def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
ENERGY FOCUS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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transaction computed pursuant to Exchange Act
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the
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ENERGY FOCUS, INC.
32000 AURORA ROAD
SOLON, OHIO 44139
April 30, 2010
Dear Shareholder:
This years Annual Meeting of Shareholders will be held on Wednesday, June 16, 2010 at
1:00 P.M., local time, at the principal executive offices of Energy Focus, Inc., 32000
Aurora Road, Solon, Ohio 44139. You are cordially invited to attend.
The Notice of Annual Meeting of Shareholders and a Proxy Statement, which describe the
formal business to be conducted at the meeting, have been made a part of this invitation.
After reading the Proxy Statement, please promptly mark, date, sign and return the
enclosed proxy in the pre-paid envelope to ensure that your shares will be represented.
YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN AND RETURN THE ENCLOSED PROXY OR ATTEND
THE ANNUAL MEETING IN PERSON. Regardless of the number of shares you own, your careful
consideration of, and vote on, the matters before our shareholders are important.
The Proxy Statement and related proxy form, as well as a copy of the Companys 2009
Annual Report on Form 10-K, are being sent on or about May 10, 2010.
The Board of Directors and management look forward to seeing you at the annual meeting.
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Very truly yours,
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Joseph G. Kaveski |
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Chief Executive Officer |
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ENERGY FOCUS, INC.
32000 AURORA ROAD
SOLON, OHIO 44139
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 16, 2010
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the Annual Meeting)
of Energy Focus, Inc. (the Company) will be held on Wednesday, June 16, 2010, at 1:00
P.M., local time, at the principal executive offices of Energy Focus, Inc., 32000 Aurora
Road, Solon, Ohio, for the following purposes:
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To elect seven directors to serve for the ensuing year or until their successors are
elected and qualified, the nominees for which are as follows: David Anthony, John M.
Davenport, J. James Finnerty, Michael A. Kasper, Joseph G. Kaveski, Paul von
Paumgartten, and R. Louis Schneeberger; |
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To amend the Companys Certificate of Incorporation to increase the total number of
authorized shares of common stock from 30,000,000 to 60,000,000; |
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To approve an amendment to the 2008 Incentive Stock Plan to increase the number of
shares of common stock authorized for issuance under the plan from 1,000,000 to
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To approve the issuance of warrants to directors and officers who have or will
participate in the Companys bonding support program; |
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To approve the reduction in the exercise price of a March
2008 Warrant to purchase 1,560,062 shares of the Companys
common stock by The Quercus Trust from $3.08 to $0.01 per share; and |
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To consider and act upon any other matters that may properly come before the meeting
or any adjournment thereof. |
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on April 29, 2010 are entitled to
notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.
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BY ORDER OF THE BOARD OF DIRECTORS
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Nicholas G. Berchtold |
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Vice President of Finance, Chief Financial Officer, and Secretary |
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Solon, Ohio
April 30, 2010
IMPORTANT: Please mark, date, sign and promptly mail the enclosed proxy card
at your earliest convenience in the accompanying postage-paid envelope to
ensure that your shares are represented at the meeting. If you attend the
meeting, you may choose to vote in person even if you have previously sent
in your proxy card.
TABLE OF CONTENTS
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PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
ENERGY FOCUS, INC.
32000 AURORA ROAD
SOLON, OHIO 44139
INFORMATION CONCERNING SOLICITATION AND VOTING OF PROXIES
General
The enclosed proxy is solicited on behalf of the Board of Directors of Energy Focus, Inc., a
Delaware corporation (Energy Focus or the Company), for use at the Annual Meeting of
Shareholders (the Annual Meeting) to be held on Wednesday, June 16, 2010 at 1:00 P.M., local
time, or at any adjournments or postponements thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
principal executive offices of Energy Focus, Inc., 32000 Aurora Road, Solon, Ohio.
This Proxy Statement and the accompanying form of proxy are first being mailed to shareholders
on or about May 3, 2010. The cost of soliciting these proxies will be borne by the Company.
Regular employees and directors of the Company may solicit proxies in person, by telephone, or by
mail. No additional compensation will be given to employees or directors for such solicitation.
The Company will request brokers and nominees who hold stock in their names to furnish proxy
material to the beneficial owners of the shares and will reimburse such brokers and nominees for
their reasonable expenses incurred in forwarding solicitation material to such beneficial owners.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any
time before its use either by delivering to Energy Focus, Inc., Attention: Nicholas G. Berchtold,
32000 Aurora Road, Solon, Ohio 44139, a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person. If a proxy is
properly signed and not revoked, the shares it represents will be voted in accordance with the
instructions of the shareholder.
Record Date and Share Ownership
Only shareholders of record at the close of business on April 29, 2010 (the Record Date),
will be entitled to notice of and to vote at the Annual Meeting and any adjournments or
postponements thereof. The Company had 22,930,366 shares of common stock, par value $.0001 per
share (common stock), issued and outstanding as of that date.
Voting
Each share of common stock held as of the Record Date entitles its holder to one vote on
matters to be acted upon at the Annual Meeting, including the election of directors. Votes cast by
proxy or in person at the Annual Meeting will be tabulated by the Inspectors of Election.
Representatives of Cowden & Humphrey Co. LPA will act as the Inspectors of Election. The
Inspectors of Election will also determine whether or not a quorum is present. Except with respect
to the election of directors and except in certain other specific circumstances, the affirmative
vote of a majority of shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute at least a majority of the required
quorum) is required under Delaware law for approval of proposals presented to shareholders.
Withholding authority to vote on one or more nominees for election as directors will have the
practical effect of voting against the election of such nominees for director, because withheld
votes will be treated as votes cast under Delaware law. If shares are held in street name through
a broker, bank or other nominee and beneficial owners do not provide instructions on how to vote,
the broker or other nominee may have authority to vote these shares on certain matters, including
the election of directors. When a broker cannot vote on behalf of the beneficial owners pursuant
to the rules of the NASDAQ Stock Exchange, the un-voted shares are commonly referred to as broker
non-votes. Broker non-votes on one or more matters are not considered votes cast for voting
purposes (although broker non-votes are counted for purposes of establishing a quorum).
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The shares represented by the proxies received, properly marked, dated, signed and not revoked
will be voted at the Annual Meeting. Where such proxies specify a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the specifications made. Any
proxy in the enclosed form which is returned but is not marked will be voted FOR the election of
the seven nominees for director listed in this Proxy Statement,
FOR the approval of the
amendment to the Companys Articles of Incorporation, FOR
the approval of the amendment to the
Companys 2008 Stock Incentive Plan, FOR the approval of the issuance of warrants to directors
who have or will participate in the Companys bonding support program, FOR the approval of the reduction in the exercise price of a March
2008 warrant to purchase 1,560,062 shares of the Companys
common stock by The Quercus Trust from $3.08 to $0.01 per share, and as the proxy holders
deem advisable on other matters that may properly come before the meeting. If a broker indicates
on the enclosed proxy or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter (broker non-votes), those shares will not be considered as
voting with respect to that matter. Under Delaware law, a non-vote will have no effect on the
outcome of any of the matters referred to in this Proxy Statement.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of
Shareholders to be held on Wednesday, June 16, 2010: This Proxy Statement and our Annual Report on
Form 10-K for the year ending December 31, 2009, are available on our website at
https://www.proxydocs.com/efoi.
2
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Nominees
Unless otherwise instructed, the proxy holders will vote the proxies received by them for the
nominees named below, regardless of whether any other names are placed in nomination by anyone
other than one of the proxy holders. If the candidacy of any one or more of such nominees should,
for any reason, be withdrawn, the proxy holders will vote in favor of the remainder of those
nominated and for such substituted nominees, if any, as shall be designated by the Board of
Directors, taking into account any recommendations of the Nominating and Corporate Governance
Committee, or the number of directors to be elected at this time may be reduced by the Board of
Directors. The Board of Directors has no reason to believe that any of the persons named will be
unable or unwilling to serve as a nominee or as a director if elected.
If a quorum is present and voting, the nominees receiving the highest number of votes will be
elected as directors at the Annual Meeting to serve until the next annual meeting or until their
respective successors are duly elected or appointed.
The Companys Bylaws provide that the number of directors of the Company shall be no less than
five and no more than nine, with the exact number within such range to be fixed by the Board of
Directors. The Board of Directors has fixed the current number at seven. The Nominating and
Corporate Governance Committee has recommended, and the Board of Directors has designated, the
seven nominees listed below. Biographical information concerning each nominee is set forth below:
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Director Since |
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Background |
David Anthony
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49 |
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2010 |
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Mr. Anthony is currently the
Managing Partner of
21Ventures, a firm which
provides seed, growth and
bridge capital to over 40
technology ventures across
the globe focusing mainly in
the cleantech arena. He is
also an Adjunct Professor at
the New York Academy of
Sciences. The academy
brings together scientists
of different disciplines
from around the world to
advance the understanding of
science, technology and
medicine and to stimulate
new ways to think about how
their research is applied in
society and the world. He is
an experienced entrepreneur,
venture capitalist and
educator who serves on the
board of directors of many
private and publicly traded
companies such as Axion
Power International, Inc.,
Clean Power Technologies,
Inc., Solar EnerTech Corp.
and TheroEnergy Corporation.
Mr. Anthony received his MBA
from The Tuck School of
Business at Dartmouth
College in 1989 and a BA in
economics from George
Washington University in
1982. He is an
entrepreneurship mentor at
the Land Center for
Entrepreneurship at Columbia
University Graduate School
of Business. In 2002, David
was awarded the
Distinguished Mentor of the
Year Award from Columbia
University. |
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John M. Davenport
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2005 |
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Mr. Davenport joined the
Company in November 1999 as
Vice President and Chief
Technology Officer and was
appointed Chief Operating
Officer in July 2003 and
President in July 2005. He
also served as Chief
Executive Officer from July
2005 until May 2008. Prior
to joining Energy Focus, Mr.
Davenport served as
President of Unison Fiber
Optic Lighting Systems, LLC,
from 1998 to 1999. Mr.
Davenport began his career
at GE Lighting in 1972 as a
research physicist and
thereafter served 25 years
in various capacities
including GE Lightings
research and development
manager and as development
manager for high performance
LED projects. He is a
recognized expert in light
sources, lighting systems
and lighting applications,
with special emphasis in low
wattage discharge lamps,
electronic ballast
technology and distributed
lighting systems using fiber
optics. |
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Director Since |
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J. James Finnerty
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2008 |
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Mr. Finnerty is currently a
Managing Director of Terra
Nova Capital, a New York
City-based boutique
investment bank, where he
focuses on raising capital
for emerging growth
companies in the energy,
technology, life sciences,
and specialty consumer
sectors. Mr. Finnertys
career has spanned more than
30 years in the
institutional money
management community having
worked for Kidder Peabody,
Hambrecht and Quist,
Deutsche Bank and Merriman,
Curhan, and Ford. Mr.
Finnerty has focused his
efforts in the Boston
institutional financial
marketplace where he
successfully covered all the
major accounts including
Fidelity, Putnam,
Wellington, etc. He has
been involved in countless
financings including Adobe,
Pixar, Genzyme, Amazon,
Starbucks, and The North
Face to name a few. Mr.
Finnerty has a Masters in
Business Administration from
Cornell University and a
Bachelor of Arts in
Economics from Boston
College. Mr. Finnerty is
NASD Series 7 and 63
licensed. |
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Michael A. Kasper
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2004 |
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Mr. Kasper is a
former executive with
Procter & Gamble and Optical
Coating Laboratory (now JDS
Uniphase) spanning 29 years
in industry. His primary
background was in Operations
Management as a
Manufacturing Plant Manager
and Director of Operations
with P&G. He was Vice
President and General
Manager of the Applied
Photonics Division at OCLI
and served as Senior Vice
President of Human Resources
following the merger with
JDSU. He was also
President & CEO for United
Way of Sonoma-Mendocino Lake
for three years and
currently is Principal of
Complete Executives,
consulting on executive
development. Mr. Kasper is
an honors graduate of
Lafayette College with a
Bachelors of Science in
Mechanical Engineering. |
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Joseph G. Kaveski
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2008 |
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Mr. Kaveski joined the
Company in April 2008 as
Vice President for Business
Development and Global
Marketing. On May 6, 2008
the Companys Board of
Directors appointed him as
Chief Executive Officer.
Prior to joining Energy
Focus, Mr. Kaveski led his
own strategic engineering
consulting business, TGL
Company. As a consultant,
he worked with Energy Focus
on strategic planning
initiatives from September
2007 to April 2008. From
November 2004 through
February 2006, Mr. Kaveski
was Vice President of Energy
Management Services and
Strategic Projects and a
member of the senior
management team at Johnson
Controls, Inc., a global
leader in automotive
experience, building
efficiency and power
solutions. |
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Paul von Paumgartten
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2004 |
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Mr. von Paumgartten was
appointed Lead Director in
October 2008. Mr. von
Paumgartten is an expert in
high performance green
buildings and is currently
an independent consultant.
From 1982 through 2009, he
held various positions at
Johnson Controls, Inc., most
recently serving as
Director, Energy &
Environment. Prior to that,
he was Director of
Performance Contracts at
Johnson Controls, Inc. Mr.
von Paumgartten also was
instrumental in the
formation of
LEEDTM
(Leadership in Energy and
Environmental Design), the
energy efficiency
qualification program of the
United States Green Building
Council. This is a
qualification program for
sustainable design developed
by an industry coalition
representing many segments
of the building industry.
Mr. von Paumgartten serves
as treasurer for LEED
TM. |
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R. Louis Schneeberger
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2009 |
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Mr. Schneeberger is
currently the Chief
Financial Officer of Panther
Expedited Services, Inc.
Mr. Schneeberger has been an
owner, major shareholder,
and Chief Financial Officer
of Olympic Steel, Inc. He
has also served as Chairman
of the Board of Royal
Appliance Manufacturing
Company, Inc. and Chief
Financial Officer of OM
Group, Inc. Mr.
Schneeberger has also
assisted many other
companies such as
Anderson-DuBose, Austin
Powder Company, Peco II,
Inc. JumpStart, Inc.,
Knowledge Investment
Partners and Libra
Industries, Inc as a
consultant, Chief Financial
Officer and/or board member.
Mr. Schneeberger began his
career with Arthur Anderson,
LLP where his tenure spanned
ten years with a focus on
Mergers and Acquisitions and
SEC matters. |
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Corporate Governance
Director Independence
The Board of Directors has determined each of the following directors to be an Independent
Director as that term is defined by applicable listing standards of The NASDAQ Stock Market and
SEC rules:
David Anthony
J. James Finnerty
Michael A. Kasper
Paul von Paumgartten
David N. Ruckert
R. Louis Schneeberger
Philip E. Wolfson
In this proxy statement these seven directors are referred to individually as an Independent
Director and collectively as the Independent Directors.
Board Meetings and Committees; Annual Meeting Attendance
The Board of Directors held a total of ten meetings during the fiscal year ended December 31,
2009. All directors attended at least 75% of the aggregate number of meetings of the Board of
Directors and of the committees on which such directors serve. In 2009, Mr. Kaveski and Mr.
Davenport represented the Board at the annual meeting. The Board of Directors has appointed a
Compensation Committee, an Audit and Finance Committee, and a Nominating and Corporate Governance
Committee. The Board has determined that each director who serves on these committees is an
Independent Director. The Board has approved a charter for the Compensation Committee, the Audit
and Finance Committee, and the Nomination and Corporate Governance Committee, and has adopted
Corporate Governance Guidelines for itself.
The Compensation Committee of the Board of Directors, which currently consists of Messrs.
Wolfson (Chairman), Kasper, and von Paumgartten, held four meetings in 2009. The Compensation
Committees primary functions are to discharge the responsibilities of the Board of Directors
relating to compensation of the Companys executive officers and to produce a report on executive
compensation for inclusion in the Companys annual proxy statement. Other specific duties and
responsibilities of the Compensation Committee are to: review and recommend to the Board corporate
goals and objectives relevant to compensation of the Chief Executive Officer, evaluate his
performance in light of such goals and objectives and set his compensation level based on this
evaluation; develop and monitor compensation arrangements for executive officers of the Company,
including review and approval of individual compensation; recommend to the Board guidelines for the
review of the performance and establishment of compensation and benefit policies for all other
employees; make recommendations regarding compensation plans and policies; administer the Companys
stock option plans and other compensation plans; and make recommendations to the Board regarding
compensation of the Board of Directors.
The Audit and Finance Committee of the Board of Directors, which currently consists of Messrs.
Ruckert (Chairman), Finnerty, and Schneeberger, held six meetings in 2009. The Audit and Finance
Committees primary functions are to assist the Board of Directors in its oversight of the
integrity of the Companys financial statements and other financial information, the Companys
compliance with legal and regulatory requirements, the qualifications, independence and performance
of the Companys independent auditors and the performance of the Companys internal audit function.
Other specific duties and responsibilities of the Audit and Finance Committee are to: appoint,
compensate, evaluate and, when appropriate, replace the Companys independent auditors; review and
pre-approve audit and permissible non-audit services; review the scope of the annual audit; monitor
the independent auditors relationship with the Company; and meet with the independent auditors and
management to discuss and review the Companys financial statements, internal controls, and
auditing, accounting and financial reporting processes.
The Nominating and Corporate Governance Committee of the Board of Directors, which currently
consists of Messrs. Kasper (Chairman), von Paumgartten, and Wolfson held four meetings in 2009.
The Nominating and Corporate Governance Committees primary functions are to seek, evaluate and
recommend nominees for election to the Board of Directors and to oversee matters of corporate
governance. Other specific duties and responsibilities of the Nominating and Corporate Governance
Committee are to: determine the composition of the committees of the Board; make recommendations
regarding candidates for director proposed by shareholders; consider and plan for executive officer
succession as well as review management development and succession programs;
review on an annual basis the performance of the Board and of management; and consider and
make recommendations on matters related to the practices, policies and procedures of the Board.
5
The Company does not have a policy regarding attendance by the Directors at the Companys
Annual Meeting. Only Messrs. Kaveski and Davenport were present at the last Annual Meeting held
June 24, 2009.
Compensation Committee
The Company has a standing Compensation Committee of the Board of Directors, currently
consisting of Messrs. Wolfson (Chairman), Kasper, and von Paumgartten. The Board has approved a
charter for the Compensation Committee. A copy of this charter can be found on the Companys
website at http://www.efoi.com.
The Compensation Committee reviews and recommends to the Board corporate goals and objectives
relevant to compensation of the Chief Executive Officer, evaluates his performance in light of such
goals and objectives, and sets his compensation level based on this evaluation; develops and
monitors compensation arrangements for executive officers of the Company, including review and
approval of individual compensation; recommends to the Board guidelines for the review of the
performance and establishment of compensation and benefit policies for all other employees; makes
recommendations regarding compensation plans and policies; administers the Companys stock option
plans and other compensation plans; and makes recommendations to the Board regarding compensation
of the Board of Directors. The authority of the Compensation Committee may be delegated to a
subcommittee of the Compensation Committee, consisting of one or more directors. The Chief
Executive Officer may provide recommendations regarding compensation of other executive officers.
The Compensation Committee is empowered to retain consultants for advice on compensation matters.
No director currently serving on the Compensation Committee is or has been an officer or
employee of the Company or any of the Companys subsidiaries. No interlocking relationships exist
between our Board of Directors or Compensation Committee and the board of directors or compensation
committee of any other entity, nor has any interlocking relationship existed in the past.
Audit and Finance Committee
The Companys Audit and Finance Committee acts as the standing audit committee of the Board of
Directors, and currently consists of Messrs. Ruckert (Chairman), Finnerty and Schneeberger. The
Board of Directors has determined that Messr. Schneeberger is an audit committee financial
expert, as defined by the Securities and Exchange Commission (the SEC) rules, and that each
Committee member is an Independent Director. The Board has approved a charter for the Audit and
Finance Committee. A copy of this charter can be found on the Companys website at
http://www.efoi.com.
Nominating and Corporate Governance Committee
The Companys Nominating and Corporate Governance Committee serves as the standing nominating
committee of the Board of Directors, currently consisting of Messrs. Kasper (Chairman), von
Paumgartten, and Wolfson. The Board has approved a charter for the Nominating and Corporate
Governance Committee. A copy of this charter can be found on the Companys website at
http://www.efoi.com.
The Board of Directors sets the size of the Board and nominates directors for election at each
annual meeting of shareholders and elects new directors to fill vacancies when they arise. The
Nominating and Corporate Governance Committee has the responsibility to identify, evaluate, recruit
and recommend qualified candidates to the Board of Directors for nomination or election. The Board
of Directors has as an objective that its membership be composed of experienced and dedicated
individuals with diversity of backgrounds, perspectives and skills. The Nominating and Corporate
Governance Committee selects candidates for directors based on their character, judgment, diversity
of experience, business acumen, and ability to act on behalf of all shareholders. The Nominating
and Corporate Governance Committee believes that nominees for director should have experience, such
as experience in management or accounting and finance, or industry and technology knowledge, that
may be useful to the Company and the Board, high personal and professional ethics, and the
willingness and ability to devote sufficient time to effectively carry out his or her duties as a
director. During 2009 and the first quarter of 2010, the following individuals were appointed to
the Companys Board of Directors: Messrs. Anthony and Schneeberger as independent directors. The
Nominating and Corporate Governance Committee believes it appropriate for at least one, and,
preferably, multiple, members of the Board to meet the criteria for an audit committee financial
expert as defined by SEC rules, and for a majority of the members of the Board to meet the
definition of Independent Director under the rules of The NASDAQ Stock Market. The Nominating
and Corporate Governance Committee also believes it appropriate for certain key members of the
Companys management to participate as members of the Board.
6
In the event that a director does not wish to continue in service, the Nominating and
Corporate Governance Committee determines not to re-nominate the director, or a vacancy is created
on the Board as a result of a resignation, an increase in the size of the board or other event, the
Committee will consider various candidates for Board membership, including those suggested by the
Committee members, by other Board members, by any executive search firm engaged by the Committee
and by shareholders. A shareholder who wishes to suggest a prospective nominee for the Board
should notify the Secretary of the Company or any member of the Committee in writing, with any
supporting material the shareholder considers appropriate, at the following address: Energy Focus,
Inc., 32000 Aurora Road, Solon, Ohio 44139.
Vote Required and Board of Directors Recommendation
The seven nominees receiving the highest number of votes at the Annual Meeting will be elected
as directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
7
PROPOSAL NO. 2: AMENDMENT TO THE COMPANYS CERTIFICATE OF INCORPORATION
TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 30,000,000 TO 60,000,000
On April 30, 2010, the Board of Directors adopted a resolution setting forth a proposed
amendment to the Companys Certificate of Incorporation increasing the total number of authorized
shares of common stock from 30,000,000 to 60,000,000 shares and directing that the proposed
amendment be considered at the next annual meeting of shareholders. The text of that amendment is
set forth below in this section.
General
We are asking you to approve an amendment to the Companys Certificate of Incorporation to
increase the total number of authorized shares from 32,000,000 shares to 62,000,000 shares. The
additional common stock to be authorized by adoption of the amendment would have rights identical
to the Companys currently outstanding common stock. The number of authorized shares of the
Companys preferred stock would not be affected by this amendment. The number of authorized shares
of the Companys preferred stock would be maintained at 2,000,000.
Substantially all of the Companys currently authorized common stock has been issued or is
reserved for issuance. In order to continue to fund its operations and grow, the Company may need
to raise additional capital from financing sources. One of the ways the Company can raise such
cash is by issuing shares and derivative securities from time to time. Without additional
authorized shares of common stock, the Company will be unable to raise all of the financing it will
likely need to maintain its operations. Other important corporate needs, including the potential
issuance of shares in a merger or acquisition, or issuing stock-based incentive rewards to the
Companys employees and directors, require additional authorized shares of common stock as well.
Article IV(A) of the Companys Certificate of Incorporation currently authorizes the Company
to issue up to 32,000,000 shares of stock, 30,000,000 of which are designated as common stock, par
value $0.0001 per share, and 2,000,000 shares of which are designated as preferred stock, par value
$0.0001 per share. The Companys common stock is all of a single class, with equal voting,
distribution, liquidation, and other rights. As of April 30, 2010, 22,930,366 shares of common
stock were issued and outstanding. Substantially all of the remaining 7,069,634 authorized shares
of common stock have been reserved for issuance under our incentive stock plans and stock purchase
plan, and outstanding options, warrants, a convertible promissory note, and a purchase agreement.
We anticipate that we may find it beneficial to issue additional shares of common stock in the
future in connection with one or more of the following:
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debt or equity restructuring or refinancing transactions, such as debt exchanges or
offerings of new convertible debt or modifications to existing securities or as
payments of interest on debt securities; |
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acquisitions; |
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strategic investments; |
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partnerships, collaborations and other similar transactions; |
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the Companys stock incentive plans; |
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financing transactions, such as private or public offerings of common stock or
convertible securities; |
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corporate transactions, such as stock dividends or splits; and |
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other corporate purposes that have not yet been identified. |
In order to provide our Board with certainty and flexibility to undertake transactions such as
those above to support our future business growth, we deem it is in the best interests of the
shareholders and the Company to increase the number of authorized shares of the Companys common
stock.
Text of the Proposed Amendment
If this Proposal 2 is approved, the Company will amend its Certificate of Incorporation by
replacing Article IV(A) in its entirety with the following:
ARTICLE IV
(A) The Corporation is authorized to issue two classes of stock to be designated,
respectively, Common Stock and Preferred Stock. The total number of shares which the
Corporation is authorized to issue is Sixty-Two Million (62,000,000) shares, each with a par value
of $0.0001 per share. Sixty Million (60,000,000) shares shall be Common Stock and Two Million
(2,000,000) shares shall be Preferred Stock.
8
If this amendment is adopted, it will become effective upon filing of the amendment to the
Companys Certificate of Incorporation with the Secretary of State of the State of Delaware.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast at the Annual Meeting of
Shareholders, that also represents a majority of all outstanding shares of common stock of the
Company, is required for approval. Votes may be cast either in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE
OF INCORPORATION.
9
PROPOSAL NO. 3: APPROVAL OF AMENDMENT TO THE 2008 STOCK INCENTIVE PLAN
TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE UNDER THE PLAN FROM 1,000,000 TO 3,000,000
General
On May 6, 2008, the Board of Directors adopted the 2008 Incentive Stock Plan (the2008
Plan) and on September 30, 2008, shareholders approved it. The purpose of the 2008 Plan is to
enable the Company to attract and retain top quality employees, officers, directors and
consultants and to provide employees, officers, directors and consultants with an incentive to
enhance shareholder returns. The Board of Directors believes that the granting of equity
compensation awards is necessary to attract the highest quality personnel as well as to reward
and thereby retain existing key personnel. Moreover, the attraction and retention of such
personnel is essential to the Companys continued progress, which ultimately is in the
interests of its shareholders. Finally, the Board of Directors believes that stock options and
other equity based incentives are an important part of the compensation package the Company
offers to its employees and directors.
Initially, the total number of shares of common stock that could be issued under all
stock-based awards under the Plan was 1,000,000 shares. Substantially all of those shares have
been awarded. In order to continue to enable the Company to attract and retain top quality
employees, officers, directors and consultants and to provide employees, officers, directors
and consultants with an incentive to enhance shareholder returns, on February 25, 2010 the
Board of Directors amended the 2008 Plan to increase the number of shares authorized for
issuance from one to three million subject to shareholder approval.
Under applicable Nasdaq Rules, we are required to obtain shareholder approval of the
amendment to the 2008 Plan. That approval is also necessary to permit us to grant incentive
stock options to employees under Section 422 of the Internal Revenue Code of 1986, as amended.
We are asking our shareholders to approve the amendment to the 2008 Plan. Our board
believes that the increase in the number of available shares is necessary for us to be able to
attract and retain the services of individuals essential to our long-term growth and success.
Set forth below is a summary of the 2008 Plan as amended, which is qualified in its
entirety by the specific language of the 2008 Plan. A copy of the 2008 Plan as amended
presented for shareholder approval is included at the end of this Proxy Statement as Appendix
D. Shareholders are urged to read the complete text of the 2008 Plan.
Brief Description of the 2008 Plan as amended
The 2008 Plan provides for the grant of stock options, restricted share awards, and stock
appreciation rights to directors, officers, employees and consultants of the Company and its
subsidiaries. The 2008 Plan may be administered by the Board of Directors or a committee of the
Board of Directors (in either case, referred to in this Proposal as the Committee), which has
complete discretion to select the participants and to establish the terms and conditions of
each option award, subject to the provisions of the 2008 Plan. Options granted under the 2008
Plan may be incentive stock options as defined in Section 422A of the Internal Revenue Code
of 1986, as amended (the Code), or nonqualified options.
Shares Subject to the 2008 Plan as amended
A total of 3,000,000 shares of common stock have been reserved for issuance under the
2008 Plan as amended. If any option granted under the 2008 Plan expires or terminates for any
reason without having been exercised in full, then the unpurchased shares subject to that
option will once again be available for additional awards.
Administration
The 2008 Plan is administered by the Compensation Committee. Subject to the provisions of
the 2008 Plan as amended, the Committee may determine the persons to whom options are to be
granted, the number of shares to be covered by each option, whether an option is to be an
incentive stock option or a non-statutory stock option, the timing, terms of exercisability,
and vesting of each option, including the effect thereon of an optionees termination of
service, the exercise price of and the type of consideration to be paid to the Company upon the
exercise of each option, the duration of each option, and all other terms and conditions of the
options. The Committee may interpret the 2008 Plan as amended and options granted thereunder,
and all determinations of the Committee may be final and binding on all persons having an
interest in the 2008 Plan as amended or any option. The Committee may re-price options with
the consent of the optionees.
10
Eligibility
Options may only be granted under the 2008 Plan as amended to employees, directors, and
consultants of the Company, or a parent or a subsidiary of the Company. As of December 31,
2009, the Company had 78 full-time employees, including five executive officers. While any
person eligible under the 2008 Plan as amended may be granted a non-statutory option, only
employees may be granted incentive stock options
Non-Employee Director Options
The 2008 Plan as amended provides for the annual automatic grant of an additional option
to purchase 7,000 shares of common stock on the first business day following each regular
annual shareholders meeting to each non-employee director who will continue serving on the
Board of Directors, provided that he or she has served as a director for at least three months.
These options become exercisable in 12 equal monthly installments. In addition to the option to
purchase 7,000 shares of common stock, the Lead Director, the Chairperson of Audit and Finance
Committee, and the Chairperson of the Nominating and Governance Committee of the Board of
Directors will receive an additional option to purchase 3,000 shares of common stock on the
first business day following each regular annual shareholders meeting, provided that he or she
has served as a director for at least three months. These options also become exercisable in 12
equal monthly installments.
Restricted Share Awards
The terms of any restricted share award under the 2008 Plan as amended will be set forth
in a restricted share agreement to be entered into between Energy Focus and each grantee. The
Committee will determine the terms and conditions of any restricted share agreements, which
need not be identical. Shares may be awarded under the 2008 Plan in consideration of services
rendered prior to the award, without a cash payment by the grantee.
Terms and Conditions of Options
Options granted under the 2008 Plan as amended may not be exercised more than 10 years
after the date of grant. Shares subject to cancelled or terminated options will be reserved
for subsequently granted options. The number of options outstanding and the exercise price
thereof will be subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. The 2008 Plan as amended will be effective
for 10 years, unless sooner terminated or suspended.
Each option granted under the 2008 Plan as amended will be evidenced by a written
agreement between the Company and the optionee specifying the number of shares subject to the
option and the other terms and conditions of the option, consistent with the requirements of
the Plan. The exercise price of each option granted under the 2008 Plan as amended must equal
at least the fair market value of a share of common stock on the date of grant. For as long as
the shares are listed for trading on the NASDAQ Stock Market the fair market value of a share
on the date of grant shall be the closing Market price on that date.
Options granted under the 2008 Plan as amended will become exercisable at such times and
in such installments as the Committee shall provide in the terms of each individual stock
option grant and agreement. The Committee must also provide in the terms of each stock option
grant and agreement when the option expires and becomes un-exercisable, and may also provide
the option expires immediately upon termination of employment for any reason. Unless otherwise
provided in the applicable stock option grant and agreement, upon termination of employment of
an optionee, all options that were then exercisable terminate three months following
termination of employment, or one year in the case of termination by reason of death or
disability. Any options which were not exercisable on the date of such termination immediately
terminate upon termination of employment.
Amendments to the 2008 Plan as amended
The Committee may at any time amend, alter, suspend or terminate the 2008 Plan as amended.
No amendment, alteration, suspension or termination of the Plan will impair the rights of any
optionee, unless mutually agreed otherwise between the optionee and the Committee, which
agreement must be in writing and signed by the Company and the optionee. Termination of the
2008 Plan as amended will not affect the Committees ability to exercise the powers granted to
it under the 2008 Plan with respect to options granted under the 2008 Plan prior to the date of
such termination.
11
Certain Federal Income Tax Consequences
Incentive stock options granted under the 2008 Plan as amended will be afforded favorable
federal income tax treatment under the Code. If an option is treated as an incentive stock
option, the optionee will recognize no income upon grant or exercise of the option unless the
alternative minimum tax rules apply. Upon an optionees sale of the shares (assuming that the
sale occurs more than two years after grant of the option and more than one year after exercise
of the option), any gain will be taxed to the optionee as long-term capital gain. If the
optionee disposes of the shares prior to the expiration of either of the above holding periods,
then the optionee will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value of the shares at
the exercise date or the sale price of the shares. Any gain recognized on such a premature sale
of the shares in excess of the amount treated as ordinary income will be characterized as
capital gain.
All other options granted under the 2008 Plan as amended will be non-statutory stock
options and will not qualify for any special tax benefits to the optionee. An optionee will not
recognize any taxable income at the time he or she is granted a non-statutory stock option.
However, upon exercise of the non-statutory stock option, the optionee will recognize ordinary
income for federal income tax purposes in an amount generally measured as the excess of the
then fair market value of each share over its exercise price. Upon an optionees resale of such
shares, any difference between the sale price and the fair market value of such shares on the
date of exercise will be treated as capital gain or loss and will generally qualify for long
term capital gain or loss treatment if the shares have been held for more than one year. The
Code provides for reduced tax rates for long term capital gains based on the taxpayers income
and the length of the taxpayers holding period.
The recipient of a restricted share award will generally recognize ordinary compensation
income when such shares are no longer subject to a substantial risk of forfeiture, based on the
excess of the value of the shares at that time over the price, if any, paid for such shares.
However, if the recipient makes a timely election under the Code to be subject to tax upon the
receipt of the shares, the recipient will recognize ordinary compensation income at that time
equal to the fair market value of the shares over the price paid, if any, and no further
ordinary compensation income will be recognized when the shares vest.
In the case of an exercise of a stock appreciation right or an award of stock units, the
recipient will generally recognize ordinary income in an amount equal to any cash received and
the fair market value of any shares received on the date of payment or delivery. The Company
is generally entitled to a deduction for federal income tax purposes equal to the amount of
ordinary compensation income recognized by the recipient of an award at the time such income is
recognized.
The foregoing does not purport to be a complete summary of the federal income tax
considerations that may be relevant to holders of options or restricted shares. It also does
not reflect provisions of the income tax laws of any municipality, state or foreign country in
which an optionee may reside, nor does it reflect the tax consequences of an optionees death.
12
2004 and 2008 Incentive Stock Plan Information
For the 2004 and 2008 Plans, as of December 31, 2009, (i) the number of shares available for
grants, (ii) the number of shares covered by outstanding options, and (iii) the weighted average
per share exercise price, were as follows:
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|
|
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Weighted |
|
|
|
Options |
|
|
Number of |
|
|
Average |
|
|
|
Available |
|
|
Shares |
|
|
Exercise Price |
|
|
|
for Grant |
|
|
Outstanding |
|
|
Per Share |
|
Balance, December 31, 2006 |
|
|
190 |
|
|
|
1,293 |
|
|
$ |
7.00 |
|
Granted |
|
|
(259 |
) |
|
|
259 |
|
|
|
6.30 |
|
Cancelled |
|
|
136 |
|
|
|
(136 |
) |
|
|
6.96 |
|
Exercised |
|
|
|
|
|
|
(140 |
) |
|
|
4.66 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
67 |
|
|
|
1,276 |
|
|
$ |
7.07 |
|
Granted |
|
|
(477 |
) |
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|
477 |
|
|
|
1.91 |
|
Cancelled |
|
|
238 |
|
|
|
(238 |
) |
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|
8.22 |
|
Exercised |
|
|
|
|
|
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(23 |
) |
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|
3.27 |
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Additional shares reserved |
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1,000 |
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Balance, December 31, 2008 |
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|
828 |
|
|
|
1,492 |
|
|
$ |
5.29 |
|
Granted |
|
|
(1,146 |
) |
|
|
1,146 |
|
|
|
0.70 |
|
Cancelled |
|
|
520 |
|
|
|
(520 |
) |
|
|
3.35 |
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Exercised |
|
|
|
|
|
|
(397 |
) |
|
|
0.66 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
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|
202 |
|
|
|
1,721 |
|
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$ |
3.63 |
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At December 31, 2009, options to purchase 922,000 shares of common stock were exercisable at a
weighted-average fair value of $3.03 with an intrinsic value of $2,000. At December 31, 2009,
options to purchase 1,721,000 shares were outstanding, with a weighted-average fair value of $2.81
with an intrinsic value of $4,000.
At December 31, 2008, options to purchase 771,000 shares of common stock were exercisable at a
weighted-average fair value of $2.95. At December 31, 2008, options to purchase 1,492,000 shares
were outstanding, with a weighted-average fair value of $2.40. All options exercised during 2008
had no intrinsic value as the market price per share of common stock at the date of exercise was
below the per share exercise price. All outstanding options, both exercisable and non-exercisable,
have no intrinsic value as the market price per share of common stock of $1.15 at December 31, 2008
was below the per share exercise price of all grants to date.
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OPTIONS OUTSTANDING |
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OPTIONS CURRENTLY EXERCISABLE |
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Weighted |
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Weighted |
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Average |
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Weighted |
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Average |
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Weighted |
|
Range of |
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Number |
|
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Remaining |
|
|
Average |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
Exercise |
|
of Shares |
|
|
Contactual |
|
|
Exercise |
|
|
Number |
|
|
Contactual |
|
|
Exercise |
|
Prices |
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
Exercisable |
|
|
Life |
|
|
Price |
|
|
|
(in thousands) |
|
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(in years) |
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|
|
|
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|
(in thousands) |
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|
(in years) |
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|
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$0.60 - $4.80 |
|
|
1,118 |
|
|
|
8.3 |
|
|
$ |
1.63 |
|
|
|
456 |
|
|
|
6.7 |
|
|
$ |
2.39 |
|
$4.91 - $7.19 |
|
|
349 |
|
|
|
7.1 |
|
|
$ |
6.39 |
|
|
|
227 |
|
|
|
7.0 |
|
|
$ |
6.48 |
|
$7.23 - $9.50 |
|
|
187 |
|
|
|
5.6 |
|
|
$ |
7.72 |
|
|
|
173 |
|
|
|
5.6 |
|
|
$ |
7.75 |
|
$10.64 - $12.00 |
|
|
67 |
|
|
|
5.5 |
|
|
$ |
11.33 |
|
|
|
67 |
|
|
|
5.5 |
|
|
$ |
11.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
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Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast at the Annual Meeting of
Shareholders, at which a quorum representing a majority of all outstanding shares of common
stock of the Company is present, either in person or by proxy, is required for approval of this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 2008
INCENTIVE STOCK PLAN.
13
PROPOSAL NO. 4: APPROVAL OF ISSUANCE OF WARRANTS TO DIRECTORS AND
OFFICERS WHO PARTICIPATE IN THE COMPANYS BONDING SUPPORT PROGRAM
General
On December 31, 2009, the Company acquired all of the member interests of Stones River
Companies, LLC, a Tennessee limited liability company (SRC) engaged in the lighting retrofit
business. In order to provide performance bonding for SRCs projects, on December 30, 2009 the
Company deposited cash collateral of $2.5 million with its surety company. To reduce the size of
its deposit and increase its liquidity, the Company has offered to investors, including its
directors and officers, an opportunity to replace portions of the Companys deposit with funds
which remain the investors funds and are pledged independently to the Companys surety for a
minimum of two years as cash collateral to support the Companys performance bonding requirement on
the following terms: 12.5% interest per year payable by the Company; reimbursement by the Company
in the event that the surety draws on their funds; security interest in the Companys shares of
capital stock of its Crescent Lighting, Ltd., subsidiary located in London, England; and a number
of warrants to purchase shares of the Companys common stock equal to one warrant for every $2.00
deposited. The warrants have a five-year term, an exercise price of $0.01 per share, and
registration rights for the common shares to be issued upon exercise of the warrants. The closing
price of a share of the Companys common stock on December 30, 2009 was $0.65. This bonding
support program remains open until December 16, 2010.
The warrants in the program that are acquired by investors who are directors or officers of
the Company are subject to approval by the Companys shareholders under Nasdaq Rule 5635(c). So
far, John M. Davenport, the Companys President and a director, and The Quercus Trust (the Trust)
have made investments. Mr. Davenport received 125,000 warrants in connection with providing
$250,000 to the Companys surety. The Trust received 150,000 warrants in connection with
providing $300,000 to the surety. David Gelbaum, who was a member of the Companys Board of
Directors at the time of the transaction, and his spouse, are co-trustees of The Trust.
There currently remains available in the program $1,150,000 of deposits and 575,000 warrants.
We are asking shareholders to approve the issuance of warrants in the bonding support program
to directors and officers, including both those already issued and any that we may issue in the
future. If shareholders do not approve the warrants issued to Mr. Davenport and the Trust, their
warrants will be terminated without the payment of any compensatory benefit to them.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast at the Annual Meeting of
Shareholders, at which a quorum representing a majority of all outstanding shares of common
stock of the Company is present, either in person or by proxy, is required by NASDAQ Rules for
approval of this proposal.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE BONDING SUPPORT PROGRAM
WARRANTS FOR DIRECTORS AND OFFICERS WHO PARTICIPATE.
14
PROPOSAL NO. 5: TO APPROVE THE REDUCTION IN EXERCISE PRICE OF A MARCH
2008 WARRANT TO PURCHASE 1,560,062 SHARES OF COMMON STOCK BY THE
QUERCUS TRUST FROM $3.08 TO $0.01 PER SHARE
General
In our subscription rights offering that expired on October 30, 2009, Diker Management, LLC,
New York City, New York, inadvertently purchased 1,000,000 shares of our common stock at $0.75 per
share. We agreed with Diker Management to facilitate the sale of the shares to another shareholder
or investor or to purchase them directly. A purchase of those shares by us would have severely
depleted our cash-on-hand and working capital. After contacting selected shareholders and
investors, we introduced Diker Management to The Quercus Trust, Newport Beach, California, our
largest shareholder. We were informed on December 30, 2009, by Diker Management and the Trust that
the Trust had agreed to purchase those shares at $0.80 per share.
On March 14, 2008, in a private placement to nineteen investors of 3,184,321 shares of common
stock and an equal number of five-year warrants to purchase common
stock, the Trust had acquired 1,560,062 shares and 1,560,062
warrants. To secure a loan, in April 2010, the Trust pledged the
shares, the warrants, and the warrant shares as collateral. To facilitate the purchase of Diker Managements shares by the Trust, on
December 30, 2009, we agreed with the Trust to reduce the exercise price of the warrants issued to
the Trust from $3.08 to $0.01 per share.
The Trust has informed us that on February 20, 2010, it completed its purchase of the Diker
Management shares. On April 28, 2010, the Trust exercised its warrants.
Mr. David Gelbaum and his spouse, Monica Chavez Gelbaum, both of Newport Beach, California,
are co-trustees of the Trust. Mr. Gelbaum served as a member of our Board of Directors from
February 2009 to February 2010. Because Mr. Gelbaum was serving as a member of our Board when we
agreed with the Trust on the reduction in the exercise price of its warrants, the reduction in
price may be subject to approval of our shareholders under Nasdaq Rule 5635 (c). We are therefore
asking shareholders to approve the reduction in the exercise price. The Trust has agreed not to
exercise its rights over the shares obtained upon exercise of the
warrants any further, including sale and
voting rights, for a period of time to allow shareholders to consider
the reduction at the Annual Meeting.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast at the Annual Meeting of
Shareholders, at which a quorum representing a majority of all outstanding shares of Common
Stock of the Company is present, either in person or by proxy, is required by NASDAQ Rules for
approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE REDUCTION IN EXERCISE
PRICE OF THE MARCH 2008 WARRANT TO PURCHASE 1,560,062 SHARES OF COMMON STOCK BY THE QUERCUS
TRUST FROM $3.08 TO $0.01 PER SHARE.
15
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee oversees the Companys financial reporting process on behalf
of the Board of Directors and is responsible for providing independent, objective oversight of the
Companys accounting functions and internal controls. It is not the duty of the Audit and Finance
Committee to plan or conduct audits or to determine that the Companys financial statements are
complete and accurate and are in accordance with generally accepted accounting principles.
Management is responsible for the financial statements and the reporting process, including the
system of internal controls. The independent auditors are responsible, in their report, for
expressing an opinion on the conformity of those financial statements with generally accepted
accounting principles.
The Audit and Finance Committee reviewed and has discussed the audited financial statements
contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 with the
Companys management and its independent auditors. The Audit and Finance Committee met privately
with the independent auditors and discussed issues deemed significant by the auditors, including
those required by the Statement of Auditing Standards No. 114, The Auditors Communication With
Those Charged With Governance. In addition, the Audit and Finance Committee has received the
written disclosures and the letter from the independent auditors required by the Independence
Standards Board Standard No. 1, Independence Discussions With Audit Committees, and discussed with
the independent auditors their independence from the Company.
Based upon the reviews and discussions outlined above, the Audit and Finance Committee
recommended to the Board of Directors that the audited financial statements be included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009, for filing with the
Securities and Exchange Commission.
The foregoing report has been furnished by the Audit and Finance Committee of the Board of
Directors of Energy Focus, Inc.
AUDIT AND FINANCE COMMITTEE
David N. Ruckert, Chairman
J. James Finnerty
R. Louis Schneeberger
16
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial ownership of the
Companys common stock as of April 30, 2010 as to (i) each person known by the Company to own
beneficially more than five percent of the outstanding shares of common stock, (ii) each of the
Companys directors and nominees, (iii) the Companys Chief Executive Officer and each of the
Companys Named Executive Officers, and (iv) all executive officers and directors of the Company
as a group. Unless otherwise specified, the address for each officer and director is 32000 Aurora
Road, Solon, OH 44139.
The table should be read with the understanding that more than one person may be the
beneficial owner or possess certain attributes of beneficial ownership with respect to the same
securities.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned (1) |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
Common |
|
Name and Addres |
|
Number |
|
|
Stock (2) |
|
5% Shareholders |
|
|
|
|
|
|
|
|
The Quercus Trust |
|
|
6,364,205 |
(3) |
|
|
27.8 |
% |
2309 Santiago Drive
Newport Beach, California 92660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diker GP, LLC |
|
|
1,907,108 |
(4) |
|
|
8.3 |
% |
745 Fifth Avenue
New York, New York 10151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TLC Investments, LLC |
|
|
1,500,000 |
(5) |
|
|
6.5 |
% |
1244 Gallatin Pike South
Madison, Tennessee 37115 |
|
|
|
|
|
|
|
|
Directors and Named Executive Officers |
|
|
|
|
|
|
|
|
David Anthony |
|
|
833 |
|
|
|
* |
|
Nicholas G. Berchtold |
|
|
86,548 |
|
|
|
* |
|
Roger R. Buelow |
|
|
102,434 |
|
|
|
* |
|
John M. Davenport |
|
|
667,849 |
|
|
|
2.9 |
% |
J. James Finnerty |
|
|
25,000 |
|
|
|
* |
|
Eric W. Hilliard |
|
|
164,122 |
|
|
|
* |
|
Michal A. Kasper |
|
|
62,000 |
|
|
|
* |
|
Joseph G. Kaveski |
|
|
191,969 |
|
|
|
* |
|
David N. Ruckert |
|
|
334,573 |
|
|
|
1.5 |
% |
R. Louis Schneeberger |
|
|
5,833 |
|
|
|
* |
|
Paul von Paumgartten |
|
|
56,000 |
|
|
|
* |
|
Phillip E. Wolfson |
|
|
150,959 |
|
|
|
* |
|
All directors and executives officers as a group |
|
|
1,848,120 |
|
|
|
8.6 |
% |
|
|
|
* |
|
Less than one percent |
|
(1) |
|
The persons named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them, subject to community
property laws, where applicable, unless otherwise indicated. |
|
(2) |
|
Based on 22,930,366 shares outstanding as of April 30, 2010. In addition, shares
issuable pursuant to options and warrants which may be exercised through June 30, 2010
are deemed to be issued and outstanding and have been treated as outstanding in
calculating the percentage ownership of those individuals possessing such interest, but
not for any other individuals. Thus, the number of shares to be outstanding for the
purposes of this table may vary depending on the individuals particular circumstances. |
17
|
|
|
(3) |
|
The Quercus Trust (The Trust) is owned by David and Monica Chavez Gelbaum. From
February 2009 through February 25, 2010, Mr. Gelbaum was a member of the Companys
Board of Directors. The Trust has filed with the Securities and Exchange Commission a
Schedule 13D/A dated March 16, 2010 which reports the beneficial ownership in the
aggregate of 4,654,143 shares. As reported in that Schedule, The Trust and its
affiliated entities have shared voting power for 4,654,143 shares and shared
dispositive power for 4,654,143 shares. Not included in the Schedule is the April 28,
2010 exercise of 1,560,062 warrants purchased by The Trust in our March 14, 2008
private placement of shares of common stock and common share warrants, and 150,000
warrants issued to The Trust in connection with providing $300,000 in participation in
the Companys Bonding Support Program, which is described in full in Proposal No. 4
above. Including the 1,710,062 warrants, The Trust and its affiliated entities have
shared voting power for 6,364,205 shares and shared dispositive power for 6,364,205
shares. The 25,000 beneficial shares owned by Mr. Gelbaum for services as a member of
the Board of Directors are not included in the 6,364,205 shares beneficially owned by
The Trust. On December 30, 2009, the Company amended its Rights Agreement dated
October 25, 2006, with Mellon Shareowner Services, LLC, as Rights Agent, to allow The
Trust, and persons who are beneficial owners through The Trust, to own up to 30% of our
common stock without triggering the rights under the Rights Agreement. The general
limit in the Agreement is 15%. |
|
(4) |
|
Diker GP, LLC has filed with the Securities and Exchange Commission a Schedule 13G
dated January 6, 2010, which reports beneficial ownership in the aggregate of 2,532,108
shares. As reported in that Schedule, Diker GP, LLC and its affiliated entities have
shared voting power for 2,532,108 shares and shared dispositive power for 2,532,108
shares. In February 2010, Diker GP, LLC sold 625,000 shares to The Trust. After this
transaction, Diker GP, LLC and its affiliated entities have shared voting power for
1,907,108 shares and shared dispositive power for 1,907,108 shares. |
|
(5) |
|
TLC Investments, LLC has filed with the Securities and Exchange Commission a
Schedule 13G dated January 11, 2010, which reports beneficial ownership in the
aggregate of 1,500,000 shares. As reported in that Schedule, TLC Investments, LLC have
shared voting power for 1,500,000 shares and shared dispositive power for 1,500,000
shares. |
18
EXECUTIVE COMPENSATION AND OTHER MATTERS
Compensation Discussion and Analysis
The Compensation Committee of our Board of Directors has the responsibility for administering
our executive compensation program. The Committee reviews and, as appropriate, makes
recommendations to the full Board regarding the base salaries and annual cash bonuses for executive
officers, and administers our 2008 Incentive Stock Plan, including the grant of stock options.
Where appropriate, we have also entered into employment agreements with certain executive officers.
Compensation Philosophy and Objectives. Our principal executive compensation policy, which is
endorsed by the Committee, is to provide a compensation program that will attract, motivate and
retain persons of high quality and will support a long-standing internal culture of loyalty and
dedication to the interests of the Company and our shareholders. In administering the executive
compensation program, the Committee is mindful of the following principles and guidelines, which
are supported by the full Board:
|
|
|
Base salaries for executive officers should be competitive. |
|
|
|
|
A sufficient portion of annual compensation should be at risk in order to align the
interests of executives with those of our shareholders. |
|
|
|
|
The variable part of annual compensation should reflect both individual and corporate
performance. |
|
|
|
|
As a persons level of responsibility increases, a greater portion of total
compensation should be at risk and include more stock-based compensation to provide
executives long-term incentives and help to align further the interests of executives
and shareholders in the enhancement of shareholder value. |
Our executive officers compensation currently has three primary components: base salary,
annual cash bonuses, and stock-based awards granted pursuant to our 2008 Incentive Stock Plan. In
addition, executive officers receive certain benefits that are specifically provided for in their
employment agreements or are generally available to all salaried employees. We do not have any
defined benefit pension plans, non-qualified deferred compensation arrangements, or supplemental
retirement plans for our executive officers.
For each executive officer, the Committee determines the appropriate level for each
compensation component based in part, but not exclusively, on its view of competitive market
factors, internal equity and consistency, and other considerations deemed relevant, such as
rewarding extraordinary performance. Our Chief Executive Officer provides the Committee with
recommendations for executive officers other than himself, which the Committee reviews and approves
as submitted or with revisions, if any. The Committee has not adopted any formal or informal
policies or guidelines for allocating compensation between long-term and currently paid
compensation, between cash and non-cash compensation, or among different forms of non-cash
compensation, and has not sought to formally benchmark our compensation against that of our peers.
In 2009, no executive officer received an annual base salary increase.
On May 29, 2009, the Companys five executive officers agreed to accept voluntary salary
reductions for the remainder of the 2009 calendar year in exchange for the issuance of restricted
shares of common stock as authorized under the Companys 2008 Stock Incentive Plan. Two other key
executives of the Company also accepted salary reductions for the balance of the year in exchange
for restricted shares. Each officer and key executive voluntarily accepted a ten percent (10%)
salary reduction for the remainder of 2009, except for one executive officer who voluntarily
accepted a forty percent (40%) decrease for the remainder of 2009. The number of restricted
shares of common stock issued to each officer and executive was equal to the dollar value of the
individuals salary reduction divided by the closing price per share of the Companys common stock
on May 29, 2009. The total number of restricted shares of common stock issued to these officers
and executives was 209,000.
On December 31, 2009, the Companys five executive officers, along with two other key
executives of the Company, agreed to extend these salary reductions through June 30, 2010. Each
executive officer and key executive voluntarily accepted a ten percent (10%) salary reduction for
this six month period, except for one executive officer who voluntarily accepted a forty percent
(40%) decrease for this six month period. The number of restricted shares of common stock issued
to each named executive officer and executive was equal to the dollar value of the individuals
salary reduction divided by the closing price per share of the Companys common stock on December
30, 2009. The total number of restricted shares of common stock issued to these officers and
executives was 170,000. The Company reserves the right to extend these salary reductions beyond
that date.
Base Salary. Base salaries for executive officers are based on a review of salaries for
similar positions requiring similar qualifications in similar industries. In determining executive
officer salaries, the Compensation Committee has approved the use by management of information from
salary surveys.
19
The Committee determines levels of the executive officers base salaries so as to be
competitive with amounts paid to executives performing similar functions in comparable-size,
non-durable manufacturing companies. The amount of each executives annual increase in base salary,
if any, is based on a number of largely subjective factors, including changes in the individuals
duties and responsibilities, the personal performance of such executive officer, the performance of
the Company, cost-of-living increases, and such other factors as the Committee deems appropriate,
including the individuals overall mix between fixed and variable compensation and between cash and
stock-based compensation.
The Chief Executive Officer annually assesses the performance of all other executive officers
and recommends salary increases to the Compensation Committee based on a number of factors such as
performance evaluations, comparative data and other relevant factors. The Compensation Committee
then reviews the Chief Executive Officers recommendations, considers the performance and condition
of the Company, and approves the increases for any other officer of the Company.
Bonus Equity Incentive Plan. For fiscal year 2010, the Compensation Committee has approved a
stock option incentive plan for executives and key sales employees. Awards under this plan are
contingent upon the Companys attainment of operating profits and cash utilization targets set by
the Compensation Committee in consultation with the Chief Executive Officer.
Bonus Incentive Plan. The Compensation Committee administers an incentive plan to provide
additional compensation to executives who meet established performance goals. In consultation with
the Chief Executive Officer, the Compensation Committee annually determines the total amount of
cash bonuses available for executive officers and certain other management employees. The target
bonuses for executive officers are set by the Compensation Committee. Awards are weighted so that
higher awards are received when the Companys performance reaches maximum targets, smaller awards
are received when the Companys performance reaches minimum targets and no awards are made when the
Company does not meet minimum performance targets. After the total eligible bonus pool is
determined, annual incentives are paid to executive officers based on their individual performance
as determined by the Chief Executive Officer.
For the fiscal year 2009, awards under this bonus plan were contingent upon the Companys
attainment of operating profit and cash utilization targets set by the Compensation Committee in
consultation with the Chief Executive Officer. The Companys performance in 2009 did not meet
established performance goals and, consequently, no bonuses were paid under this bonus incentive
plan. Consistent with the Companys objective of aligning compensation with performance, the
Compensation Committee anticipates that future bonus payments will continue to be based on specific
targets and performance.
Discretionary Bonuses. In addition to bonuses under the incentive plan, each of our executive
officers is eligible to receive annual cash bonuses based on determinations made by the Committee
in its discretion. The bonus may be based on the specific accomplishments of the individual or on
the overall success of the Company, or both.
For 2010, the Committee has not currently adopted a discretionary cash bonus plan.
Stock Options. The Compensation Committee believes that employee equity ownership provides
significant motivation to executive officers to maximize value for the Companys shareholders and,
therefore, periodically grants stock options under the Companys 2008 Stock Incentive Plan at the
then current market price. The Compensation Committee administers the Companys 2008 Stock
Incentive Plan. Stock options will only have value if the Companys stock price increases over the
exercise price.
The Compensation Committee grants options to executive officers after consideration of
recommendations from the Chief Executive Officer. Recommendations for options are based upon the
relative position, responsibilities, and previous and expected contributions of each officer,
previous option grants to such officers and customary levels of option grants for the respective
position in other comparable companies. Options generally vest over a four-year period at a rate
of 25% per year.
In 2001, executive officers were granted options under a Time Accelerated Restricted Stock
Award Plan (TARSAP) within the 1994 Stock Option Plan with a seven year vesting period. While
these options are now fully vested, none were exercisable as a result of the Company not achieving
stated objectives.
During 2009, the Committee administered the Companys 2008 Incentive Stock Plan, to provide
stock-based incentives to our key employees, including executive officers. As of March 31, 2010,
our 2008 Incentive Stock Plan is our only plan under which new options may be granted. Grants of
stock options are based on each individuals position within the Company, level of responsibility,
past performance, and expectation of future performance. In determining the number of stock-based
awards to be granted to each executive officer, the Committee also considers the number of
stock-based awards made in prior years to the executive officer. The Committee also may grant
stock options in connection with promotions and new hires.
20
Our stock-based compensation policies have been impacted by the implementation of Accounting
Standards Codification (ASC) Topic Number 718, Compensation Stock Compensation (ASC 718).
Generally, ASC 718 requires all stock-based payments to employees, including grants of employee
stock options, to be expensed based on their fair values over the vesting period.
Section 162(m). Section 162(m) of the Internal Revenue Code and related Treasury Department
regulations limits the Companys ability to deduct certain compensation in excess of $1,000,000
paid to the Companys Chief Executive Officer and each of the four other most highly compensated
executive officers. The Companys 2008 Stock Incentive Plan is structured to permit awards under
the plan to qualify as performance-based compensation and to maximize the tax deductibility of the
awards so long as the options are granted by a committee whose members are non-employee directors.
The Company expects that the Compensation Committee will be comprised of non-employee directors,
and that, to the extent the Compensation Committee is not so constituted for any period of time,
the options granted during such period will not be likely to result in compensation exceeding
$1,000,000 in any year. The Compensation Committee does not believe that other components of the
Companys compensation will be likely to exceed $1,000,000 for any executive officer in the
foreseeable future and therefore has concluded that no further action with respect to qualifying
such compensation for deductibility is necessary at this time. In the future, the Compensation
Committee will continue to evaluate the advisability of qualifying its executive compensation for
deductibility of such compensation. The Compensation Committees policy is to qualify its
executive compensation for deductibility under applicable tax laws as practicable.
21
Summary Compensation Table
The following table sets forth information about compensation of our Chief Executive Officer,
our President, our Vice President of Finance and Chief Financial Officer, and our other two highest
paid executive officers (our Named Executive Officers):
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Deferred |
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Plan |
|
|
Compensation |
|
|
Other |
|
|
|
|
Name and Principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
Position |
|
Year |
|
|
($) |
|
|
($) (1) |
|
|
($) (2) |
|
|
($) (4) (5) |
|
|
($) |
|
|
($) |
|
|
($) (6) (7) |
|
|
($) |
|
Joseph G. Kaveski |
|
|
2009 |
|
|
|
233,167 |
|
|
|
|
|
|
|
15,865 |
|
|
|
46,675 |
|
|
|
|
|
|
|
|
|
|
|
648 |
|
|
|
296,355 |
|
Chief Executive |
|
|
2008 |
|
|
|
176,919 |
|
|
|
|
|
|
|
|
|
|
|
20,134 |
|
|
|
|
|
|
|
|
|
|
|
44,585 |
|
|
|
241,638 |
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Davenport |
|
|
2009 |
|
|
|
187,023 |
|
|
|
|
|
|
|
63,461 |
|
|
|
155,999 |
|
|
|
|
|
|
|
|
|
|
|
648 |
|
|
|
407,131 |
|
President |
|
|
2008 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
211,908 |
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
462,448 |
|
|
|
|
2007 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
277,928 |
|
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
528,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas G. Berchtold |
|
|
2009 |
|
|
|
157,631 |
|
|
|
|
|
|
|
11,106 |
|
|
|
40,825 |
|
|
|
|
|
|
|
|
|
|
|
648 |
|
|
|
210,210 |
|
Chief Financial |
|
|
2008 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
35,860 |
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
211,400 |
|
Officer and Vice |
|
|
2007 |
|
|
|
68,317 |
|
|
|
|
|
|
|
|
|
|
|
8,912 |
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
77,337 |
|
President of Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric W. Hilliard |
|
|
2009 |
|
|
|
171,074 |
|
|
|
|
|
|
|
12,058 |
|
|
|
108,175 |
|
|
|
|
|
|
|
|
|
|
|
5,526 |
|
|
|
296,833 |
|
Chief Operating |
|
|
2008 |
|
|
|
190,000 |
|
|
|
|
|
|
|
|
|
|
|
104,227 |
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
294,767 |
|
Officer |
|
|
2007 |
|
|
|
180,000 |
|
|
|
|
|
|
|
|
|
|
|
90,517 |
|
|
|
|
|
|
|
|
|
|
|
612 |
|
|
|
271,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger F. Buelow |
|
|
2009 |
|
|
|
154,640 |
|
|
|
|
|
|
|
11,106 |
|
|
|
32,766 |
|
|
|
|
|
|
|
|
|
|
|
6,828 |
|
|
|
205,340 |
|
Chief Technology |
|
|
2008 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
47,713 |
|
|
|
|
|
|
|
|
|
|
|
6,720 |
|
|
|
229,433 |
|
Officer |
|
|
2007 |
|
|
|
183,229 |
|
|
|
10,000 |
|
|
|
|
|
|
|
33,052 |
|
|
|
|
|
|
|
|
|
|
|
365 |
|
|
|
226,646 |
|
|
|
|
(1) |
|
Reflects discretionary bonus for Mr. Buelow. |
|
(2) |
|
Information about stock awards granted to our Named Executive Officers during 2009 is
discussed in the Compensation Discussion and Analysis section of this Proxy Statement.. |
|
(3) |
|
The amounts set forth in this column reflect stock awards granted to our Named
Executive Officers on May 29, 2009 upon their agreement to accept voluntary salary
reductions for the remainder of the 2009 calendar year. The number of stock awards granted
to each officer was equal to the dollar value of the officers salary reduction divided by
the closing price per share of the Companys common stock on that date. |
|
(4) |
|
The amounts set forth in this column reflect stock awards granted to our Named
Executive Officers on May 29, 2009 upon their agreement to accept voluntary salary
reductions for the remainder of the 2009 calendar year. The number of stock awards granted
to each officer was equal to the dollar value of the officers salary reduction divided by
the closing price per share of the Companys common stock on that date. |
|
(5) |
|
The amounts set forth in this column reflect stock options granted to our Named
Executive Officers. The amounts listed are equal to the compensation cost recognized by
the Company during the year indicated for financial statement purposes in accordance with
ASC 718. This valuations method values stock options granted during the indicated year and
previous years. A discussion of the assumptions used in calculating the compensation cost
is set forth in Note 11 of the Companys 2009 Annual Report on Form 10-K. |
|
(6) |
|
The amounts set forth in this column for 2009 include company contributions for life
insurance policies and automobile allowances. |
|
(7) |
|
The amounts set forth in this column for 2008 include consulting fees for Mr. Kaveski. |
22
2009 Grants of Plan-Based Awards
The following table sets forth information with respect to stock option awards granted to the
Named Executive Officers during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Exercise |
|
|
Date Fair |
|
|
|
|
|
|
|
Estimated Possible Payouts |
|
|
Estimated Future Payouts |
|
|
Number of |
|
|
or Base |
|
|
Value of |
|
|
|
|
|
|
|
Under Non-Equity Incentive |
|
|
Under Equity Incentive |
|
|
Securities |
|
|
Price of |
|
|
Stock and |
|
|
|
Grant |
|
|
Plan Awards |
|
|
Plan Awards |
|
|
Underlying |
|
|
Option |
|
|
Option |
|
|
|
Date |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Opions |
|
|
Awards |
|
|
Awards |
|
Name |
|
(1) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($/Sh) |
|
|
(2) ($) |
|
|
Joseph G. |
|
|
05/29/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,680 |
|
|
|
0.67 |
|
|
|
10,158.72 |
|
Kaveski |
|
|
12/31/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
0.64 |
|
|
|
43,100.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. |
|
|
02/10/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
0.75 |
|
|
|
11,300.00 |
|
Davenport |
|
|
05/29/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,719 |
|
|
|
0.67 |
|
|
|
40,634.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas G. |
|
|
02/10/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
0.75 |
|
|
|
11,300.0 |
|
Berchtold |
|
|
05/29/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,576 |
|
|
|
0.67 |
|
|
|
7,111.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric W. |
|
|
02/10/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
0.75 |
|
|
|
11,300.00 |
|
Hilliard |
|
|
05/29/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,997 |
|
|
|
0.67 |
|
|
|
7,720.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger F. |
|
|
02/10/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
0.75 |
|
|
|
11,300.00 |
|
Buelow |
|
|
05/29/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,576 |
|
|
|
0.67 |
|
|
|
7,111.10 |
|
|
|
|
(1) |
|
The stock options granted on February 10, 2009 were granted under the Companys Bonus
Equity Incentive Plan for 2009. These options were contingent upon the Companys
attainment of operating profits and cash utilization targets. The Companys performance in
2009 did not meet these established performance goals and, consequently, these options were
cancelled on December 31, 2009. |
|
(2) |
|
The dollar values of stock options disclosed in this column are equal to the aggregate grant
date fair value computed in accordance with Auditing Standards Codification Topic Number 718,
Compensation Stock Compensation. A discussion of the assumptions used in calculating the grant
date fair value is set forth in Note 11 of the Notes to the Consolidated Financial Statements in
our 2009 Annual Report on Form 10-K.
|
Stock Options. The stock options that we granted to our Named Executive Officers in 2009
were granted under our 2008 Incentive Stock Plan. In accordance with the terms of the Plan,
each option exercise price is equal to the market value of our common stock on the date the
option is granted. The market value is equal to the closing price of our common stock on the
date of grant on the NASDAQ Stock Market. The options vest over four years at the rate of
25% of the shares covered by the option on each anniversary of the grant date. Stock options
are not transferable other than by will or the laws of descent and distribution.
23
Outstanding Equity Awards at December 31, 2009
The following table includes certain information with respect to the value of all unexercised
options as of December 31, 2009 for our Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
Options |
|
|
Options |
|
|
Unearned |
|
|
Exercise |
|
|
Option |
|
|
|
Exercisable |
|
|
Un-exercisable |
|
|
Options |
|
|
Price |
|
|
Expiration |
|
Name |
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($) |
|
|
Date |
|
|
Joseph G. Kaveski |
|
|
41,667 |
|
|
|
58,333 |
(1) |
|
|
|
|
|
|
2.00 |
|
|
|
05/06/18 |
|
|
|
|
28,125 |
|
|
|
71,875 |
(2) |
|
|
|
|
|
|
1.37 |
|
|
|
11/24/18 |
|
|
|
|
|
|
|
|
100,000 |
(3) |
|
|
|
|
|
|
0.64 |
|
|
|
12/31/19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Daveport |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
4.50 |
|
|
|
02/28/12 |
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
3.96 |
|
|
|
07/01/12 |
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
7.23 |
|
|
|
12/04/13 |
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
8.60 |
|
|
|
05/19/14 |
|
|
|
|
59,000 |
|
|
|
|
(4) |
|
|
|
|
|
|
9.60 |
|
|
|
06/28/15 |
|
|
|
|
33,333 |
|
|
|
16,667 |
(5) |
|
|
|
|
|
|
6.53 |
|
|
|
04/19/17 |
|
|
|
|
41,667 |
|
|
|
58,333 |
(1) |
|
|
|
|
|
|
2.00 |
|
|
|
05/06/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas G. Berchtold |
|
|
15,104 |
|
|
|
9,896 |
(6) |
|
|
|
|
|
|
6.05 |
|
|
|
08/10/17 |
|
|
|
|
13,021 |
|
|
|
11,979 |
(7) |
|
|
|
|
|
|
6.06 |
|
|
|
12/06/17 |
|
|
|
|
6,510 |
|
|
|
18,490 |
(8) |
|
|
|
|
|
|
1.40 |
|
|
|
12/17/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric W. Hilliard |
|
|
59,375 |
|
|
|
15,625 |
(9) |
|
|
|
|
|
|
7.19 |
|
|
|
11/13/16 |
|
|
|
|
33,333 |
|
|
|
16,667 |
(10) |
|
|
|
|
|
|
6.36 |
|
|
|
04/26/17 |
|
|
|
|
7,552 |
|
|
|
17,448 |
(11) |
|
|
|
|
|
|
1.37 |
|
|
|
10/23/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger F. Buelow |
|
|
18,750 |
|
|
|
|
|
|
|
|
|
|
|
3.35 |
|
|
|
02/19/13 |
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
10.64 |
|
|
|
07/01/15 |
|
|
|
|
13,021 |
|
|
|
11,979 |
(7) |
|
|
|
|
|
|
6.06 |
|
|
|
12/06/17 |
|
|
|
|
(1) |
|
Options will vest on May 6, 2012. |
|
(2) |
|
Options will vest on November 24, 0012. |
|
(3) |
|
Options will vest on December 31, 2013. |
|
(4) |
|
141,000 options of the 200,000 granted on June 28, 2005 were forfeited on May 6, 2008
in conjunction with a grant of 100,000 options. |
|
(5) |
|
Options will vest on April 19, 2011. |
|
(6) |
|
Options will vest on August 10, 2011. |
|
(7) |
|
Options will vest on December 6, 2011. |
|
(8) |
|
Options will vest on December 17, 2012. |
|
(9) |
|
Options will vest on November 13, 2010. |
|
(10) |
|
Options will vest on April 26, 2011. |
|
(11) |
|
Options will vest on October 23, 2012. |
24
Option Exercises
None of the Named Executive Officers exercised stock options during 2009.
Equity Compensation Plan Information
The following table sets forth information with respect to our equity compensation plans as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
|
|
|
|
to be Issued |
|
|
|
|
|
|
|
|
|
|
Upon Exercise of |
|
|
|
|
|
|
Number of Shares |
|
|
|
Outstanding |
|
|
Weighted Average |
|
|
Remaining |
|
|
|
Options, Warrants, |
|
|
Exercise Price of |
|
|
Available for |
|
|
|
and Rights |
|
|
Outstanding |
|
|
Future Issuance |
|
Plan Category |
|
(1) |
|
|
Options and Rights |
|
|
(2) |
|
|
Equity compensation plans approved by
security holders |
|
|
1,720,750 |
|
|
$ |
3.63 |
|
|
|
202,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not
approved by
security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,720,750 |
|
|
$ |
3.63 |
|
|
|
202,306 |
|
|
|
|
(1) |
|
This column represents the number of shares of common stock that may be issued in
connection with the exercise of outstanding stock options granted under our 1994 Stock
Option Plan, 1994 Directors Stock Options Plan, 2004 Incentive Stock Plan, and 2008
Incentive Stock Plan. |
|
(2) |
|
This column represents the number of shares of common stock remaining available for
future awards under our 2008 Incentive Stock Plan at December 31, 2009. |
Employment Agreements
On December 30, 2009, we entered into an Employment Agreement with Mr. Kaveski. Under the
agreement, should Mr. Kaveski be involuntarily terminated (i) within three months before or two
years after a change of control, or (ii) at any other time, he will be entitled to receive
severance benefits for one year from the date of termination. The Agreement has a term of three
years.
On July 1, 2005, we entered into an Employment Agreement with Mr. Davenport. Under the
agreement, Mr. Davenport receives a base salary of $250,000 per year. In addition, Mr. Davenport
is entitled to receive severance payments in the event his employment with us is terminated without
cause. On May 6, 2008 the Compensation Committee granted 100,000 shares to Mr. Davenport under the
2004 Incentive Stock Plan upon the appointment of Mr. Kaveski as our Chief Executive Officer and
Mr. Davenports transition to President.
On September 13, 2005, we entered into a Management Continuity Agreement with Roger Buelow.
Under the agreement, Mr. Buelow would be entitled to receive severance payments in the event his
employment with us was terminated without cause, or if he terminated his employment following a
material reduction in his responsibilities inconsistent with his position and past responsibilities
under certain other conditions, including following a change in control as defined in the
agreement.
Potential Payments upon Termination or Change of Control
Regardless of the manner in which one of our Named Executive Officers employment terminates,
including death, disability or termination for cause, the Officer is entitled to receive amounts
earned during his term of employment. Such amounts include:
|
|
|
Salary through the date of termination; |
|
|
|
|
Stock-based compensation which has vested; and |
|
|
|
|
Unused vacation pay. |
The following table summarizes the estimated severance payments to be made under Mr. Kaveskis
and Mr. Davenports Employment Agreement and Mr. Buelows Management Continuity Agreement at,
following, or in connection with a termination of employment due to voluntary resignation,
involuntary termination not for cause, death or disability or change in control:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary |
|
Involuntary |
|
|
|
|
|
|
Termination |
|
Termination |
|
|
|
Termination |
|
|
without |
|
without |
|
|
|
with |
|
|
Change in |
|
Change in |
|
Death or |
|
Change in |
|
|
Control |
|
Control |
|
Disability |
|
Control |
Employee |
|
($) |
|
($) |
|
($) |
|
($) |
|
Joseph G. Kaveski |
|
|
|
|
|
|
|
|
|
|
|
|
Severance (1)
|
|
|
|
|
225,000 |
|
|
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Davenport |
|
|
|
|
|
|
|
|
|
|
|
|
Severance (2)
|
|
|
|
|
112,500 |
|
|
|
|
|
112,500 |
|
Accelerated vesting of stock-based awards (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger F. Buelow |
|
|
|
|
|
|
|
|
|
|
|
|
Severance (4)
|
|
|
|
|
118,125 |
|
|
|
|
|
118,125 |
|
|
|
|
(1) |
|
The estimated severance payment is based on base salary at December 31, 2009. For
Mr. Kaveski, the amount of severance equates to total yearly cash compensation received
prior to involuntary termination for the term of twelve months from the date of
involuntary termination. |
|
(2) |
|
The estimated severance payment is based on base salary at December 31, 2009. For
Mr. Davenport, the amount of severance equates to three months base salary plus six
months of base salary which represents the period from December 31, 2009 to the end of
the employment. |
|
(3) |
|
The estimated value of accelerated vesting of stock-based awards is based on the
non-vested options held by Mr. Davenport at December 31, 2009, and the closing per
share market price of our common stock on that date. The closing per share market
price of our common stock at December 31, 2009 was $0.64, below the exercise
price of all outstanding un-exercisable options. Therefore, there is no value
associated with the accelerated vesting of stock-based awards. |
|
(4) |
|
The estimated severance payment is based on base salary at December 31, 2009. For
Mr. Buelow, the amount of severance equates to one month of base salary for each year
of employment. |
26
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis included in this Proxy Statement. Based upon this review and
discussion, the Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE
Philip E. Wolfson, Chairman
Michael A. Kasper
Paul von Paumgartten
27
DIRECTOR COMPENSATION
We use a combination of cash and stock-based awards to attract and retain qualified candidates
to serve on our Board. In setting director compensation, we consider the significant amount of
time that our directors expend in fulfilling their duties, as well as the skill level required by
us.
The following table sets forth the annual cash compensation for directors who are not also
employees:
|
|
|
|
|
Annual Retainer |
|
$ |
20,000 |
|
Additional Annual Retainers: |
|
|
|
|
Lead Director |
|
$ |
10,000 |
|
Compensation Committee Chairman |
|
|
3,000 |
|
Audit and Finance Committee Chairman |
|
|
3,000 |
|
Nominating and Corporate Governance Committee Chairman |
|
|
3,000 |
|
Under the terms of the Companys 2008 Stock Incentive Plan, each newly appointed non-employee
director receives an option to purchase 10,000 shares of common stock at an exercise price of 100%
of the fair market value of the stock on the date of grant, which option vests in twelve equal
monthly installments following the date of grant. In addition, following each annual meeting of
the Companys shareholders, each non-employee director who will continue to serve as a member of
the Board of Directors automatically receives an option to purchase 7,000 shares of common stock at
an exercise price of 100% of the fair market value of the stock on the date of grant, which option
vests in twelve equal monthly installments following the date of grant. The Lead Director, the
Chairman of the Audit and Finance Committee, and the Chairman of the Nominating and Corporate
Governance Committee are to receive an additional option to purchase 3,000 shares under the same
terms.
On May 29, 2009, two members of the Companys Board of Directors voluntarily relinquished
portions of their directors fee for the balance of 2009 in exchange for the issuance of restricted
shares of common stock as authorized under the Companys 2008 Stock Incentive Plan. The number of
restricted shares of common stock issued to each director was equal
to the dollar value of the individuals relinquished directors fee divided by the closing price per share of the
companys common stock on May 29, 2009. The total number of restricted shares of common stock
issued to these directors was 19,000.
The following table summarizes the compensation paid to non-employee directors during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
Earned |
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
or Paid |
|
Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
|
in Cash |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) (1) |
|
($) (2) |
|
($) |
|
($) |
|
($) (3) |
|
($) |
|
David N. Ruckert |
|
|
23,000 |
|
|
|
|
|
|
|
8,384 |
|
|
|
|
|
|
|
|
|
|
|
29,864 |
|
|
|
61,248 |
|
Paul von Paumgartten |
|
|
30,000 |
|
|
|
|
|
|
|
11,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,883 |
|
Michael A. Kasper |
|
|
23,000 |
|
|
|
|
|
|
|
11,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,883 |
|
Philip E. Wolfson |
|
|
21,658 |
|
|
|
1,342 |
|
|
|
11,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,883 |
|
J. James Finnerty |
|
|
20,000 |
|
|
|
|
|
|
|
11,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,883 |
|
Laurence V. Goddard |
|
|
17,802 |
|
|
|
|
|
|
|
8,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,593 |
|
David Gelbaum |
|
|
5,187 |
|
|
|
11,667 |
|
|
|
8,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,382 |
|
R. Louis Schneeberger |
|
|
1,978 |
|
|
|
|
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,373 |
|
|
|
|
(1) |
|
Reflects the dollar value of restricted shares of common stock granted to these
directors in exchange for their voluntary relinquishment of their directors fees
commencing on May 29, 2009, as described above. |
|
(2) |
|
Reflects the dollar amount recognized for financial reporting purposes for 2009 in
accordance with ASC 718 and equates to the fair value of the immediately vested option
awards on the date of grant. The method and assumptions used to determine the amount of
expense recognized for options is set forth in Note 11 in the Companys 2009 Annual Report
on Form 10-K. In 2009, each non-employee director received the following number of shares
under our 2008 Incentive Stock Plan: Mr.
Gelbaum, 25,000, Mr. Finnerty, 15,0000, Mr. Goddard, 15,000, Mr. Kasper, 15,000, Mr. Ruckert,
15,000, Mr. von Paumgartten,15,000, Mr. Wolfson, 15,000, and Mr. Schneeberger, 10,000. |
|
(3) |
|
Reflects the dollar value of for stock-based compensation for related to consulting
agreement entered into on February 3, 2006. See Certain Relationships and Related
Transactions below for further explanation |
28
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit and Finance Committee of the Board of Directors has appointed the firm of Plante &
Moran, PLLC, independent public accountants, to audit the financial statements of the Company for
the fiscal year ending December 31, 2010. Representatives of Plante & Moran, PLLC are expected to
be present at the Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be able to respond to appropriate questions from the shareholders.
Change in Independent Registered Public Accounting Firm
Grant Thornton, LLP served as the Companys independent registered public accounting firm for
the fiscal years ending December 31, 2008. On April 3, 2009, with the approval of the Audit and
Finance Committee, the Company dismissed Grant Thornton, LLP.
During the 2008 fiscal year, and from January 1 through April 3, 2009, there were no
disagreements with Grant Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of
that firm, would have caused it to make reference to the subject matter of the disagreement in its
reports on the Companys 2008 financial statements. Grant Thorntons reports on those statements
did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, except that its report dated March 30, 2009 on the financial statements for the
year ending December 31, 2008 was modified as to uncertainty about the ability of the Company to
continue as a going concern.
Due to the dismissal of Grant Thornton, LLP, representatives of Grant Thornton, LLP are not
expected to be present at the Annual Meeting of Shareholders.
Principal Accountant Fees and Services
Plante & Moran, PLLC provided audit services to the Company for the fiscal year ending
December 31, 2009. Grant Thornton, LLP, provided audit services to the Company for the fiscal year
ending December 31, 2008. The following table presents fees for professional services rendered by
Plante & Moran, PLLC for the audit of Energy Focus annual financial statements for 2009 and for
Grant Thornton, LLP for the audit of Energy Focus annual financial statements for 2008.
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
|
|
|
2009 |
|
|
2008 |
|
Audit Fees (1) |
|
$ |
267,060 |
|
|
$ |
357,677 |
|
Audit Related Fees (2) |
|
|
25,000 |
|
|
|
|
|
Other Fees (3) |
|
|
145,648 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
437,708 |
|
|
$ |
357,677 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees incurred for audit services related to audits of consolidated financial
statements. For both 2009 and 2008, the Company was not required to obtain independent
public accounting firm certification of its internal control infrastructure as defined by
the Sarbanes-Oxley Act. Therefore, no fees related to the audit of Sarbanes-Oxley
compliance were incurred. |
|
(2) |
|
Represents professional services rendered in connection with the reissuance of the
December 31, 2008 opinion and consent from preceding independent registered public
accounting firm, Grant Thornton, LLP. |
|
(3) |
|
Includes fees incurred for 2009 of $122,201 related to due diligence services provided
in connection with the Stones River Companies, LLC acquisition and $23,447 related to
miscellaneous consulting services provided. |
Pre-Approval Policies and Procedures
It is the Companys policy that all audit and non-audit services to be performed by the
Companys principal auditors be approved in advance by the Audit and Finance Committee. The Audit
Committee pre-approved all services provided by Plante & Moran, PLLC during 2009.
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 3, 2006, the Company had entered into a consulting agreement with David N.
Ruckert, a member of its Board of Directors. Mr. Ruckert was paid $76,000 during the year ending
December 31, 2007 and $110,000 during the year ending December 31, 2006 under this agreement.
This agreement was terminated on June 30, 2007. No payments were made to Mr. Ruckert during the
twelve months ending December 31, 2009 or 2008. Additionally, Mr. Ruckert was granted options to
purchase 32,000 shares of the Companys common stock. Stock expense incurred under ASC 718 related
to these options was $30,000 for all years ending December 31, 2009, December 31, 2008, and
December 31, 2007.
On September 14, 2007 the Company entered into a consulting agreement with Joseph G. Kaveski,
the Companys present Chief Executive Officer, for assistance with developing and helping implement
strategy and strategic initiatives. From September 2007 through March 2008, the Company paid Mr.
Kaveski $14,000 per month in consulting fees. The arrangement terminated in April 2008 when Mr.
Kaveski joined the Company as Vice President for Business Development and Global Marketing.
On March 14, 2008, the Company received an additional $9,335,000 in equity financing, net of
expenses. The investment was made by several current Energy Focus shareholders, including four
members of the then Board of Directors. These investors agreed to an at-market purchase of
approximately 3.1 million units for $3.205 per unit, based on the closing bid price of Energy Focus
common shares on March 13, 2008 of $3.08. Each unit comprised one share of the Companys common
stock, par value $0.0001 per share, and one warrant to purchase one share of the Companys common
stock at an exercise price of $3.08 per share. The warrants were immediately separable from the
units and immediately exercisable, and will expire five years after the date of their issuance.
This additional financing was used to fund working capital, pay debt, and perform additional
research and development. Among the investors were Ronald A. Casentini, John M. Davenport, John B.
Stuppin, and Philip E, Wolfson, all of whom were members of the Companys Board of Directors at the
time of the transaction, and who invested approximately $100,000 in the aggregate. Also among the
investors was The Quercus Trust (The Trust), whose trustees include David Gelbaum, who became a
member of the Companys Board of Directors in February 2009.
On May 27, 2009, the Company entered into an unsecured Promissory Note (Note) with The Trust
in the amount of $70,000. Under the terms of this Note, the Company is obligated to pay The Trust
the principal sum of the Note and interest accruing at a yearly rate of 1.00% in one lump sum
payment on or before June 1, 2109. The Company received these funds on June 9, 2009.
In November 2009, the Company received an additional $3,344,000 in equity financing, net of
expenses by selling 4,813,000 shares of common stock in a registered offering. The investment was
made by numerous current Energy Focus shareholders, including two then current members of the
Companys Board of Directors. The investment was made under the Companys registration statement
for a $3,500,000 common stock subscription rights offering. Under the terms of the rights
offering, the Company distributed, at no charge to its shareholders, transferable rights to
purchase up to $3.5 million of the Companys common stock at the established subscription price per
share of $0.75, which was set by the Companys Board of Directors. At the time the offering began,
the Company distributed to each shareholder one transferable right for each share of common stock
owned by the shareholder. Each right entitled the holder to purchase one share of the Companys
common stock, par value $0.0001 per share, subject to a maximum of 4,600,000 shares to be issued in
the offering. Shareholders were entitled to subscribe for shares not subscribed for by other
shareholders. Among the investors were Philip E. Wolfson, a member of the Companys Board of
Directors at the time of the transaction, and who invested approximately $8,000 in the aggregate.
Also among the investors was The Trust, whose trustees include David Gelbaum, a member of the
Companys Board of Directors at the time of the transaction.
In the Companys subscription rights offering discussed above, an investor inadvertently
purchased 1,000,000 shares of our common stock at $0.75 per share. The Company agreed to
facilitate the sale of these shares to another shareholder or investor or to purchase them
directly. A purchase of those shares by the Company would have severely depleted its cash-on-hand
and working capital. After contacting selected shareholders and investors, the Company introduced
the investor to The Trust, the Companys largest shareholder. The Company was informed on December
30, 2009, by the investor and The Trust that The Trust had agreed to purchase those shares at $0.80
per share. At that time, the closing market price of a share of our common stock was approximately
$0.65 per share. To facilitate the purchase of the 1,000,000 shares by The Trust, on December 30,
2009, the Companys Board of Directors agreed with The Trust to reduce the exercise price of the
1,560,062 warrants issued to The Trust in March 2008 to $0.01 per share upon the execution of the
purchase of all 1,000,000 shares to be completed in 2010.
30
On December 29, 2009 and in conjunction with the acquisition of SRC, the Company entered into
Bonding Support Program Agreements (LOCs) with John Davenport, President of the Company, and
with The Trust, for $250,000 and $300,000, respectively. These LOCs have a term of 24 months and
bear interest at a rate of 12.5% on the face amount. The LOCs are collateralized by a percentage
of the capital stock of Crescent Lighting Ltd. (CLL) which in turn is based on CLLs net worth as
of November 30, 2009 and is subordinated to the senior indebtedness of the Company and CLL. In
addition, subject to approval by shareholders, the Company will issue five-year, detachable penny
warrants ($.01 per share) to purchase the Companys common stock at a rate of 0.5 warrants per
dollar of the face amount of the LOC.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys officers,
directors, and persons who own more than 10% of a registered class of the Companys equity
securities to file certain reports regarding ownership of, and transactions in, the Companys
securities with the SEC. Such officers, directors, and 10% stockholders are also required by SEC
rules to furnish the Company with copies of all those reports that they file.
Based solely on its review of such reports filed with the SEC and written representations from
the reporting persons, the Company believes that all filing requirements applicable to the
Companys executive officers, directors and more than 10% stockholders were complied with for 2009.
31
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS FOR THE 2011 ANNUAL MEETING
Proposals from shareholders of the Company that are intended to be presented by such
shareholders at the Companys 2011 Annual Meeting of Shareholders must be received by the Secretary
of the Company at our principal executive offices located at 32000 Aurora Road, Solon, Ohio 44139,
no later than January 8, 2011 to be considered for inclusion in the proxy statement and form of
proxy relating to such meeting. The Companys proxy for the 2011 Annual Meeting of Shareholders
may confer discretionary authority to vote on any proposal submitted by a shareholder if written
notice of such proposal is not received by the Secretary of the Company at its principal executive
offices located at 32000 Aurora Road, Solon, Ohio 44139, on or before March 25, 2011.
HOUSEHOLDING INFORMATION
Some banks, brokers and other nominees are participating in the practice of householding
proxy statements and annual reports. This means that beneficial holders of our common stock who
share the same address or household may not receive separate copies of this Proxy Statement and our
2009 Annual Report on Form 10-K. We will promptly deliver an additional copy of either document to
you if you write or call us at: Energy Focus, Inc., 32000 Aurora Road, Solon, Ohio 44139,
Attention: Investor Relations, (440) 715-1300.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted at the Annual Meeting. If any
other matters properly come before the Annual Meeting, then the persons named in the enclosed
form of proxy will vote the shares they represent in such manner as the Board may recommend.
ANNUAL REPORT ON FORM 10-K
The Companys 2009 Annual Report on Form 10-K has been mailed with this Proxy Statement. The
Company will provide copies of the 2009 Annual Report on Form 10-K and its exhibits, but will
charge a reasonable fee to any requesting shareholder. Shareholders may make such request in
writing to the Company at 32000 Aurora Road, Solon, Ohio 44139, Attention: Investor Relations. The
request must include a representation by the shareholder that as of April 29, 2010, the shareholder
was entitled to vote at the 2010 Annual Meeting of Shareholders. The Companys 2009 Annual Report
on Form 10-K and its exhibits are also available on the SECs website at http://www.sec.gov.
32
ENERGY FOCUS, INC.
Proxy for Annual Meeting of Shareholders
This proxy is solicited on behalf of the
Board of Directors.
The undersigned hereby appoints Joseph G. Kaveski and Nicholas G. Berchtold, or each of
them, proxy and attorney-in-fact, with full power to designate a substitute representative, to
represent the undersigned and to vote all of the shares of common stock in Energy Focus, Inc., a
Delaware corporation (the Company), which the undersigned is entitled to vote at the Annual
Meeting of the Shareholders of the Company to be held at the Companys principal executive offices
at 32000 Aurora Road, Solon, Ohio 44139 at 1:00 P.M., local time, June 16, 2010, and at any
adjournment or postponement thereof, as hereinafter specified upon the proposals listed below and
as more particularly described in the Proxy Statement of the Company dated April 30, 2010 (the
Proxy Statement), receipt of which is hereby acknowledged.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
/*\ FOLD AND DETACH HERE /*\
|
|
|
|
|
|
|
Please mark your
choices like this |
|
/x/ |
The shares represented hereby will be voted as specified. If no specification is made, such shares will be voted FOR the nominees listed below, FOR proposals 2 through 5, and with the discretion of the proxies on any other matters as may properly come before the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2 - 5.
|
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|
|
|
|
|
|
|
WITHHOLD |
|
|
|
|
|
|
|
|
|
|
|
|
FOR |
|
AUTHORITY |
|
|
|
|
|
|
|
|
|
1. To elect the following individuals:
INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEES NAME IN THE LIST BELOW. |
|
/ / |
|
/ / |
6. |
In their discretion, upon such other business as may properly come before the meeting or any
adjournment or postponement thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING REGARDLESS OF THE NUMBER OF SHARES
YOU HOLD. PLEASE MARK, DATE, SIGN AND RETURN THE PROXY PROMPTLY IN THE ENCLOSED, STAMPED ENVELOPE |
|
|
David Anthony |
|
Joseph G. Kaveski |
|
|
|
|
|
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John M. Davenport |
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Paul von Paumgartten |
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J. James Finnerty |
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R. Louis Schneeberger |
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Michael A. Kasper |
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FOR |
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AGAINST |
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ABSTAIN |
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YES |
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NO |
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2. |
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To amend the Companys Certificate of
Incorporation to increase the total number of
authorized shares of common stock from
30,000,000 to 60,000,000. |
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I plan to attend the meeting: |
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FOR |
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AGAINST |
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ABSTAIN |
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(Please print address change (if any) on label below.) |
3. |
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To approve an amendment to the 2008 Incentive
Stock Plan to increase the number of shares of
common stock authorized for issuance under the
Plan from 1,000,000 to 3,000,000. |
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DATED: |
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, 2010 |
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FOR |
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AGAINST |
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ABSTAIN |
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4. |
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To approve the issuance of warrants to directors and officers who have or will
participate in the Companys bonding support program. |
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FOR |
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AGAINST |
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ABSTAIN |
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5. |
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To approve the reduction in the exercise price of a March 2008 Warrant to purchase 1,560,062
shares of common stock by The Quercus Trust from $3.08 to $0.01 per share. |
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// |
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Print or type shareholders name. |
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(Be sure to date Proxy) |
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FOLD AND DETACH HERE