inc. From 1996 to 1998, Mr. Brown was a member of the High Technology
Group at Goldman, Sachs & Co., where he worked on a variety of debt and
equity financings and merger and acquisition assignments. Prior to joining
the
High Technology Group, he was a Financial Analyst within Goldman’s Financial
Institutions Group. Mr. Brown graduated magna cum laude from Georgetown
University with a BS in Finance and International Business. Mr. Brown has
served
on our board of directors since February 24, 2006.
Sunil
Dhaliwal
—Mr.
Dhaliwal is a General Partner at Battery Ventures, which he joined in 1998.
Mr.
Dhaliwal is also currently a board member of Next Investments and Copan
Systems.
He has previously served as a director of Netezza Corporation (NYSE Arca:
NZ),
Storigen Systems (acquired by EMC), @stake (acquired by Symantec) and
Storability Software (acquired by StorageTek). Mr. Dhaliwal has also been
involved with other Battery investments including Cbeyond (NASDAQ: CBEY),
CipherTrust, Inc. (acquired by Secure Computing), and Akara (acquired by
Ciena).
Prior to joining Battery, Mr. Dhaliwal worked in the High Technology Group
at
Alex Brown & Sons, Inc., where he executed numerous equity financings and
mergers and acquisitions in the communications and software industries.
Mr.
Dhaliwal
graduated
from Georgetown University with a BS in Finance and International Business.
Mr.
Dhaliwal has served on our board of directors since February 24,
2006.
Gregory
N. Elinsky
—
Mr.
Elinsky is a co-founder and senior managing director at Keane Advisors,
LLC and
has been an investment advisor for nearly two decades. Mr. Elinsky also
serves
as CEO of Executive Capital Strategies LLC, a registered investment advisory
firm. Mr. Elinsky was previously a vice president for the Private Client
Services Division of Goldman Sachs before moving his business to Merrill
Lynch.
He is well versed in asset allocation modeling, single stock risk management,
option and derivative strategies, as well as qualified ESOP’s. Mr. Elinsky is
also a member of the board of directors for the Southeast Region for the
Second
Mile, Tammac Corporation, Impeva Labs and Free-Fi Networks. Mr. Elinsky
has
served on our board of directors since July 31, 2008.
On
July
10, 2008, the Company entered into a note and warrant purchase agreement
(the
“July 10th Purchase Agreement”), by and among the Company, Battery Ventures VII,
L.P. (“BV7”), Battery Investment Partners VII, LLC (“BIP7,” and together with
BV7, “Battery”) and a non-affiliated investor listed on the Investor Schedule
attached thereto (each, a “July 10th Investor” and collectively, the “July 10th
Investors”) pursuant to which, in exchange for a payment of $4,000,000 in cash,
the Company issued, in a private placement transaction: (i) promissory
notes in
the original aggregate principal amount of $5,000,000 (collectively, the
“Promissory Notes”) and (ii) warrants to purchase in the aggregate 2,222,222
shares of common stock. Pursuant to Section 8 of the Promissory Notes,
the July
10th Investors were collectively entitled to approve one member of the
board of
directors for so long as the July 10th Investors held all of the Promissory
Notes. The July 10th Investors proposed that Mr. Elinsky be elected to
the board
of directors. Effective July 31, 2008, the board of directors, following
a
recommendation from our Nominating and Corporate Governance Committee,
unanimously approved the election of Mr. Elinsky as a director of the Company.
The board of directors determined that Mr. Elinsky is not an “independent”
director under the NASDAQ Marketplace Rules.
Committees
Our
board
of directors currently has three standing committees which are comprised
entirely of independent directors: the audit committee, the compensation
committee and the nominating and corporate governance committee. Our board
of
directors conducts its business through meetings of the board of directors,
actions taken by written consent in lieu of meetings and by the actions
of its
committees. During the fiscal year ended June 30, 2008, our board of directors
held
nine
meetings and took action by written consent eight times. During the fiscal
year
ended June 30, 2008: (i) the audit committee held four meetings and took
action
by written consent once, (ii) the compensation committee held four meetings
and
took action by written consent ten times, and (iii) the nominating and
corporate
governance committee held one meeting and discussed matters informally
in
performing its functions. During the fiscal year ended June 30, 2008, each
director attended at least 75% of all meetings of the board of directors,
and at
least 75% of all meetings of committees on which he served.
Audit
Committee:
The
audit
committee is currently comprised of Messrs. Fisher, Brown and Dhaliwal,
with Mr.
Fisher serving as the committee’s chairperson. All audit committee members are
independent within the meaning of Rule 4200 of the NASDAQ listing standards
and
meet the criteria for independence set forth in Rule 10A-3 under the Securities
Exchange Act of 1934, as amended. All members of the audit committee are
financially literate and our board of directors has determined that Mr.
Fisher
is an “audit committee financial expert” within the meaning of Item 407(d) of
Regulation S-K under the Securities Exchange Act of 1934, as amended, or
the
Exchange Act. The Securities and Exchange Commission, or SEC, has determined
that the audit committee financial expert designation does not impose on
a
person with that designation any duties, obligations or liability that
are
greater than the duties, obligations or liability imposed on such person
as a
member of the audit committee of the board of directors in the absence
of such
designation. Among other things, the audit committee appoints our independent
auditors and oversees the quality and integrity of our financial reporting
and
the audits of our financial statements by our independent auditors and
in
fulfilling its oversight function, reviews with our management and independent
auditors the scope and result of the annual audit, our auditors’ independence
and our accounting policies. The audit committee is also responsible for
the
overall administration of our code of business conduct and ethics and reviewing
and approving all related party transactions. Our board of directors has
approved a written charter under which the audit committee operates. This
charter is posted on our corporate website at www.mruholdings.com . A copy
of
our audit committee charter is available free of charge, upon request directed
to Investor Relations, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor,
New
York, New York 10022.
The
audit
committee has adopted complaint procedures for accounting and auditing
matters
in accordance with Rule 10A-3 under the Exchange Act. The full text of
these
complaint procedures is available on our corporate website at
www.mruholdings.com. A copy of our complaint procedures is available free
of
charge, upon request directed to Investor Relations, MRU Holdings, Inc.,
590
Madison Avenue, 13th Floor, New York, New York 10022.
Compensation
Committee:
The
compensation committee is currently comprised of Messrs. Bushley, Brown
and
Mathieson, with Mr. Bushley serving as the committee’s chairperson. All
compensation committee members are independent in accordance with the criteria
for independence set forth in the NASDAQ listing standards. In general,
the
compensation committee oversees the compensation of executive officers
and
senior management, including plans and programs relating to cash compensation,
incentive compensation, equity-based awards and other benefits and perquisites
and administers any such plans or programs as required by the terms thereof.
In
particular, the compensation committee’s primary duties are described in the
compensation committee charter and include, among other things:
|
|
•
|
reviewing
the competitiveness of our executive compensation programs to
ensure (1)
the attraction and retention of corporate officers, (2) the motivation
of
corporate officers to achieve our business objectives, and (3)
the
alignment of the interests of key leadership with the long-term
interests
of our stockholders;
|
|
|
•
|
reviewing
and approving the compensation structure for corporate officers
at a level
of corporate vice president and above;
|
|
|
•
|
overseeing
an evaluation of the performance of our executive officers including
feedback on all executive officers from senior staff and approving
the
annual compensation, including salary, bonus, incentive and equity
compensation for the executive officers;
|
|
|
•
|
reviewing
and approving the goals and objectives of our CEO, evaluating
CEO
performance in light of these corporate objectives, and setting
CEO
compensation consistent with our philosophy;
|
|
|
•
|
reviewing
and discussing with the board of directors and senior officers
plans for
officer development and corporate succession plans for the CEO
and other
senior officers;
|
|
|
•
|
reviewing
and making recommendations concerning long-term incentive compensation
plans, including the use of equity-based plans; and
|
|
|
•
|
except
as otherwise delegated by the board of directors, administering
the
equity-based and employee benefit plans.
|
Our
board
of directors has approved a written charter under which the compensation
committee operates. This charter is posted on our corporate website at
www.mruholdings.com. A copy of our compensation committee charter is available
free of charge, upon request directed to Investor Relations, MRU Holdings,
Inc.,
13th Floor, New York, New York 10022.
Nominating
and Corporate Governance Committee:
The
nominating and corporate governance committee is currently comprised of
Messrs.
Brown, Bushley and Fisher, with Mr. Brown serving as the committee’s
chairperson. All nominating and corporate governance committee members
are
independent in accordance with the criteria for independence set forth
in the
NASDAQ listing standards. Among other things, the corporate governance
committee
identifies qualified individuals to become board members and recommends
to the
board of directors individuals to be designated as nominees for election
as
directors at the annual meetings of stockholders. More specifically, the
nominating and corporate governance committee is responsible for reviewing,
on
an annual basis, the requisite skills and characteristics of individual
members
of the board of directors, as well as the composition of the board of directors
as a whole, in the context of our needs. The nominating and corporate governance
committee will review all nominees for director, including those recommended
by
stockholders, and will recommend that the board select those nominees whose
attributes it believes would be most beneficial to us. This review involves
an
assessment of the personal qualities and characteristics, accomplishments
and
business reputation of each potential nominee. The nominating and corporate
governance committee will assess candidates’ qualifications based on all factors
it considers appropriate, which may include (a) ensuring that the board
of
directors, as a whole, is diverse and consists of individuals with various
and
relevant career experience, relevant technical skills, industry knowledge
and
experience, financial expertise (including expertise that could qualify
a
director as a “financial expert”, as that term is defined by the rules of the
SEC), local or community ties and (b) minimum individual qualifications,
including strength of character, mature judgment, familiarity with our
business
and industry, independence of thought and an ability to work collegially.
Our
board
of directors has approved a written charter under which the nominating
and
corporate governance committee operates. This charter is posted on our
corporate
website at www.mruholdings.com. A copy of our nominating and corporate
governance committee charter is available free of charge, upon request
directed
to Investor Relations, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor,
New
York, New York 10022.
Corporate
Governance
Codes
of Conduct:
We
have
adopted a code of business conduct and ethics that applies to all of our
directors, officers and employees. In addition, we have also adopted a
code of
ethics that applies to our CEO, our CFO and other of our senior financial
officers. The codes are designed to comply with applicable SEC regulations
and
NASDAQ listing standards and both codes are posted on our corporate website
at
www.mruholdings.com. A copy of either code is available free of charge,
upon
request directed to Investor Relations, MRU Holdings, Inc., 590 Madison
Avenue,
13th Floor, New York, New York 10022.
Stockholder
Nominations and Communications Policy:
Our
board
of directors has adopted policies with respect to the consideration of
candidates recommended by stockholders for election as directors and stockholder
communications with the board of directors.
Stockholders
may recommend director nominees for consideration by the nominating and
corporate governance committee by submitting the names and the following
supporting information to our secretary at: Secretary, Stockholder Nominations,
MRU Holdings, Inc., 590 Madison Avenue, 13th Floor, New York, NY 10022.
The
submissions should include a current resume and curriculum vitae of the
candidate and a statement describing the candidate’s qualifications and contact
information for personal and professional references. The submission should
also
include the name and address of the stockholder who is submitting the nominee,
the number of shares which are owned of record or beneficially by the submitting
stockholder and a description of all arrangements or understandings between
the
submitting stockholder and the candidate.
Stockholders
and other interested parties may communicate directly with our board of
directors or the non-management directors. All communications should be
in
writing and should be directed to our secretary at: Secretary, Stockholder
Communications, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor, New
York, NY
10022. The sender should indicate in the address whether it is intended
for the
entire board of directors, the non-management directors as a group or an
individual director. Each communication intended for the board of directors
or
non-management directors received by the secretary will be forwarded to
the
intended recipients in accordance with the existing instructions.
The
full
text of the stockholder nominations and communications policy is available
on
our corporate website at www.mruholdings.com. A copy of the policy is available
free of charge, upon request directed to Investor Relations, MRU Holdings,
Inc.,
590 Madison Avenue, 13th Floor, New York, New York 10022.
Director
Attendance at Annual Meeting of Stockholders
We
do not
have a formal policy regarding attendance by directors at our annual meeting
of
stockholders but invite and encourage all directors to attend. We make
every
effort to schedule our annual meeting of stockholders at a time and date
to
permit attendance by directors, taking into account the directors’ schedules and
the timing requirements of applicable law. Last year, three of the eight
directors attended the 2007 annual meeting of stockholders.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended June 30, 2008, the compensation committee of the
board of
directors was comprised of Messrs. Bushley, Brown and Mathieson. None of
the
committee’s members was employed by us as an officer or employee during the
fiscal year ended June 30, 2008. No committee member had any interlocking
relationships requiring disclosure under applicable rules and regulations.
For
a
description of certain relationships and transactions with members of the
board
of directors or their affiliates, see "—Transactions with Related Persons,
Promoters and Certain Control Persons" beginning on page 27.
Executive
and Senior Officers
The
following sets forth the positions, ages as of October 28, 2008 and selected
biographical information for our executive and senior officers who are
not
directors.
|
Name
|
Age
|
Office
or Position Held
|
|
|
|
|
|
Jonathan
Coblentz
|
37
|
Chief
Financial Officer and Treasurer
|
|
John
P. Derham
|
42
|
Chief
Marketing Officer
|
|
Yariv
C. Katz
|
32
|
Vice
President and General Counsel
|
|
Jim
Briggs
|
41
|
Managing
Director, Finance and
Controller
|
Jonathan
Coblentz
—Mr.
Coblentz has served as our CFO and Treasurer since May 2008. He previously
served as Head of Capital Markets since April 2007. In 1992, Jonathan began
his
structured finance career in the Asset Backed Finance Group of The First
Boston
Corporation (now Credit Suisse). During the nearly five years he spent
there, he
structured and executed securitizations for customers over a broad range
of
asset classes. As part of this process, he helped various student lenders
develop their student loan securitization programs. After leaving First
Boston
in 1997, Jonathan joined Goldman Sachs & Co., where he worked initially as
an asset backed banker and later joined the firm’s
Principal
Finance Group. Prior to leaving Goldman in 2004, Jonathan led the student
loan
finance team, which successfully re-established the firm’s presence in the
student loan ABS market. In the last two years prior to joining MRU, Jonathan
worked in the structured finance group at Fortress Investment Group, sourcing
and analyzing investment opportunities in consumer and commercial finance
and
the insurance industry. Jonathan graduated summa cum laude from Yale University
in 1992, receiving a B.S. in Applied Mathematics with a concentration in
Economics.
John
P. Derham
—Mr.
Derham has served as our Chief Marketing Officer, or CMO, since October
2007.
Mr. Derham is responsible for the development and execution of all marketing
activities in the organization. Prior to joining us, Mr. Derham served
as SVP
and CMO of Advanta Bank Corp., among other roles over a span of 15 years.
Mr.
Derham has served as an officer at JPMorgan Chase and the Royal Bank of
Scotland, as well.
Yariv
C. Katz
—Mr.
Katz
has served as Vice President and our General Counsel since August 2007.
From
September
2001 to August 2007, Mr. Katz served as a corporate associate at the law
firm of
Paul, Hastings, Janofsky & Walker LLP. Mr. Katz holds a B.A. in Political
Science from Binghamton University and a J.D. from the Fordham University
School
of Law.
Jim
Briggs
—Mr.
Briggs has served as Managing Director, Finance and Controller since October
2007. Prior to joining us, Mr. Briggs served as CFO of JP Morgan’s Worldwide
Security Services’ Operations and Client Service units from 2006 to 2007.
Mr. Briggs also served as Global Head of Valuation Control at JP Morgan,
among
other roles in JP Morgan’s Investment Bank Finance group over a span of 14
years.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and persons who own, or are part of a group that owns, more than
10% of
a registered class of our equity securities to file with the SEC reports
regarding their ownership and changes in ownership of our equity securities.
Based solely on our review of Forms 3, 4 and 5 available to us and other
information obtained from our directors, officers and certain 10% stockholders
or otherwise available to us and amendments thereto, we believe that all
or our
officers, directors and greater than 10% beneficial owners have timely
satisfied
their Section 16(a) reporting obligations for the fiscal year ended June
30,
2008, except for the following: a Form 4 required to be filed by Mr. McGuinn
in
February 2008 was inadvertently filed one day late; Form 4s required to
be filed
by Messrs Khan and Garg in February 2008 were inadvertently filed several
days
late; Form 4s required to be filed by Messrs Khan and Garg in January 2008
were
inadvertently filed one day late; a Form 4 required to be filed by Mr.
Katz in
August 2007 was inadvertently filed one day late; Form 4s required to be
filed
by Messrs Fisher, Bushley and Mathieson in July 2007 were inadvertently
filed in
October 2007; and a Form 4 required to be filed by BV7 in January 2007
was
inadvertently filed in November 2007.
Item
11.
Executive
Compensation.
Compensation
Committee Report
Our
compensation committee has reviewed the Compensation Discussion &
Analysis with management and, based on that review, recommends to the board
of
directors
that it
be included herein.
Compensation
Committee
C.
David
Bushley
Michael
M. Brown
Andrew
Mathieson
Compensation
Discussion and Analysis
I. Administration
of Compensation and Compensation Programs
Our
compensation committee’s role is to discharge our board of director’s
responsibilities relating to compensation of the Company’s executives, to
produce an annual report on executive compensation for inclusion in the
Company’s proxy statement and to oversee and advise our board of directors on
the adoption of policies that govern the Company’s compensation programs,
including stock and benefit plans.
Our
compensation committee is responsible for reviewing and approving the goals
and
objectives of our CEO, evaluating the CEO’s performance in light of those goals
and objectives, and setting the CEO’s compensation consistent with our
philosophy. Our compensation committee is also responsible for overseeing
an
evaluation of the performance of our executive officers, including feedback
on
all executive officers from senior staff, and approving the annual compensation,
including salary, bonus, and equity compensation for our executive officers.
In
addition, as was done with respect to the fiscal year 2008 compensation
decisions with respect to our CEO and our co-presidents, our compensation
committee may recommend the compensation packages for our executive officers
to
the independent members of our board of directors, who then approve the
compensation packages. In fiscal year 2008, the independent members of
our board
of directors (which include the members of the compensation committee)
approved
the compensation packages for Messrs. McGuinn, Khan and Garg exactly as
such
compensation packages were recommended by our compensation committee. For
the
fiscal year ended June 30, 2008, our named executive officers, or NEOs,
for whom
we are required to provide compensation information pursuant to the rules
of the
SEC are:
|
Name
|
Title
|
|
Edwin
J. McGuinn, Jr.
|
Chairman
and CEO
|
|
Raza
Khan
|
Co-Founder
and Co-President
|
|
Vishal
Garg
|
Co-Founder,
Co-President and Secretary
|
|
Jonathan
Coblentz
|
Chief
Financial Officer
|
|
John
Derham
|
Chief
Marketing Officer
|
II. Compensation
Philosophy and Program Objectives
As
described above, our objective is to provide compensation packages that
attract
and retain corporate officers, motivate corporate officers to achieve the
Company’s business objectives, and align the interests of key leadership with
the long-term interests of the Company’s stockholders. As discussed in more
detail below, our compensation program is designed to reward executives
for
furthering our objectives. Our executive compensation program consists
of three
main elements: an annual base salary, annual cash bonus compensation and
long-term incentive compensation consisting of equity awards under our
2004
Incentive Plan (the “2004 Plan”). Salaries for executive officers are usually
specified in an executive officer’s employment agreement or offer letter and are
set at a level believed necessary to attract and retain the executive.
The
Company’s cash bonus program is generally retrospective and takes into account
the accomplishments the executive officers and the Company have achieved
over
the previous year relating to key business goals that drive our financial
performance. Awards of options to purchase our common stock, restricted
stock
and restricted stock units are designed to align our executive officers’
interests with those of our stockholders and to operate as retention and
motivational vehicles through time vesting conditions.
We
believe that the compensation provided to our executives should be commensurate
with the performance of the Company and must recognize the competitive
environment for talented executives in which we operate. In evaluating
the
performance of the Company, the compensation committee believes it is
appropriate to take the current credit crisis and its affect on the Company’s
business into consideration. We compete for talent with other student loan
companies and consumer finance companies. The overall principle guiding
our NEO
compensation is to pay total compensation that encourages outstanding
performance and is in line with the competitive market. The actual compensation
paid to each NEO will vary based on Company and individual performance
and the
NEO’s role within the Company. Our CEO’s employment agreement expires on October
31, 2009 and the employment agreements for each of our co-presidents expire
on
April 1, 2009. These employment agreements, among other things, specify
each
executive’s base salary, minimum annual salary increases and minimum bonus
amounts. Our CFO and CMO do not have employment agreements. Certain of
the terms
of their compensation are specified in their offer letters.
III. Procedural
Approach—Role of the Compensation Committee and Board of
Directors
Compensation
for our CEO and our co-presidents is based on their employment agreements.
The
employment agreements for Messrs. Khan and Garg provide for minimum salary
increases and bonus amounts and provide the Company with discretion to
provide
for salary increases and bonuses in excess of the specified minimum amounts.
Our
compensation committee generally meets during the first calendar quarter
of each
year to discuss salary increases for our CEO and co-presidents, as well
as bonus
payments and equity awards to be made to these executive officers. In evaluating
our co-presidents, our compensation committee takes the compensation
recommendations of our CEO, as well as our CEO’s evaluations of our
co-presidents, into account. In evaluating our CEO, our compensation committee
takes into account input it receives from the other independent directors
of our
board of directors as well as from our co-presidents. During the first
quarter
of 2008, our compensation committee met three times to discuss the compensation
for our co-presidents (our CEO’s compensation was discussed at two of these
meetings) and made a recommendation with respect to the compensation packages
for our CEO and co-presidents during the third meeting. Our independent
directors subsequently reviewed the compensation recommendations made by
our
compensation committee and approved the compensation packages recommended
by our
compensation committee. In addition, in connection with the extension of
our
CEO’s employment agreement, in September 2007 our compensation committee
approved amendments to our CEO’s employment agreement to provide him with
certain additional benefits.
The
employment agreements with our co-presidents expire on April 1, 2009. Pursuant
to their original terms, each of these employment agreements automatically
renews for an additional five-year term unless the Company or the applicable
executive provides written notice of its or his intention not to renew
the
agreement at least six months prior to April 1, 2009, which would have
been
October 1, 2008. However, these employment agreements have been amended
so that
each of the Company and Messrs. Khan and Garg has until November 1, 2008
to
provide notice of its or his intention not to renew. Our compensation committee
is currently negotiating with Messrs. Khan and Garg with respect to the
terms of
their employment. Compensation decisions with respect to our CFO and CMO
are
generally made around the anniversary of their hiring based on input on
their
performance supplied to the compensation committee by our CEO. Our CFO
started
at MRU on April 2, 2007, and his compensation was updated by the compensation
committee at a meeting held on May 7, 2008. Our CMO was hired on October
15,
2007.
Our
compensation committee held four meetings and took action by written consent
10
times during the fiscal year ended June 30, 2008.
IV. Compensation
Structure
A. Overview
of Elements of Pay
In
the fiscal year ended June 30, 2008 we utilized three main elements of
compensation:
|
|
·
|
Annual
Base Salary—Annual base salary as set forth in the executives’ employment
agreements or offer letters, as applicable, subject to increase
from time
to time at the discretion of our compensation committee and,
with respect
to our CEO and co-presidents, the independent members of our
board of
directors;
|
|
|
·
|
Annual
Cash Bonus—Variable pay in the form of cash bonuses as set forth in the
executives’ employment agreements or offer letters, as applicable, and as
determined by our compensation committee and, with respect to
our CEO and
co-presidents, the independent members of our board of directors,
designed
to reward executives for the attainment of business goals, primarily
through review of the executive’s performance and the Company’s operating
performance; and
|
|
|
·
|
Long-Term
Incentive Compensation—Awarded in the form of stock options, including
incentive stock options (“ISOs”) and nonqualified stock options (“NQOs”),
restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).
|
B. Detail
of Elements of Pay
(1)
Base
Salary
The
annual salaries vary according to the levels of responsibility undertaken
by
each executive officer. We strive to compensate our NEOs with salaries
commensurate with prevailing compensation practices in other small, high
growth
companies. Our compensation committee generally reviews our NEO’s base salaries
on an annual basis and may review them more frequently as necessary. Consistent
with our philosophy of designing our executive compensation program to
be
commensurate with Company performance, our mix of compensation is weighted
towards the variable and long-term incentive components, particularly with
respect to our CEO and our co-presidents.
Edwin
J.
McGuinn. Jr. serves as our CEO pursuant to an amended employment agreement
entered into as of September 27, 2007. The amended employment agreement
provides
for Mr. McGuinn’s employment through October 31, 2009 and increased
Mr. McGuinn’s base salary from $242,000 to $250,000 per year. Under the terms of
his employment agreement, Mr. McGuinn’s base salary shall be increased annually,
effective on January 1 of each calendar year, in an amount no less than
10%. In
determining our CEO’s compensation package, our compensation committee referred
to certain compensation data it had obtained relating to small, high-growth
companies.
Raza
Khan
and Vishal Garg each serve as our Co-Presidents pursuant to separate employment
agreements entered into with the Company as of April 1, 2004 and are entitled
to
minimum base salaries pursuant to those agreements. In setting, Messrs.
Khan and
Garg’s compensation, our compensation committee reviewed Mr. Khan and Mr. Garg’s
individual performances during the calendar year ended December 31, 2007.
The
discussion regarding Mr. Khan and Mr. Garg’s goals and overall summary of
accomplishments included, among other things: (i) meeting the budgeted
level of
originations; (ii) lowered cost of origination; (iii) the acquisition of
certain
assets (Embark) from The Princeton Review; (iv) capital market executions
including the Nomura takeout, the renewal of the Merrill Lynch credit facility,
the DZ Bank warehouse line increase and the development of relationships
with
certain other major institutions; (v) the hiring of certain key executives
including Jonathan Coblentz, the our CFO and Treasurer, John Derham, the
Company’s CMO and Yariv Katz, our General Counsel; (vi) the development of
improved marketing strategies; (vii) the execution of the offshoring strategy to
reduce costs; (viii) the improvement of technology, infrastructure and
related
staff; and (ix) the role and visibility on the “right side” of the student loan
industry problems. The compensation committee, taking into account our
CEO’s
evaluation of, and compensation recommendation with respect to, our
co-presidents recommended to our independent directors compensation packages
for
each of Mr. Khan and Mr. Garg that included annual base salaries of $242,000
per
year, which represented a 10% increase in accordance with each of their
employment agreements, which recommendations were adopted by the independent
members of our board of directors. In determining the compensation packages
for
our co-presidents, our compensation committee referred to certain compensation
data it obtained relating to small, high-growth companies.
Jonathan
Coblentz serves as our CFO and treasurer. Our CFO’s initial base salary,
pursuant to an offer letter with the Company dated as of February 28, 2007,
was
$200,000 per year. The Compensation Committee, following a discussion regarding
Mr. Coblentz’s individual performance, summary of accomplishments and
compensation since his arrival in April 2007 (including the base salary
and a
grant of RSUs, as discussed in further detail below) and taking into account
our
CEO’s evaluation of, and compensation recommendation with respect to, our CFO,
approved a compensation package, which included a base salary of $215,000
per
year, effective as of May 15, 2008.
John
Derham serves as our CMO. Mr. Derham’s base salary, pursuant to an offer letter
with the Company dated as of August 27, 2007, is $250,000 per year with
annual
increases based upon the compensation committee’s review of Mr. Derham’s
performance and the performance of his division.
(2)
Annual
Cash Bonus
We
award
cash bonuses as a short-term incentive to drive the achievement of our
annual
performance goals and to focus executive behavior on the fulfillment of
annual
business objectives. Pursuant to their employment agreements, each of our
CEO
and co-presidents are eligible to earn annual cash bonuses in an amount
no less
than $50,000 for each calendar year. The decision of our compensation committee
and our independent directors to pay our CEO, and co-presidents bonuses
in
excess of $50,000 was made due to their contributions to the Company over
the
preceding calendar year as discussed above under “—Base Salary” above. During
the fiscal year ended June 30, 2008, our CEO and our co-presidents each
received
a cash bonus of $210,000.
Mr.
Coblentz received a cash bonus of $100,000 for the fiscal year ended June
30,
2008 based on the factors set forth above under “—Base Salary” above.
On
October 20, 2008, the compensation committee approved a cash bonus for
Mr.
Derham of $75,000 for the fiscal year ended June 30, 2008. Pursuant to
his offer
letter with the Company, Mr. Derham was entitled to an annual bonus opportunity
of 30% of his base salary paid in either cash or stock options, at Mr.
Derham’s
discretion, upon a full year of employment, conditioned on Mr. Derham’s annual
review and the Company’s performance.
(3)
Long-Term
Incentive Compensation
The
Company maintains the 2004 Plan. The 2004 Plan is an equity-based compensation
plan adopted to further the long-term stability and financial success of
the
Company and its subsidiaries. The 2004 Plan enables compensation committee
to
provide equity-based incentives through grants or awards of stock options,
RSAs,
RSUs, performance grants, stock awards and stock appreciation rights.
Pursuant
to the 2004 Plan, on October 16, 2007, our compensation committee awarded
NQOs
to our CEO to purchase from the Company 150,000 shares of the Company’s common
stock at an exercise price of $4.70, one third of which has vested and
the
remainder which vests equally on each of October 16, 2009 and 2010. The
compensation committee recommended to our independent directors and our
independent directors approved an additional grant of NQOs to our CEO to
purchase 150,000 shares of our common stock at an exercise price of $2.17
on
February 14, 2008. This grants vests in three equal annual installments
beginning on February 14, 2009.
The
compensation committee recommended to our independent directors and our
independent directors awarded grants of 500,000 NQOs on February 14, 2008
to
each of our co-presidents. These stock options have an exercise price of
$2.17
and vest in 3 equal annual installments beginning on February 14, 2009.
The
grants were made as part of the total compensation package awarded to our
co-presidents due to their contributions to the Company over the preceding
calendar year as discussed above under “—Base Salary” above and their expected
future contributions to the Company.
The
compensation committee approved a grant of stock options to Mr. Coblentz
to
purchase 200,000 shares of the Company’s common stock on May 7, 2008 at an
exercise price of $2.15 per share and which vests in three equal annual
installments beginning on May 7, 2009. This grant was made as part of the
total
compensation package awarded to our CFO in May 2007 due to his contributions
to
the Company over the preceding 12 months year as discussed above under
“—Base
Salary” above and his expected future contributions to the
Company.
Pursuant
to his offer letter with the Company and the 2004 Plan, the compensation
committee granted to John Derham 125,000 RSUs on November 1, 2007. Such
RSUs
vest in three equal annual installments beginning on November 1, 2008.
In
addition, the compensation committee approved a grant of stock options
to Mr.
Derham to purchase 25,000 shares of the Company’s common stock on July 24, 2008
at an exercise price of $1.57 per share and which vests in three equal
annual
installments beginning on July 24, 2009.
(4)
Retirement,
Perquisites and Other Personal Benefits
We
do not
maintain any defined benefit or supplemental executive retirement programs
for
NEOs. The Company maintains a 401(k) plan, but does not match employee
contributions.
Our
CEO
and co-presidents are entitled to receive certain other personal benefits
pursuant to the terms of their employment agreements. Among other things,
the
Company pays the cost of such executive’s coverage under most benefit plans,
including coverage for such executive’s spouse and dependent minor children, if
any, expenses incurred in connection with the benefit plan coverages as
the
result of any deductible or co-insurance provision of any insurance policy,
not
to exceed $10,000 per year, and long-term disability insurance providing
the
executive with payments of $10,000 per month until age 65, subject to certain
exceptions.
Pursuant
to his offer letter with the Company, Mr. Derham is entitled to a housing
allowance of $50,000 to utilize for rent and related expenses of a corporate
apartment in Manhattan. Upon Mr. Derham’s completion of permanent relocation,
the Company will increase Mr. Derham’s salary by this amount.
C. Interrelationship
of Elements of Pay
In
determining the overall mix of elements comprising total compensation,
the
compensation committee emphasizes the relationship of compensation to
performance. This approach to compensation provides the executives with
a base
level of compensation, while motivating the executives to enhance our business
and achieve our goals, thereby producing a high level of performance for
the
Company and greater variable pay for the executive. We also award significant
levels of long-term incentive compensation that through time-based vesting
provide a counter-balance to short-term annual cash bonus compensation
and
advance the Company’s retention and motivation compensation objectives. In
addition, as discussed under “VIII. Post-Employment Severance and
Change-in-Control Benefits” below, we provide our CEO and our co-presidents with
certain post-employment severance and change in control payments in specified
circumstances.
The
Company provides these benefits to its CEO and co-presidents so that it
has the
continued dedication and full attention of these key employees notwithstanding
the possibility, threat or occurrence of a “change in control” and because it
believes that such payments are necessary to retain the services of these
individuals. In addition, as described below, the Company provides our
CMO with
certain post-employment severance in specified circumstances.
D. Pay
Levels
The
total
annual compensation (salary, cash bonuses and long-term incentive compensation)
for NEOs is determined based on several factors including the individual’s
position and responsibilities, as well as the pay levels in the marketplace
for
similar positions. We chose the amount of each element our CEO’s compensation
based on the compensation committee’s subjective assessment of the level of
compensation necessary to retain him and to sufficiently incentivize him
to
continue to promote stockholder value. We chose the amount of each element
of
compensation paid to our NEOs other than our CEO based on our compensation
committee’s subjective assessment, with input from our CEO, of the level of
compensation necessary to retain these NEOs and to incentivize them to
continue
to promote stockholder value.
V.
Stock
Ownership Guidelines
We
do not
currently have stock ownership guidelines for our NEOs.
VI.
Benchmarking
In
determining the compensation packages for our CEO and our co-presidents,
our
compensation committee referred to certain compensation data it had obtained
relating to small, high-growth companies.
VII. Post-Employment
Severance and Change-in-Control Benefits
Our
CEO
and co-presidents each have an employment agreement that provides for severance
payments and other benefits, including following a change in control that
results in a loss of employment or a significant change in employment.
In
addition, our CMO’s offer letter provides for certain severance payments under
certain circumstances. The table below reflects the amount of compensation
payable to each of our NEOs in the event the executive’s employment is
terminated on specified grounds. In addition to the amounts listed in the
table
below, each NEO is entitled to unpaid base salary and payment for accrued
vacation days through his last day of employment with the
Company.
|
Name
and Termination Event
|
|
Cash
Severance Payment
|
|
Continuation
of Employer-Paid Health Insurance
|
|
Acceleration
of Stock Awards (1)
|
|
Total
Termination Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin
J. McGuinn, Jr.
|
|
|
|
|
|
|
|
|
|
|
Termination
For Cause
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
Disability
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
|
)
|
$
|
37,000
|
|
|
Termination
With Good Reason (2)
|
|
$
|
392,280
(4
|
)
|
$
|
8,335(5
|
)
|
$
|
12,000
(7
|
)
|
$
|
412,615
|
|
|
Termination
Without Cause by the Executive
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
12,000
(7
|
)
|
$
|
37,000
|
|
|
Termination
Without Cause by the Company
|
|
$
|
392,280
(4
|
)
|
$
|
8,335(5
|
)
|
$
|
12,000
(7
|
)
|
$
|
412,615
|
|
|
Death
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
|
)
|
$
|
37,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raza
Khan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
For Cause
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
Disability
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
Termination
With Good Reason (2)
|
|
$
|
528,876
(4
|
)
|
$
|
4,314(6
|
)
|
$
|
40,000
(7
|
)
|
$
|
573,190
|
|
|
Termination
Without Cause by the Executive
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
40,000
(7
|
)
|
$
|
65,000
|
|
|
Termination
Without Cause by the Company
|
|
$
|
528,876
(4
|
)
|
$
|
4,314(6
|
)
|
$
|
40,000
(7
|
)
|
$
|
573,190
|
|
|
Death
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vishal
Garg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
For Cause
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
Disability
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
Termination
With Good Reason (2)
|
|
$
|
528,876
(4
|
)
|
$
|
4,314(6
|
)
|
$
|
40,000
(7
|
)
|
$
|
573,190
|
|
|
Termination
Without Cause by the Executive
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
40,000
(7
|
)
|
$
|
65,000
|
|
|
Termination
Without Cause by the Company
|
|
$
|
528,876
(4
|
)
|
$
|
4,314(6
|
)
|
$
|
40,000
(7
|
)
|
$
|
573,190
|
|
|
Death
|
|
$
|
25,000
(3
|
)
|
$
|
0
|
|
$
|
0
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Coblentz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
For Cause/Resignation Without Good Reason
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
Disability
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
Termination
Other Than For Cause or Disability/Resignation With Good
Reason
|
|
$
|
0
|
|
$
|
0
|
|
$
|
140,625
(9
|
)
|
$
|
140,625
|
|
|
Death
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
P. Derham
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
For Cause/Resignation Without Good Reason
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
Disability
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
Termination
Other Than For Cause or Disability/Resignation With Good Reason
|
|
$
|
125,000 (8
|
)
|
$
|
0
|
|
$
|
281,250
(10
|
)
|
$
|
406,250
|
|
|
Death
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
(1)
|
For
valuation purposes, assumes closing price on The NASDAQ Stock
Market
on
June 30, 2008 of $2.25.
|
|
(2)
|
“Good
Reason” includes, among other things, certain change of control scenarios.
For a full definition, please see each officer’s respective employment
agreement which is filed with the
SEC.
|
|
(3)
|
Includes
payment of accrued but unpaid bonus. Each executive’s employment agreement
specifies a minimum annual bonus of $50,000 for each calendar
year.
|
|
(4)
|
Includes
full base salary (including the guaranteed annual 10% increases)
through
the “Scheduled Termination Date” (as such term is defined in the
executive’s employment agreement), the executive’s guaranteed annual
bonuses in the amount of $50,000 that he would have been awarded
through
the “Scheduled Termination Date”, the value of vacation days that the
executive would have accrued through the “Scheduled Termination Date” and
severance pay in an amount equal to the sum of the executive’s annual base
salary in effect immediately prior to his last date of employment.
The
executive may elect to receive his full base salary (including
the
guaranteed annual 10% increases) and guaranteed annual bonuses
in the
amount of $50,000 through his Scheduled Termination Date on the
same
schedule as if he were still employed with the Company. If the
executive
does not make this election, he will receive these payments in
a lump sum
within 45 days of his last day of employment with the
Company.
|
|
(5)
|
Includes
4 months of payment of health
insurance
benefits.
|
|
(6)
|
Includes
10 months of payment of health
insurance
benefits.
|
|
(7)
|
Pursuant
to Mr. McGuinn’s employment agreement, in the event Mr. McGuinn’s
employment agreement with the Company is terminated by reason
of death,
disability or without “Cause” (as defined in the employment agreement), or
in the event Mr. McGuinn terminates the agreement for “Good Reason,” or in
the event that Mr. McGuinn shall no longer be employed in the
position of
Chairman of the Board and CEO for any reason other than a termination
for
“Cause,” all of Mr. McGuinn’s granted and unvested options and warrants
immediately vest and become immediately exercisable by Mr.
McGuinn. Such
options and warrants may be exercised by Mr. McGuinn, or his
legal
representative, as appropriate, for a period of one year following
the
date of termination. Pursuant to Messrs. Khan and Garg’s employment
agreements, in the event that either executive is terminated
without
“Cause” (as defined in the employment agreements) or terminates his
agreement for “Good Reason,” all granted and unvested options granted
pursuant to the employment agreements immediately vest and
become
immediately exercisable by the
executive.
|
|
(8)
|
Pursuant
to Mr. Derham’s offer letter, he is entitled to six months of base
salary in the event that (i) his title is changed to one of
lower rank,
(ii) he is transferred to a position within the Company that
does not
report directly to the then-current or acting President or
CEO (or person
having equivalent duties and authority) for reasons other than
unsatisfactory performance as determined in our sole discretion
and (iii)
his employment is terminated by us other than for “Cause” as defined
below. Pursuant to Mr. Derham’s offer letter, “Cause” shall include, among
other things (i) a violation of any law, rule or regulation;
(ii) an
indictment or conviction of a felony; (iii) the commission
of a fraudulent
act, act of dishonesty, breach of trust or any act of moral
turpitude;
(iv) a violation of our policies (including, but not limited
to, any
violation under our Code of Business Conduct and Ethics) or
misconduct
related to, or breach of, his duties to us, our subsidiaries
and/or our
affiliates or our customers, clients, employees or stockholders,
whether
with or without prior notice or warning; and (v) the failure
to perform
satisfactorily the duties associated with his job function
or to follow
reasonable directives of his
manager.
|
|
(9)
|
Mr.
Coblentz’s restricted stock award agreement specifies that in the event
of
a “Change in Control” (as such term is defined in the 2004 Plan), all
shares of restricted stock covered by the award shall become
free of all
restrictions and become fully vested and transferable.
|
|
(10)
|
Mr.
Derham’s restricted stock unit award agreement specifies that in the
event
of a “Change in Control” (as defined in the 2004 Plan), all restricted
units covered by the award shall become free of all restrictions
and
become fully vested and
transferable.
|
VIII. Impact
of Tax and Accounting
Section 162(m)
of the Internal Revenue Code of 1986 limits the deductibility in our tax
return
of compensation over $1 million to any of our executive officers unless, in
general, the compensation is paid pursuant to a plan which is
performance-related, non-discretionary and has been approved by our
stockholders. The compensation committee’s policy with respect to
Section 162(m) is to make every reasonable effort to ensure that
compensation is deductible to the extent permitted, while simultaneously
providing our executives with appropriate rewards for their performance
and
therefore the compensation committee may authorize the payment of compensation
to NEOs outside the limits of Section 162(m).
IX. Post
June 30, 2008 Actions
The
compensation committee of our board of directors is currently in negotiations
with Messrs. Khan and Garg regarding their employment agreements. In addition,
as described above, with respect to our CMO, the compensation committee
approved
(i)
a
grant
of stock options to purchase 25,000 shares of the Company’s common stock on July
24, 2008
and
(ii)
a cash bonus
of
$75,000
on
October 20, 2008.
X. Conclusion
The
compensation committee believes that the total compensation paid to each
of our
NEOs is competitive and appropriate given the context of our business
achievements and the individual performance of the NEOs in the past fiscal
year.
Executive
Compensation
For
a
narrative description of the terms of the restricted stock and stock option
awards described in the tables below, please see “
Compensation
Discussion and Analysis—IV. Compensation Structure—B. Details of Elements of
Pay—3. Long-Term Incentive Compensation.” in this Item 11. For a description of
our employment agreements with our CEO and co-presidents, please see “Employment
Agreements” below.
Summary
Compensation Table
The
following table sets forth for the year indicated the annual compensation
of our
CEO, our Co-Presidents, our CFO and our other NEOs, as such term is defined
in
Item 402(a) of Regulation S-K
:
|
Name
and Principal Position
|
|
Year
|
|
Salary
$
|
|
Bonus
$
|
|
Stock
Awards
$
(1)
|
|
Options
Awards
$
(1)
|
|
Non-equity
Incentive Plan Compensation $
|
|
All
Other
Compensation
$
|
|
Total
$
|
|
Edwin
J. McGuinn, Jr.
Chief
Executive Officer
|
|
2008
2007
|
|
246,000
234,667
|
|
210,000
150,000
|
|
-
-
|
|
238,413
348,661
|
|
-
-
|
|
-
-
|
|
694,413
733,328
|
|
Raza
Khan
Co-President
|
|
2008
2007
|
|
231,000
210,000
|
|
210,000
150,000
|
|
-
-
|
|
1,085,664
1,541,523
|
|
-
-
|
|
-
-
|
|
1,526,664
1,901,523
|
|
Vishal
Garg
Co-President,
Secretary
|
|
2008
2007
|
|
231,000
210,000
|
|
210,000
150,000
|
|
-
|
|
1,085,664
1,541,523
|
|
-
-
|
|
-
-
|
|
1,526,664
1,901,523
|
|
Jonathan
Coblentz
Chief
Financial Officer and Treasurer (2)
|
|
2008
2007
|
|
201,875
50,000
|
|
100,000
-
|
|
208,438
225,806
|
|
15,479
-
|
|
-
-
|
|
-
-
|
|
525,792
272,806
|
|
John
P. Derham
Chief
Marketing Officer (3)
|
|
2008
|
|
177,083
|
|
75,000
|
|
141,102
|
|
-
|
|
-
|
|
39,297
(4)
|
|
432,482
|
|
|
(1)
|
Represents
the dollar amount of compensation expense recognized by us for
financial
statement reporting purposes in the 2008 and 2007 fiscal years
for the
fair value of the employee options, restricted stock and restricted
stock
units granted in fiscal year 2008 and all prior fiscal years,
in
accordance with Statement of Financial Accounting Standards No.
123R,
Accounting for Stock-Based Compensation, which we refer to as
FAS 123R.
These amounts reflect our accounting expense for these awards,
and do not
correspond to the actual value recognized by the NEOs nor to
the amount of
compensation awarded for performance in fiscal years 2008 and
2007.
Pursuant to SEC rules, the amounts shown exclude the potential
impact from
estimated forfeitures related to service-based vesting conditions.
The
assumptions made in the valuation of our stock and option awards
are
discussed in Note 7, “Stockholders’ Equity,” to our consolidated financial
statements contained in our Annual
Report.
|
|
|
(2)
|
Mr.
Coblentz joined us in April
2007.
|
|
|
(3)
|
Mr.
Derham joined us in October
2007.
|
|
|
(4)
|
Reflects
housing allowance in connection with Mr. Derham’s relocation to New York
City.
|
Grants
of Plan-Based Awards
The
following table provides information on awards made pursuant to the 2004
Plan in
fiscal year 2008 to each NEO. There can be no assurance that the grant
date fair
value of stock and stock option awards will ever be realized:
|
|
|
Estimated
future payouts under non-equity incentive plans
|
Estimated
future payouts under equity incentive plan awards
|
All
other stock awards: number of shares of stock or units
(#)
|
All
other option awards: number of securities underlying options
(#)
|
Exercise
of base price of option awards ($/Sh)
|
Grant
date fair value of stock and option awards ($)
|
|
Name
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|
Edwin
J. McGuinn, Jr.
|
10/16/2007
02/14/2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
150,000
150,000
|
$4.70
$2.17
|
418,801
190,800
|
|
Raza
Khan
|
02/14/2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
$2.17
|
636,001
|
|
Vishal
Garg
|
02/14/2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
$2.17
|
636,001
|
|
Jonathan
Coblentz
|
05/07/2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
200,000
|
$2.15
|
278,644
|
|
John
P. Derham
|
11/1/2007
|
-
|
-
|
-
|
-
|
-
|
-
|
125,000
|
-
|
-
|
635,000
|
Outstanding
Equity Awards at Fiscal Year-End 2008
The
following table shows the number of shares covered by stock options, restricted
stock and restricted stock unit grants held by our NEOs on June 30,
2008:
|
|
|
Option
Awards
|
Stock
Awards
|
|
Name
|
Grant
Date
|
Number
of securities underlying unexercised options
exercisable
(#)
|
Number
of securities underlying unexercised options
unexercisable
(#)
|
Equity
incentive plan awards: number of securities underlying unexercised
unearned options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of shares of restricted stock and shares underlying restricted
stock units
that have not yet vested (1)
(#)
|
Market
value of shares of restricted stock and shares underlying restricted
stock
units that have not yet vested (2)
($)
|
Equity
incentive plan awards: number of unearned shares, units or other
rights
that have not vested
(#)
|
Equity
incentive plan awards: market or payout value of unearned shares,
units or
other rights that have not vested
(#)
|
|
Edwin
J. McGuinn, Jr.
|
11/01/2004
09/20/2005
01/25/2006
10/16/2007
02/14/2008
|
410,000
250,000
133,332
0
0
|
0
0
66,668
150,000
150,000
|
0
|
$1.60
$3.00
$3.83
$4.70
$2.17
|
11/01/2014
09/20/2015
01/25/2016
10/16/2017
02/14/2018
|
_
|
_
|
_
|
_
|
|
Raza
Khan
|
07/08/2004
09/20/2005
03/01/2007
05/14/2007
02/14/2008
|
300,000
700,000
200,000
400,000
0
|
0
0
0
0
500,000
|
0
|
$1.00
$3.15
$6.38
$6.77
$2.17
|
07/08/2014
09/20/2015
03/01/2017
05/14/2017
02/14/2018
|
_
|
_
|
_
|
_
|
|
Vishal
Garg
|
07/08/2004
09/20/2005
03/01/2007
05/14/2007
02/14/2008
|
300,000
700,000
200,000
400,000
0
|
0
0
0
0
500,000
|
0
|
$1.00
$3.15
$6.38
$6.77
$2.17
|
07/08/2014
09/20/2015
03/01/2017
05/14/2017
02/14/2018
|
_
|
_
|
_
|
_
|
|
Jonathan
Coblentz
|
05/01/2007
05/07/2008
|
-
0
|
-
200,000
|
0
|
-
$2.15
|
-
05/07/2018
|
62,500(3)
|
140,625
|
_
|
_
|
|
John
P. Derham
|
11/01/2007
|
-
|
-
|
0
|
-
|
-
|
125,000(4)
|
281,250
|
_
|
_
|
|
|
(1)
|
Represents
the number of shares underlying restricted stock and restricted
stock
units awards that vest based upon the passage of time and the
employees’
continued service at the
company.
|
|
|
(2)
|
Market
value of shares based upon the $2.25 NASDAQ Stock Market closing
price on
June 30, 2008.
|
|
|
(3)
|
Represents
shares of restricted stock received in conjunction with commencement
of
employment.
|
|
|
(4)
|
Represents
restricted stock units received in conjunction with commencement
of
employment.
|
Option
Exercises and Stock Vested Table
The
following table shows the number of shares of our common stock acquired
upon the
vesting of restricted stock awards and the exercise of stock options during
the
fiscal year ended June 30, 2008:
|
|
Option
Awards
|
Stock
Awards
|
|
Name
|
Number
of shares acquired on exercise
(#)
|
Value
realized on exercise
($)
|
Number
of shares acquired on vesting
(#)
|
Value
realized on vesting
($)(1)
|
|
Edwin
J. McGuinn, Jr.
|
-
|
-
|
-
|
-
|
|
Raza
Khan
|
-
|
-
|
-
|
-
|
|
Vishal
Garg
|
-
|
-
|
-
|
-
|
|
Jonathan
Coblentz
|
-
|
-
|
31,250
|
56,875
|
|
John
P. Derham
|
-
|
-
|
-
|
-
|
|
|
(1)
|
Value
realized on vesting is calculated by multiplying the number of
shares of
stock or units by the market value on the vesting date.
|
Employment
Agreements
We
entered into an executive employment agreement with our Chairman and CEO,
Edwin
J. McGuinn, Jr. on November 17, 2004. The employment agreement, as amended
on
September 27, 2007, provides for an annual base salary of $250,000 beginning
January 1, 2008. The agreement provides for a minimum annual increase in
base
salary of 10% and additional increases at the discretion of our board of
directors. The employment agreement also provides for a minimum annual
bonus of
$50,000 and bonuses in excess thereof at the discretion of our board of
directors. Grants of stock options shall vest and be exercisable pursuant
to the
terms and conditions of our 2004 Plan.
Mr.
McGuinn’s employment agreement expires on October 31, 2009, subject to earlier
termination. Upon expiration, the agreement will automatically renew itself
from
year to year unless either party elects to modify or not to renew the agreement
pursuant to a written notice given by one party and received by the other
not
later than 60 days prior to the expiration of the agreement or any extension
thereto. The agreement provides that if we terminate Mr. McGuinn’s employment
without cause or if he terminates his employment agreement for good reason,
he
will be entitled to his base salary (including guaranteed annual ten percent
increases), guaranteed annual bonus, continued health and benefits coverage
and
the value of unused vacation days accrued until the expiration date of
his
employment agreement, plus one year of severance pay, in addition to any
earned
but unpaid base salary, unpaid pro rata annual bonus and unused vacation
days
accrued through Mr. McGuinn’s last day of employment, including any carryover
days. In the event of such termination, his base salary and guaranteed
bonus is
payable by us within 45 days after his last day of employment unless Mr.
McGuinn
elects to have such amounts paid in the same manner as they would have
been paid
had he remained employed by us. Additionally, all stock options granted
to him
will immediately vest.
Under
the
agreement, good reason includes any of the following occurring without
the
consent of Mr. McGuinn: a significant change, and resulting diminution,
in his
duties and responsibilities; an assignment to him of a different and subordinate
title; a change in control of the Company; a significant relocation of
our
office or a material breach of the agreement by us. His employment agreement
prohibits Mr. McGuinn from competing with us, or soliciting our customers
or
employees, in the United States for a period of two years from the date
of their
termination of employment.
For
purposes of Mr. McGuinn’s agreement, “Change of Control” means our board of
directors votes to approve: (a) any consolidation or merger of the Company
pursuant to which 50% or more of the outstanding voting securities of the
surviving or resulting company are not owned collectively by the common
share
and warrant holders of Iempower, Inc. as of November 1, 2004 (the “Current
Control Group”); (b) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all,
of the assets of the Company other than any sale, lease, exchange
or
other
transfer to any company where the Company owns, directly or indirectly,
100% of
the outstanding voting securities of such company after any such transfer;
(c)
any person or persons (as such term is used in Section 13(d) of the Exchange
Act), other than the Current Control Group, shall acquire or become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
whether directly, indirectly, beneficially or of record, of 50% or more
of
outstanding voting securities of the Company; or (d) commencement by any
entity,
person, or group (including any affiliate thereof, other than the Company)
of a
tender offer or exchange offer where the offeree acquires more than 50%
of the
then outstanding
voting
securities of the Company.
We
have
also entered into executive employment agreements with Raza Khan and Vishal
Garg. Each employment agreement provides for an initial annual base salary
of
$150,000. The agreements provide for a minimum annual increase in base
salary of
10% and additional increases at the discretion of our board of directors.
As of
the date hereof, Messrs. Khan and Garg each earn an annual base salary
of
$242,000. Each employment agreement also provides for a minimum annual
bonus of
$50,000 and bonuses in excess thereof at the discretion of our board of
directors. Under the agreements, each executive received options to purchase
up
to 20% of the shares of our common stock made available under the 2004
Plan, 50%
of which vested immediately and the remaining 50% vested on the first
anniversary of the grant date. Subsequent grants of stock options shall
vest and
be exercisable pursuant to the terms and conditions of the 2004 Plan.
Additionally, during each calendar quarter during the terms of the agreements,
each executive is to receive options to purchase an additional 5% of
the shares of our common stock made available under the 2004 Plan. The
exercise
price of all options will be the fair market value of our common stock
on the
date the option is granted.
Each
employment agreement expires on April 1, 2009, subject to earlier termination
by
either us or Messrs. Khan and Garg, and shall automatically renew for an
additional five years unless a party provides notice of intention not to
renew
on or before November 1, 2008. Upon expiration, each employment agreement
will
automatically renew for a period of five years unless either party elects
not to
renew the agreement. Each employment agreement provides that if we terminate
Messrs. Khan and Garg without cause or if they terminate their employment
agreements for good reason, they will be entitled to any earned but unpaid
base
salary, unpaid pro rata annual bonus and unused vacation days accrued through
their last day of employment with the Company, their base salary (including
guaranteed annual ten percent increases), guaranteed annual bonus, continued
health and benefits coverage and the value of unused vacation days accrued
until
the expiration date of their employment agreements, plus one year of severance
pay. At the election of the executive in the event of such termination,
the
executive’s base salary and guaranteed bonus is payable by us within 45 days
after his last day of employment. Additionally, all stock options granted
to
them will immediately vest.
Under
the
agreements, good reason includes any of the following occurring without
the
consent of the applicable executive: a significant change, and resulting
diminution, in the executive’s duties and responsibilities; an assignment to the
executive of a different and subordinate title; or a “change in control” of the
Company. Each employment agreement prohibits Messrs. Khan and Garg from
competing with us, or soliciting our customers or employees, in the United
States for a period of one year from the date of their termination of
employment. Messrs. Khan and Garg’s employment agreements include a similar
“Change in Control” definition as described above with respect to Mr. McGuinn’s
employment agreement.
Our
compensation committee is currently in negotiations with Messrs. Khan and
Garg
regarding their employment agreements.
Director
Compensation
For
our
fiscal year ended June 30, 2008, our independent directors, other than
those
affiliated with Battery, were entitled to receive an annual retainer of
$15,000.
In addition, Mr. Fisher earned an additional $25,000 for serving as chairman
of
our special committee of independent directors that was formed to review
certain
proposed and completed capital-raising transactions (the “Special Committee”),
and Mr. Bushley earned an additional $12,500 for serving on the Special
Committee. On July 17, 2008, our board of directors approved an increase
in the
annual retainer fees paid to our independent directors, other than those
affiliated with Battery, from $15,000 to $20,000. This increase has been
deferred, however, until we successfully raise additional equity capital.
In
addition to board fees, for our fiscal year ended June 30, 2008, our independent
directors, other than those affiliated with Battery, received a stock option
grant to purchase 20,000 shares of our common stock. Our independent directors
that are affiliated with Battery do not receive compensation for serving
on our
board of directors. Battery, through its affiliates, is a significant
stockholder of the Company, owning a majority of our series B convertible
preferred stock (“Series B Preferred Stock”) and all of our series B-2
convertible preferred stock (“Series B-2 Preferred Stock”). No compensation was
paid to Mr. Elinsky during our fiscal year ended June 30, 2008, as he did
not
become a director until July 2008.
The
following table sets forth the compensation paid by us to our non-employee
directors for the fiscal year ended June 30, 2008:
|
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)(1)(2)
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation
($)
|
|
Total
($)
|
|
|
Richmond
T. Fisher
|
|
$
|
40,000
|
|
|
--
|
|
$
|
82,530
|
|
|
--
|
|
|
--
|
|
|
|
|
$
|
122,530
|
|
|
C.
David Bushley
|
|
$
|
27,500
|
|
|
--
|
|
$
|
67,381
|
|
|
--
|
|
|
--
|
|
|
|
|
$
|
94,881
|
|
|
Andrew
Mathieson
|
|
$
|
15,000
|
|
|
--
|
|
$
|
79,883
|
|
|
--
|
|
|
--
|
|
|
--
|
|
$
|
94,883
|
|
|
Michael
M. Brown
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
Sunil
Dhaliwal
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
Gregory
N. Elinsky
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
(1)
|
Represents
the dollar amount of compensation expense recognized by us for
financial
statement reporting purposes in the fiscal 2008 for the fair
value of the
stock options granted in fiscal year 2008 and all prior fiscal
years, in
accordance with FAS 123R. These amounts reflect our accounting
expense for
these awards, and do not correspond to the actual value recognized
by the
directors nor to the amount of compensation awarded in fiscal
2008.
Pursuant to SEC rules, the amounts shown exclude the potential
impact from
estimated forfeitures related to service-based vesting conditions.
The
assumptions made in the valuation of our stock awards are discussed
in
Note 7, “Stockholders’ Equity,” to our consolidated financial statements
contained in our Annual
Report.
|
|
|
(2)
|
During
the fiscal year ended June 30, 2008, each of our independent
directors,
other than those affiliated with Battery, received an option
to purchase
20,000 shares of our common stock with an exercise equal to the
fair
market value of our common stock on the date of grant. The grant
date fair
value calculated in accordance with FAS 123R of each of these
awards was
$67,381. As of June 30, 2008, our independent directors, other
than those
affiliated with Battery, had the following stock
options:
|
|
Name
|
|
Grant
Date
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Richmond
T. Fisher
|
|
03/22/2005
08/11/2005
06/30/2006
11/14/2006
07/19/2007
|
|
20,000
40,000
13,333
20,000
20,000
|
|
-
-
6,667
-
-
|
|
$4.75
$2.85
$5.90
$6.45
$5.64
|
|
03/22/2015
08/11/2015
06/30/2016
11/14/2016
07/19/2017
|
|
C.
David Bushley
|
|
08/11/2005
11/14/2006
07/19/2007
|
|
67,500
23,750
20,000
|
|
-
-
-
|
|
$2.85
$6.45
$5.64
|
|
08/11/2015
11/14/2016
07/19/2017
|
|
Andrew
Mathieson
|
|
01/25/2006
11/14/2006
07/19/2007
|
|
57,500
27,500
20,000
|
|
10,000
-
-
|
|
$3.83
$6.45
$5.64
|
|
01/25/2016
11/14/2016
07/19/2017
|
|
Gregory
N. Elinsky
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Equity
Compensation Plan Information
The
following table summarizes information, as of June 30, 2008, relating to
our
equity compensation plans pursuant to which shares of our common stock
or other
equity securities may be granted from time to time:
|
|
(a)
Number of securities to be
issued upon exercise of
outstanding options
|
(b)
Weighted average
exercise price of
outstanding options
|
(c)
Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column (a))
|
|
Equity
compensation plans approved by security holders (1)
|
6,665,039
|
3.54
|
2,028,012
|
|
Equity
compensation plans not approved by security holders
|
__
|
__
|
__
|
|
Totals
|
6,665,039
|
3.54
|
2,028,012
|
|
|
(1)
|
The
number of securities remaining for future issuance consists of
639,012
shares issuable under our 2004 Plan and 1,389,000 shares issuable
under
our 2005 Consultant Incentive Plan. Awards under such plans may
include
restricted stock, unrestricted stock, stock options, stock appreciation
rights, and performance shares or other equity-based awards,
as the board
of directors may determine.
|
Security
Ownership of Certain Beneficial Owners and
Management
The
following table sets forth certain information regarding the beneficial
ownership of our shares of common stock, Series B Preferred Stock and Series
B-2
Preferred Stock, as of October 27, 2008 by (i) each person whom we know
to
beneficially own 5% or more of our common stock and/or our Series B Preferred
Stock and Series B-2 Preferred Stock and, (ii) each of our directors, (iii)
each
person listed on the Summary Compensation Table set forth under “Executive
Compensation” in Item 11 of this Form 10-K/A and (iv) all of our directors and
executive officers as a group. The number of shares of common stock beneficially
owned by each stockholder is determined in accordance with the rules of
the SEC
and does not necessarily indicate beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes those shares of common
stock
over which the stockholder exercises sole or shared voting or investment
power
and any shares which the person has the right to acquire within 60 days
through
the exercise of any option, warrant or right, through conversion of any
security
or pursuant to the automatic termination of a power of attorney or revocation
of
a trust, discretionary account or similar arrangement. The percentages
in the
“percent of class” column, however, is based on the assumption, expressly
required by the rules of the SEC, that only the person or entity whose
ownership
is being reported has converted or exercised common stock equivalents into
shares of common stock; that is, shares underlying common stock equivalents
are
not included in calculations in the table below for any other purpose,
including
for the purpose of calculating the number of shares outstanding generally.
The
“voting power” column below represents the voting power of each person or entity
listed in the table taking into account that our Series B Preferred Stock
and
our Series B-2 Preferred Stock vote on an as-converted basis. Thus, the
percentages in the “voting power” column have been calculated by including all
of our outstanding Series B Preferred Stock and Series B-2 Preferred Stock
in
the denominator for each person, whether or not they own any Series B Preferred
or Series B-2 Preferred. Except as otherwise noted below, the address for
each
person listed on the table is c/o MRU Holdings, Inc., 590 Madison Avenue,
13
th
Floor,
New York, New York, 10022.
|
Name
of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership of Stock
|
|
Percent
of Class (1)
|
|
Voting
Power (2)
|
|
Edwin
J. McGuinn, Jr.
|
|
1,078,006
|
(3)
|
3.40%
|
|
2.62%
|
|
Raza
Khan
|
|
4,829,578
|
(4)
|
14.34%
|
|
10.88%
|
|
Vishal
Garg
|
|
4,746,754
|
(4)
|
14.10%
|
|
10.70%
|
|
Richmond
T. Fisher
|
|
161,666
|
(5)
|
*
|
|
*
|
|
Andrew
Mathieson
|
|
135,000
|
(6)
|
*
|
|
*
|
|
C.
David Bushley
|
|
141,250
|
(7)
|
*
|
|
*
|
|
Michael
M. Brown
|
|
0
|
|
*
|
|
*
|
|
Sunil
Dhaliwal
|
|
0
|
|
*
|
|
*
|
|
Gregory
N. Elinsky
|
|
585,213
|
(8)
|
1.83%
|
|
1.37%
|
|
Jonathan
Coblentz
|
|
87,500
|
|
*
|
|
*
|
|
John
P. Derham
|
|
76,666
|
|
*
|
|
*
|
|
Battery
Partners VII, LLC
|
|
10,772,626
|
(9)
|
30.74%
|
|
23.55%
|
|
BlackRock,
Inc.
|
|
4,480,183
|
(10)
|
13.68%
|
|
10.31%
|
|
Y&S
Nazarian Revocable Trust
|
|
3,138,279
|
(11)
|
9.88%
|
|
7.39%
|
|
Merrill
Lynch & Co., Inc.
|
|
2,262,411
|
(12)
|
|
|
5.07%
|
|
All
executive officers and directors as a group (12 persons)
|
|
11,841,633
|
|
32.03%
|
|
24.63%
|
____________________________
*
Represents
holdings of less than 1%.
1)
Beneficial
ownership is calculated based on 31,721,174 shares of our common stock
issued
and outstanding as of October 27, 2008.
2)
Voting
power is calculated based on 42,425,007 shares of our common stock, Series
B
Preferred Stock and Series B-2 Preferred Stock issued and outstanding as
of
October 27, 2008.
3)
Includes
(i) 843,332 shares of common stock underlying options exercisable within
60 days
of October 27, 2008 and (ii) 99,795 shares of common stock and 67,004 shares
of
common stock underlying warrants registered in the name of Donna McGuinn,
Mr.
McGuinn’s wife. Mr. McGuinn disclaims beneficial ownership of the securities
registered in the name of Donna McGuinn.
4)
Includes
352,670 shares of common stock underlying warrants and 1,600,000 shares
of
common stock underlying options exercisable within 60 days of October 27,
2008.
5)
Includes
25,000 shares of common stock underlying warrants and 136,666 shares of
common
stock underlying options exercisable within 60 days of October 27,
2008.
6)
Includes
135,000 shares of common stock underlying options exercisable within 60
days of
October 27, 2008.
7)
Includes
141,250 shares of common stock underlying options exercisable within 60
days of
October 27, 2008.
8)
Includes
327,868 shares of common stock underlying warrants held by Professional
Investments of America, LLC. Mr. Elinsky and his wife have a 100% ownership
interest in the LLC.
9)
Battery
Ventures VII, L.P. directly owns, and has the sole voting and dispositive
power
with respect to, 834,020 shares of our common stock, 4,437,646 shares of
our
common stock issuable upon conversion of shares of our Series B Preferred
Stock,
2,155,804 shares of our common stock issuable upon conversion of shares
of
Series B-2 Preferred Stock, 1,405,668 shares of our common stock issuable
upon
conversion of shares of Series B Preferred Stock underlying warrants exercisable
within 60 days of October 27, 2008, and 1,736,963 shares of common stock
issuable upon exercise of common stock warrants exercisable within 60 days
of
October 27, 2008. Battery Investment Partners VII, LLC directly owns, and
has
the sole voting and dispositive power with respect to, 15,980 shares of
our
common stock, 85,027 shares of our common stock issuable upon conversion
of
Series B Preferred Stock, 41,305 shares of common stock issuable upon conversion
of shares of Series B-2 Preferred Stock, 26,934 shares of our common stock
issuable upon conversion of shares of Series B Preferred Stock underlying
warrants exercisable within 60 days of October 27, 2008, and 33,279 shares
of
common stock issuable upon exercise of common stock warrants exercisable
within
60 days of October 27, 2008. Battery Partners VII, LLC is the general partner
of
Battery Ventures VII, L.P. and the manager of Battery Investment Partners
VII,
LLC. Battery Partners VII, LLC and each of its managing members, Richard
D.
Frisbie, Thomas J. Crotty, Kenneth P. Lawler, Morgan M. Jones, R. David
Tabors,
Scott R. Tobin, Roger Lee and Mark H. Sherman (collectively referred to
as the
“BP Managing Members”), may be deemed to have the sole voting and dispositive
power with respect to all of the shares owned by Battery Ventures VII,
L.P. and
Battery Investment Partners VII, LLC. Each of the BP Managing Members disclaims
beneficial ownership of shares, except to the extent of his individual
pecuniary
interest therein. This information was obtained from our records and from
reports filed with the SEC by Battery Ventures VII, L.P., Battery Investment
Partners VII, LLC, Battery Partners VII, LLC, Richard D. Frisbie, Thomas
J.
Crotty, Kenneth P. Lawler, Morgan M. Jones, R. David Tabors, Scott R. Tobin
and
Mark H. Sherman. The address of Battery Partners VII, LLC is 930 Winter
Street,
Suite 2500, Waltham, Massachusetts 02451.
10)
Includes
3,015,116 shares of common stock issuable upon conversion of Series B Preferred
Stock and 955,068 shares issuable upon conversion of Series B Preferred
Stock
underlying warrants exercisable within 60 days of October 27, 2008 held
by
BlackRock Investment Management LLC. BlackRock Investment Management LLC
is an
investment advisor and a subsidiary of BlackRock, Inc. BlackRock, Inc.
disclaims
beneficial ownership of the shares held by BlackRock Investment Management
LLC.
This information was obtained from our records and from reports filed with
the
SEC by BlackRock, Inc. The address of BlackRock, Inc. is 40 East 52nd Street,
New York, New York 10022.
11)
Includes
36,000
shares
of
common stock underlying warrants exercisable within 60 days of October
27, 2008.
This
information was obtained from our records and from reports filed with the
SEC
by
Younes
Nazarian and Soraya J. Nazarian, Trustees of the Y&S Nazarian Revocable
Trust. The address of Y&S Nazarian Revocable Trust is 1801 Century Park
West, 5th Floor, Los Angeles, California 90067.
12)
Includes
2,232,410 shares of common stock issuable upon exercise of common stock
warrants
exercisable within 60 days of October 27, 2008 held by Merrill Lynch Bank
USA
and 30,000 shares of our common stock held by First Republic Investment
Management, Inc. Merrill Lynch Bank USA and First Republic Investment
Management, Inc. are wholly owned subsidiaries of Merrill Lynch & Co., Inc.
Merrill Lynch & Co., Inc. disclaims beneficial ownership of the shares held
by Merrill Lynch Bank USA and First Republic Investment Management, Inc.
This
information was obtained from our records and from a report filed with
the SEC
by Merrill Lynch & Co., Inc.
The
address of Merrill Lynch & Co., Inc. is 4 World Financial Center, 250 Vesey
St., New York, New York 10080.
Item
13.
Certain
Relationships and Related Transactions, and Director
Independence.
Transactions
with Related Persons, Promoters and Certain Control
Persons
Battery
Battery
Partners VII, LLC, the general partner of BV7 and the manager of BIP7,
beneficially owns an aggregate of
30.74%
of
our outstanding common stock on an as converted basis as of October 27,
2008.
Two members of our board of directors, Michael M. Brown and Sunil Dhaliwal,
are
affiliated with Battery.
June
30, 2008 Purchase of B-2 Preferred and Warrants
On
June
30, 2008, pursuant to a private placement, Battery purchased from us 2,197,109
shares (the “June 30th Shares”) of Series B-2 Preferred Stock and warrants
exercisable for an aggregate of 659,132 shares of common stock prior to
June 29,
2013 (the “June 30th Warrants”) at a price of $2.25 per share (the “Series B-2
Original Issue Price”) plus $0.0375 per share attributable to the June 30th
Warrants for a total amount of $5,025,886.84, which equaled the principal
amount
of the
June
9th
Notes (as defined below) plus accrued and unpaid interest on the June 9th
Notes
as of June 30, 2008.
The
Series B-2 Preferred Stock holders are entitled to receive when, and if
declared
by our board of directors out of funds legally available therefor, dividends
on
the Series B-2 Preferred Stock at a simple annual rate equal to 9% of the
Series
B-2 Original Issue Price (the “Series B-2 Dividend Rate”), up to, but not
including September 30, 2008 (the “Alternate Interest Rate Date”) and at a
simple annual interest rate of 18% of the Series B-2 Original Issue Price
(the
“Alternate Rate”) from and after the Alternate Interest Rate Date until the
Series B-2 Preferred Stock is converted, exchanged or redeemed as described
in
the certificate of designation for the Series B-2 Preferred Stock; provided,
however, dividends shall not be declared, unless permitted under the June
30th
Subordination Agreement (as defined below). Subject to the foregoing and
certain
other conditions, such as NASDAQ Marketplace Rules, dividends may be paid
by us
in cash or shares of common stock.
On
June
30, 2008, in connection with the issuance of the Series B-2 Preferred Stock,
we
entered into a subordination agreement with Battery, Viking Asset Management
L.L.C. (“Viking”) and the buyers of certain secured senior notes issued by us
dated as of October 19, 2007 (the “June 30th Subordination Agreement”). Pursuant
to the June 30th Subordination Agreement, among other things, Battery agreed
that the payment of any amounts pursuant to the Series B-2 Preferred Stock
would
be subordinated to the payment in full of the obligations, liabilities
and other
amounts owed to Viking by us under a previous purchase agreement and
note.
Prepayment
and Cancellation of June 9
th
Notes
We
entered a note and warrant purchase agreement with Battery on June 9, 2008
pursuant to which we issued, in exchange for a payment of $5,000,000 in
cash,
(i) convertible promissory notes in the original aggregate principal amount
of
$5,000,000 (collectively, the “June 9th Notes”) and (ii) warrants (the “June 9th
Warrants”) to purchase in the aggregate 490,196 shares of common stock, which
were exercisable at an exercise price of $2.55 per share if, and only if,
the
June 9th Notes were not converted or repaid on or prior to September 30,
2008.
On June 30, 2008, we and Battery agreed to amend the June 9th Notes to
allow for
their prepayment. We prepaid the principal amount of the June 9th Notes
plus
accrued and unpaid interest on the June 9th Notes as of June 30, 2008 and
the
June 9th Notes and June 9th Warrants were cancelled.
July
1, 2008 Consulting Agreement
On
July
1, 2008, we entered into a consulting services agreement (the “Consulting
Agreement”) with Battery Partners VII, LLC (the “Consultant”), an affiliate of
Battery. Pursuant to the Consulting Agreement, we agreed to pay the Consultant
a
fee of $150,000 for consulting services provided during the six month period
ending December 31, 2008, payable promptly following the execution of the
Consulting Agreement, and an additional fee of $75,000 per quarter for
each
subsequent quarterly period that the Consultant provides services to us.
As of
the date hereof, we owe $150,000 to the Consultant, but no fees have been
paid
to the Consultant. The Consulting Agreement has a term of one year and
may be
renewed or extended for any period as may be agreed by the parties
thereto.
July
10, 2008 Purchase of Notes and Warrants
On
July
10, 2008, we entered into a note and warrant purchase agreement (the “July 10th
Purchase Agreement”) with Battery (the “July 10th Investor”). In exchange for
Battery’s payment of $2,000,000 in cash, we issued to Battery, in a private
placement transaction: (i) promissory notes (the “July 10th Notes”) in the
original aggregate principal amount of $2,500,000 (the “July 10th Original
Principal Amount”) and (ii) warrants exercisable for an aggregate of 1,111,111
shares
of
common
stock prior to July 9, 2013, at an exercise price of $2.25 per share, subject
to
certain adjustments (the “July 10th Warrants”).
The
July
10th Notes accrue interest on the unpaid principal amount at a simple annual
interest rate of 18% per annum; provided, however, the July 10th Original
Principal Amount shall increase by 20% 60 days after the date of issuance
of the
July 10th Notes (the “First Principal Reset Date”), unless we sell equity
securities (the “Equity Securities”) in the future pursuant to an equity
financing (including the issuance of Equity Securities upon the conversion
or
exchange of debt securities (the “Automatically Converting Debt Securities”)
issued in connection with such equity financing) in which we receive in
excess
of a minimum threshold amount of gross proceeds (an “Equity Financing”) prior to
the First Principal Reset Date; provided, further, that the July 10th Original
Principal Amount shall increase by an additional 20% 120 days after the
date of
the issuance of the July 10th Notes (the “Second Principal Reset Date”) unless
we issue the Automatically Converting Debt Securities or the Equity Securities
prior to the Second Principal Reset Date. No interest under the July 10th
Notes
shall be due prior to October 31, 2010 (the “Maturity Date”). The principal
amounts of the July 10th Notes are due on the Maturity Date.
In
addition, if we undertake an Equity Financing, then the outstanding principal
amount of the July 10th Notes together with the accrued, but unpaid interest
will be mandatorily prepaid subject to certain conditions contained in
the July
10th Subordination Agreement (as defined below) and the July 10th Notes.
Subject
to the July 10th Subordination Agreement, the July 10th Notes may be prepaid
without premium or penalty at our option on 10 days prior notice to the
July
10th Investors.
Also
on
July 10, 2008, in connection with the issuance of the July 10th Notes,
we
entered into a subordination agreement with Battery, an unaffiliated investor,
Viking and the buyers of certain secured senior notes issued by us dated
as of
October 19, 2007 (the “July 10th Subordination Agreement”). Pursuant to the July
10th Subordination Agreement, among other things, Battery agreed that the
payment of any amounts pursuant to the July 10th Notes would be subordinated
to
the payment in full of the obligations, liabilities and other amounts owed
to
Viking by us under a previous purchase agreement and note.
October
24, 2008 Exchange Agreement
On
October 24, 2008, we entered into an Agreement, Consent and Waiver (the
“Exchange Agreement”) with Battery, as the sole holder of our Series B-2
Preferred Stock. Pursuant to the Exchange Agreement, among other things,
Battery
agreed that, to the extent we issue convertible senior notes (the “Notes”), all
outstanding shares of Series B-2 Preferred Stock will be exchanged for
the Notes
simultaneously with the issuance of the Notes in an amount which equals
the sum
of (a) any and all accrued and unpaid dividends on the Series B-2 Preferred
Stock and (b) the aggregate Series B-2 Original Issue Price, defined in
our
Certificate of Designation of Series B-2 Preferred Stock as a purchase
price
equal to $2.25 per share.
Series
B Preferred Stock Conversion Agreement and Series B Warrant
Exercises
On
October 24, 2008, we entered into agreements with the holders of a majority
(the
“Majority Holders”), including Battery, of our Series B Preferred Stock,
pursuant to which, among other things, the Majority Holders have
agreed:
|
|
·
|
that
no outstanding warrants to purchase shares of Series B Preferred
Stock
(“Series B Warrants”) may be exercised by the Majority Holders, unless the
only holder of Series B Preferred Stock and Series B Warrants
that has not
signed an agreement to refrain from exercising its Series B Warrant
(the
“Series B Minority Holder”) exercises its Series B Warrant, in which case,
the Majority Holders may exercise their Series B Warrants, but
only up to
an amount proportional to the amount of the Series B Warrant
exercised by
the Series Minority Holder;
|
|
|
·
|
to
convert their shares of Series B Preferred Stock into common
stock;
and
|
|
|
·
|
as
the Majority Holders of the Series B Preferred Stock, to cause
the
conversion of all outstanding shares of Series B Preferred Stock
into
shares of the Company’s common stock on February 17, 2009 (the first
business day after all the Series B Warrants expire), to the
extent such
shares of Series B Preferred Stock have not been converted into
common
stock pursuant to an
agreement.
|
Voting
Agreements
In
addition, holders of approximately 31.13% of our voting stock, including
Battery
and Messrs. Khan and Garg, have agreed to vote for certain corporate actions
necessary to effectuate a proposed offering. To the extent we issue Notes
(as
defined under
October
24, 2008 Exchange Agreement)
this
percentage will increase due to anti-dilution adjustments made to the Series
B
Preferred Stock, which vote on an as-converted basis.
Review
and Approval of Related-Party Transactions
Pursuant
to NASDAQ Marketplace Rule 4350(h) and the charter of our audit committee,
the
audit committee is responsible for reviewing and approving all related-party
transactions, defined as those transactions required to be disclosed under
Item
404(a) of Regulation S-K.
On
occasion, the board of directors has delegated the authority to review
and
approve certain related-party transactions to a Special Committee in lieu
of the
audit committee. The Special Committee has approved transactions as
follows:
|
|
·
|
On
June 6, 2008, the Special Committee approved the issuance of
the June 9th
Notes and the June 9th
Warrants;
|
|
|
·
|
On
June 30, 2008, the Special Committee approved (i) Battery’s purchase from
us of our Series B-2 Preferred, (ii) the prepayment and cancellation
of
the June 9th Notes and the June 9th Warrants and (iii) our entrance
into
the Consulting Agreement with the Consultant;
and
|
|
|
·
|
On
July 10, 2008, the Special Committee approved Battery’s purchase of the
July 10th Notes and July 10th
Warrants.
|
Item
14.
Principal
Accounting Fees and Services.
Principal
Accountant Fees and Services
Bagell,
Josephs, Levine & Company, L.L.C. was our independent registered public
accounting firm that audited our financial statements for the fiscal years
ended
June 30, 2008 and June 30, 2007. We have selected Bagell, Josephs, Levine
&
Company, L.L.C. as our independent registered public accounting firm for
the
first three quarters of the fiscal year ending June 30, 2009. The aggregate
fees
billed by Bagell, Josephs, Levine & Company, L.L.C. for the fiscal years
ended June 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Audit
fees (a)
|
|
$
|
452,588
|
|
$
|
224,143
|
|
|
Audit-related
fees (b)
|
|
|
19,420
|
|
|
0
|
|
|
Total
audit and audit-related fees
|
|
|
472,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
fees (c)
|
|
|
22,662
|
|
|
8,691
|
|
|
All
other fees
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
494,670
|
|
$
|
232,834
|
|
|
|
(a)
|
Audit
fees include amounts billed to us related to annual financial
statement
audit work, reviews of our quarterly financial statements, comfort
letters
and advice provided on accounting matters that arose in connection
with
audit services. Approximately $161,474 of the audit fees incurred
in
fiscal year 2008 represent recurring and nonrecurring services
associated
with the Sarbanes-Oxley Section 404 internal control
audit.
|
|
|
(b)
|
The
audit-related fees include principally amounts billed to us related
to due
diligence.
|
|
|
(c)
|
Tax
fees include amounts billed to us primarily for tax planning
and
consulting, tax compliance and preparation and review of tax
returns.
|
Audit
Committee Pre-Approval Policy
In
accordance with our audit committee charter, prior to services being rendered,
the audit committee reviews and pre-approves both audit and non-audit services,
including tax services, to be provided by our independent auditors. Pursuant
to
our audit committee charter, the authority to grant pre-approvals may be
delegated to one or more designated members of the audit committee whose
decisions will be presented to the full audit committee at its regularly
scheduled meeting.