UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section 240.14a-12
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MusclePharm Corporation
(Exact name of registrant as specified in its charter)
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November 13, 2017
Dear Fellow MusclePharm Stockholders:
I am pleased to report that we have continued to improve our
operations. Our efforts have included the restructuring of the
Company, vigilance to cost control and the addition of new product
lines.
Calendar 2016 included the completion of our restructuring
plans.
The highlights of our
restructuring activities included the sale of our former
subsidiary, BioZone Laboratories, in May 2016, which resulted
in a gross cash inflow of $7.9 million, including $2.0
million of prepaid inventory, enabling us to monetize a
valuable asset while maintaining an important relationship with a
key manufacturing partner. We also successfully negotiated the
settlement of a dispute with Capstone Nutrition, a former
manufacturing partner and the favorable resolution of a contract
matter with Arnold Schwarzenegger. A cash injection
of $11 million in the form of a convertible debt
instrument enabled us to take advantage of the opportunity to
settle our dispute with Capstone. We will strive to settle other
matters before us and are optimistic we can continue to settle
matters in a positive manner.
As we move beyond the completion of restructuring we continue to be
vigilant of our costs and continue to identify new opportunities
for additional cost reductions and the continued reductions in the
head count of the Company. We have streamlined operations to create
new operational efficiencies that allow us to operate with a
significantly lower G&A and marketing expenses. Additionally,
we are working to create new supply opportunities to reduce costs
while maintaining our high-quality standards.
Our strategy to drive growth going forward is to effectively
leverage our position as one of the leading performance lifestyle
sports nutrition companies in the world to drive top line sales and
achieve net income and Adjusted EBITDA growth. Today, we believe
that we not only have positive brand recognition and a global
footprint necessary to achieve our vision, but we believe that we
have strong leadership and an efficient operational and financial
platform to support growth in the business. This expansion plan was
set in motion with the launch of our MusclePharm® Natural
Series, a new line of organic supplements, at Natural Products Expo
West, in Anaheim, California during Q1 2017, the first of
many anticipated sales initiatives we are working on. In addition,
we have commenced with local manufacturing of our products in
Europe, which will allow for greater acceptance of our products in
the European Community. We believe we are in an exciting inflection
point in our growth trajectory and we are enthusiastic about the
growth opportunities that are now available to us.
I am very excited to be part of a great team that has endured
during a time of restructuring and uncertainty. I am confident we
will flourish moving forward and can continue to build a solid team
with exceptional talent. We will continue to seek out talent to
drive revenue and profitability for future years to
come.
We have challenges ahead, but also many untapped opportunities. We
will work to remove obstacles to success and look forward to
achieving our goals. We will continue to operate as an industry
leader and will continue to promote the highest quality standards
in the industry.
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Sincerely
yours,
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/s/
Ryan Drexler
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Ryan
Drexler
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Chief Executive Officer and President
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Burbank, California
November 13, 2017
MusclePharm Corporation
4100-4210 W. Vanowen Place
Burbank, CA 91505
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 15, 2017
The Annual Meeting of the Stockholders of MusclePharm Corporation
(the “Company”) will be held on December 15, 2017 at
11:00 a.m. Pacific Time, at 4100-4210 W. Vanowen Place, Burbank, CA
91505, for the following purposes:
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To
elect four (4) members of the Board of Directors to hold office
until the next annual meeting or until their successors are duly
elected and qualified;
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To
ratify the appointment of EKS&H LLLP as the Independent
Registered Public Accounting Firm of the Company for our year
ending December 31, 2017;
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To
hold an advisory vote on executive compensation; and
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To
transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors recommends that you vote FOR all of the
proposed agenda items disclosed herein.
These items of business are more fully described in the proxy
statement accompanying this notice. The Board of Directors has
fixed the close of business on November 3, 2017 as the record date
for the determination of stockholders entitled to receive notice
of, and to vote at, the Annual Meeting of Stockholders, or at any
adjournments of the Annual Meeting of Stockholders.
In order to ensure your representation at the Annual Meeting of
Stockholders, you are requested to submit your proxy by mail. If
you attend the Annual Meeting of Stockholders and file with the
Corporate Secretary of the Company an instrument revoking your
proxy or a duly executed proxy bearing a later date, your proxy
will not be used.
All stockholders are cordially invited to attend the Annual Meeting
of Stockholders.
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By
Order of the Board of Directors
MusclePharm
Corporation
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/s/
Ryan Drexler
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Ryan
Drexler
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Chairman
of the Board of Directors
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Burbank, CA
November 13, 2017
Table of Contents
PROXY
STATEMENT
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1
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EXECUTIVE OFFICERS
AND DIRECTORS
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3
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EXECUTIVE
COMPENSATION
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11
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ELEMENTS OF
EXECUTIVE COMPENSATION
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12
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COMPENSATION OF
EXECUTIVE OFFICERS
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14
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SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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19
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EQUITY
COMPENSATION PLAN INFORMATION
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AUDIT
COMMITTEE REPORT
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RELATED PARTY
TRANSACTIONS
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21
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PROPOSAL 1
ELECTION OF DIRECTORS
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF EXTERNAL AUDITORS
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PROPOSAL 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION
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HOUSEHOLDING OF
PROXY MATERIALS
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CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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OTHER
MATTERS
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MusclePharm Corporation
44100-4210 W. Vanowen Place,
Burbank, CA 91505
FOR THE ANNUAL MEETING OF STOCKHOLDERS
December 15, 2017
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This proxy statement is furnished in connection with the
solicitation of proxies for use prior to or at the Annual Meeting
of Stockholders (the “Annual Meeting”) of MusclePharm
Corporation (together with its subsidiaries, herein referred to as
the “Company”), a Nevada corporation, to be held at
11:00 a.m. Pacific Time on December 15, 2017 and at any
adjournments or postponements thereof for the following
purposes:
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To
elect four (4) members of the Board of Directors to hold office
until the next annual meeting or until their successors are duly
elected and qualified;
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To
ratify the appointment of EKS&H LLLP as the Independent
Registered Public Accounting Firm of the Company for our year
ending December 31, 2017;
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To approve, on an advisory basis, the
compensation of the Company’s named e
xecutive
officers; and
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To
transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
We made this proxy statement and accompanying form of proxy
available to stockholders beginning on November 13,
2017.
Important Notice Regarding the Availability of Proxy Materials for
the Annual Meeting to be Held on December 15, 2017:
This proxy statement, form of proxy and the Company’s 2016
Annual Report on Form 10-K are available electronically at our
website at www.musclepharmcorp.com.
Solicitation
This solicitation is made on behalf of our Board of Directors. The
Company will bear the costs of preparing, mailing, and other costs
of the proxy solicitation made by our Board of Directors. Certain
of our officers and employees may solicit the submission of proxies
authorizing the voting of shares in accordance with the Board of
Directors’ recommendations. Such solicitations may be made by
telephone, facsimile transmission or personal solicitation. No
additional compensation will be paid to such officers, directors or
regular employees for such services. We will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in sending proxy
material to stockholders.
Voting Rights and Outstanding Shares
Only holders of record of our common stock as of the close of
business on November 3, 2017 are entitled to receive notice of, and
to vote at, the Annual Meeting. The outstanding common stock
constitutes the only class of our securities entitled to vote at
the Annual Meeting, and each holder of common stock shall be
entitled to one vote for each share held on all matters to be voted
upon at the Annual Meeting. At the close of business on November 1,
2017, there were 14,650,554 shares of common stock issued and
outstanding, which were held by approximately 310 holders of
record.
A quorum of stockholders is necessary to take action at the Annual
Meeting. Stockholders representing a majority of the outstanding
shares of our common stock present in person or represented by
proxy will constitute a quorum. We will appoint an election
inspector for the meeting to determine whether or not a quorum is
present and to tabulate votes cast by proxy or in person at the
Annual Meeting.
We have adopted a plurality vote standard for director
elections.
All other proposals require the affirmative vote of holders of a
majority of outstanding shares present in person or by proxy and
entitled to vote at the Annual Meeting. Abstentions have the same
effect as negative votes on such proposals. Broker non-votes are
not counted for any purpose in determining whether proposals have
been approved.
Voting by Proxy by Mail
Stockholders whose shares are registered in their own names may
vote by proxy by mail. Instructions for voting by proxy by mail are
set forth on the Notice of Proxy Materials mailed to you, or on the
proxy card mailed to you if you chose to receive materials by
mail.
If you sign and return a proxy card by mail but do not give voting
instructions, your shares will be voted (1) FOR ALL of the
four (4) nominees named in Proposal No. 1 in this proxy
statement; (2) FOR the ratification of the appointment of
EKS&H LLLP as the Independent Registered Public Accounting
Firm for the Company for the year ending December 31, 2017;
(3) FOR the approval of compensation of our named executive
officers (“NEOs”) as disclosed in this proxy statement;
and (4) as the proxy holders deem advisable, in their
discretion, on other matters that may properly come before the
Annual Meeting.
If your shares are held in street name, the voting instruction form
sent to you by your broker, bank or other nominee should indicate
whether the institution has a process for beneficial holders to
provide voting instructions over the Internet or by telephone. A
number of banks and brokerage firms participate in a program that
permits stockholders whose shares are held in street name to direct
their vote over the Internet or by telephone. If your bank or
brokerage firm gives you this opportunity, the voting instructions
from the bank or brokerage firm that accompany this proxy statement
will tell you how to use the Internet or telephone to direct the
vote of shares held in your account. If your voting instruction
form does not include Internet or telephone information, please
complete and return the voting instruction form in the
self-addressed, postage-paid envelope provided by your broker.
Stockholders who vote by proxy over the Internet or by telephone
need not return a proxy card or voting instruction form by mail,
but may incur costs, such as usage charges, from telephone
companies or Internet service providers.
Voting in Person at the Annual Meeting
If you plan to attend the Annual Meeting and wish to vote in
person, you will be given a ballot at the Annual Meeting. Please
note, however, that if your shares are held in “street
name,” which means your shares are held of record by a
broker, bank or other nominee, and you wish to vote at the Annual
Meeting, you must bring to the Annual Meeting a legal proxy from
the broker, bank or other nominee who is the record holder of the
shares, authorizing you to vote at the Annual Meeting.
Revocability of Proxies
Any proxy may be revoked at any time before it is exercised by
filing with the Company’s Corporate Secretary an instrument
revoking it or by submitting prior to the time of the Annual
Meeting a duly executed proxy bearing a later date. Stockholders
who have executed and returned a proxy and who then attend the
Annual Meeting and desire to vote in person are requested to so
notify the Corporate Secretary in writing prior to the time of the
Annual Meeting. We request that all such written notices of
revocation to the Company be addressed to Corporate Secretary,
MusclePharm Corporation, at the address of our principal executive
offices at
4100-4210 W. Vanowen
Place, Burbank, CA 91505. Our telephone number is
(303) 396-6100.
Stockholder Proposals to be Presented at the Next Annual
Meeting
Any stockholder who meets the requirements of the proxy rules under
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), may submit to the Board of Directors
proposals to be presented at the 2018 annual meeting. Such
proposals must comply with the requirements of Rule 14a-8 under the
Exchange Act. To be timely, a stockholder’s notice of a
proposal must be submitted in writing by notice delivered or mailed
by first-class United States mail, postage prepaid, to our
Corporate Secretary at our principal executive offices at the
address set forth above no earlier than July 13, 2018 and no later
than August 12, 2018, or if the date of the 2018 annual meeting is
changed more than 30 days from the 2017 annual meeting, the date on
which the Company mails its proxy materials to stockholders in
2018, in order to be considered for inclusion in the proxy
materials to be disseminated by the Board of Directors for such
annual meeting.
The chairman of the meeting may refuse to acknowledge the
introduction of any stockholder proposal if it is not made in
compliance with the applicable notice provisions.
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our executive
officers and directors as of November 1, 2017. The names of our
directors and executive officers, their ages as of November 1, 2017
and certain other information about them are set forth below. There
are no family relationships among any of our directors or executive
officers.
Name
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Age
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Position
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Ryan Drexler
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46
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Chief
Executive Officer, President and Chairman of the Board of
Directors
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Brian
Casutto
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46
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Executive Vice
President of Sales and Operations and Director
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William
Bush
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52
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Director
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John
J. Desmond
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66
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Director
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RYAN DREXLER –
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
CHAIRMAN OF THE BOARD OF DIRECTORS
Ryan
Drexler was appointed to serve as our Chief Executive Officer and
President on November 18, 2016. Prior to that, Mr. Drexler was
appointed to serve as our Interim Chief Executive Officer,
President and Chairman of the Board of Directors on March 15,
2016 and was designated as our Interim Principal Executive Officer.
Mr. Drexler has served as Chairman of our Board of Directors
since August 26, 2015. Mr. Drexler is currently the Chief
Executive Officer of Consac, LLC (“Consac”), a
privately-held firm that invests in the securities of publicly
traded and venture-stage companies. Previously, Mr. Drexler
served as President of Country Life Vitamins, a family-owned
nutritional supplements and natural products company that he joined
in 1993. In addition to developing strategic objectives and
overseeing acquisitions for Country Life, Mr. Drexler created
new brands that include the BioChem family of sports and fitness
nutrition products. Mr. Drexler negotiated and led the process
which resulted in the sale of Country Life in 2007 to the Japanese
conglomerate Kikkoman Corp. Mr. Drexler graduated from
Northeastern University, where he earned a B.A. in political
science. Because of his experience in running and developing
nutritional supplement companies, we believe that Mr. Drexler is
well qualified to serve on our Board of Directors.
BRIAN CASUTTO –
EXECUTIVE VICE PRESIDENT OF SALES AND
OPERATIONS AND DIRECTOR
Brian
Casutto was appointed to the Board of Directors as a director
during July 2017. Mr. Casutto was appointed to the role of
Executive Vice President of Sales and Operations in July of 2015.
Mr. Casutto joined MusclePharm in June of 2014 to lead product
development and brand positioning of the recently announced Natural
Series. From 1997 to 2014, Mr. Casutto served as Executive Vice
President, Sales for Country Life Vitamins. Because of his
experience in running and developing nutritional supplement
companies, we believe that Mr. Casutto is well qualified to serve
on our Board of Directors.
WILLIAM BUSH –
DIRECTOR
William
Bush joined our Board of Directors as an independent director in
May 2015 and serves as lead direction, chair of the Compensation
Committee and as a member of the Audit Committee and as Chair of
the Nominating & Corporate Governance Committee. Since November
2016, Mr. Bush serves as chief financial officer of Stem, Inc., a
leading software-driven energy storage provider. From January 2010
to November 2016, Mr. Bush served as the chief financial
officer of Borrego Solar Systems, Inc., which is one of the
nation’s leading financiers, designers and installers of
commercial and industrial grid-connected solar systems. From
October 2008 to December 2009, Mr. Bush served as the chief
financial officer of Solar Semiconductor, Ltd., a private
vertically integrated manufacturer and distributor of photovoltaic
modules and systems targeted for use in industrial, commercial and
residential applications, with operations in India, helping it
reach $100 million in sales in its first 15 months of operation.
Prior to that, Mr. Bush served as chief financial officer and
corporate controller for a number of high growth software and
online media companies as well as being one of the founding members
of Buzzsaw.com, Inc., a spinoff of Autodesk, Inc. Prior to his work
at Buzzsaw.com, Mr. Bush served as corporate controller for
Autodesk, Inc. (NasdaqGM: ADSK), the fourth largest software
applications company in the world. Because of his significant
experience in finance, we believe that Mr. Bush is well qualified
to serve on our Board of Directors.
JOHN J. DESMOND –
DIRECTOR
John J.
Desmond joined our Board of Directors as an independent director in
July 2017 and serves as chair of the Audit Committee, a member of
the Nominating & Corporate Governance Committee, and a member
of the Compensation Committee. Previously, Mr. Desmond was
Partner-in-Charge of the Long Island (New York) office of Grant
Thornton LLP from 1988 through his retirement from the firm in
2015, having served over 40 years in the public accounting
profession. At Grant Thornton LLP, Mr. Desmond's experience
included among other things, serving as lead audit partner for many
public and privately-held global companies. Mr. Desmond was elected
by the U.S. Partners of Grant Thornton LLP to their Partnership
Board from 2001 through 2013. The Partnership Board was responsible
for oversight of many of the firm's activities including strategic
planning, the performance of the senior leadership team and
financial performance. Mr. Desmond holds a B.S. degree in
Accounting from St. John's University and is a Certified Public
Accountant. Mr. Desmond currently serves on the Board of Directors
of The First of Long Island (NASDAQ: FLIC) and its wholly owned
bank subsidiary, The First National Bank of Long Island,
and has been a director since October 2016. Mr. Desmond also
serves or has served as a Board member of a number of
not-for-profit entities. Because of his significant experience in
corporate governance, banking, strategic planning, business
leadership, organizational management and business operations,
accounting and financial reporting, finance, mergers and
acquisitions, legal and regulatory, we believe that Mr. Desmond is
well qualified to serve on our Board of Directors.
Board of Directors
Our Board of Directors may establish the authorized number of
directors from time to time by resolution. Our bylaws authorize a
Board of Directors to consist of between one and nine members. The
number of directors currently authorized by resolution of the Board
of Directors is four. Four directors are nominated to be elected at
the Annual Meeting. Our nominated directors, if elected, will
continue to serve as directors until the next annual meeting of
stockholders and until his successor has been elected and
qualified, or until his or her earlier death, resignation, or
removal.
Our Board of Directors held 13 meetings during 2016. The Board of
Directors also acted one time by unanimous written consent. No
member of our Board of Directors attended fewer than 75% of the
aggregate of the total number of meetings of the Board of Directors
(held during the period for which he was a director) and the total
number of meetings held by all committees of the Board of Directors
on which such director served (held during the period that such
director served). Members of our Board of Directors are invited and
encouraged to attend each annual meeting of
stockholders.
Board Leadership Structure
Ryan Drexler, our Chief Executive Officer and President, serves as
Chairman of our Board of Directors and presides over meetings of
the Board of Directors, and holds such other powers and carries out
such other duties as are customarily carried out by the Chairman of
our Board of Directors. Mr. Drexler brings valuable insight to
our Board of Directors due to the perspective and experience that
he brings as our Chief Executive Officer and
President.
Director Independence
We are an over-the-counter listed company we have nevertheless
opted under our Corporate Governance Guidelines to comply with
certain NASDAQ corporate governance rules requiring director
independence. The Board of Directors has determined that all of the
Company’s directors nominated for election, other than
Mr. Drexler and Mr. Casutto are each “independent
directors” as such term is defined in NASDAQ Marketplace
Rule 5605(a)(2). Additionally, we have Compensation,
Nominating & Corporate Governance, and Audit committees
comprised solely of independent directors.
Audit Committee members must also satisfy the independence criteria
set forth in Rule 10A-3 under the Exchange Act. In order to be
considered independent for purposes of Rule 10A-3, a member of an
audit committee of a listed company may not, other than in his or
her capacity as a member of the audit committee, the Board of
Directors, or any other board committee: accept, directly or
indirectly, any consulting, advisory, or other compensatory fee
from the listed company or any of its subsidiaries; or be an
affiliated person of the listed company or any of its
subsidiaries.
Our Board of Directors has determined that none of our non-employee
directors has a relationship that would interfere with the exercise
of independent judgment in carrying out the responsibilities of a
director and that each of these directors is
“independent” as that term is defined under the rules
of NASDAQ. Our Board of Directors has also determined that past and
present Directors, who comprise our Audit Committee, Compensation
Committee, Nominating & Corporate Governance Committee and our
Strategic Initiatives Committee, satisfied and satisfy the
independence standards for those committees established by
applicable SEC rules, NASDAQ rules and applicable rules of the
Internal Revenue Code of 1986, as amended.
Involvement in Certain Legal Proceedings
Except as outlined below, to our knowledge, during the past ten
(10) years, none of our directors, executive officers,
promoters, control persons, or nominees has been:
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the
subject of any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time;
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convicted in a
criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor
offenses);
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subject to any
order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking
activities; or
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found
by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities
law.
Board Committees
Our Board of Directors has established an Audit Committee, a
Compensation Committee, Nominating & Corporate Governance
Committee and, each of which have the composition and
responsibilities described below. The responsibilities of the
Strategic Initiatives Committee were transferred to the Board of
Directors in the third quarter of 2016. Members serve on these
committees until their resignations or until otherwise determined
by our Board of Directors. The Board of Directors has further
determined thatMessrs. Desmond and Bush, chair and member,
respectively, of the Audit Committee of the Board of Directors, are
both an “Audit Committee Financial Expert,” as such
term is defined in Item 407(d)(5) of Regulation S-K
promulgated by the SEC, by virtue of their relevant experience
listed in their respective biographical summaries provided above in
the section entitled “Executive Officers and
Directors.” Each of these committees has a written charter.
Current copies of the charters of the Audit Committee, Compensation
Committee, and Nominating & Corporate Governance Committee
are available on our website at
ir.musclepharmcorp.com/governance-documents.
Audit Committee
. The Audit Committee reviews the work of our
internal accounting and audit processes and the Independent
Registered Public Accounting Firm. The Audit Committee has sole
authority for the appointment, compensation and oversight of our
Independent Registered Public Accounting Firm and to approve any
significant non-audit relationship with the Independent Registered
Public Accounting Firm. The Audit Committee is also responsible for
preparing the report required by the rules of the SEC to be
included in our annual proxy statement. The Audit Committee is
currently comprised of Mr. Desmond, as chair, and Mr. Bush, as
a member. Mr. Desmond assumed the role of chair of the Audit
Committee in July 2017 from Mr. Bush who served as chair since May
2015. During 2016, the Audit Committee held four
meetings.
Compensation Committee
. The Compensation Committee approves
our goals and objectives relevant to compensation, stays informed
as to market levels of compensation and, based on evaluations
submitted by management, recommends to our Board of Directors
compensation levels and systems for the Board of Directors and our
officers that correspond to our goals and objectives. The
Compensation Committee, with the assistance of Longnecker, also
produces an annual report on executive compensation for inclusion
in our proxy statement. The Compensation Committee is currently
comprised of Mr. Bush, as chair, and Mr. Desmond, as a member.
Mr. Desmond joined the Compensation Committee in July 2017 and
Mr. Bush joined as a member in May 2015. During 2016, the
Compensation Committee held four meetings.
Nominating & Corporate Governance Committee
. The
Nominating & Corporate Governance Committee is responsible
for recommending to our Board of Directors individuals to be
nominated as directors and committee members. This includes
evaluation of new candidates as well as evaluation of current
directors. In evaluating the current directors, the
Nominating & Corporate Governance Committee conducted a
thorough self-evaluation process, which included the use of
questionnaires and a third-party expert that interviewed each of
the directors and provided an analysis of the results of the
interviews to the committee. This committee is also responsible for
developing and recommending to the Board of Directors our corporate
governance guidelines, as well as reviewing and recommending
revisions to the guidelines on a regular basis. The
Nominating & Corporate Governance Committee is currently
comprised of Mr. Bush, as chair, and Mr. Desmond, as a member.
During 2016, the Nominating & Corporate Governance
Committee held no meetings. A meeting was held in June 2017 for
Messrs. Casutto and Desmond’s nominations to our Board of
Directors.
Director Nominations
The director qualifications developed to date focus on what the
Board believes to be essential competencies to effectively serve on
the Board. The Nominating & Corporate Governance Committee
may consider the following criteria in recommending candidates for
election to the board:
●
experience in
corporate governance, such as an officer or former officer of a
publicly held company;
●
experience in the
Company’s industry;
●
experience as a
board member of other publicly held companies; and
●
technical
expertise in an area of the Company’s
operations.
The Nominating & Corporate Governance Committee evaluates
each individual in the context of the Board as a whole, with the
objective of assembling a Board that can best perpetuate the
success of the Company and represent stockholder interests through
the exercise of sound judgment using its diversity of
experience.
Prior to each annual meeting of stockholders at which directors are
to be elected, and whenever there is otherwise a vacancy on the
Board of Directors, the Nominating & Corporate Governance
Committee will consider incumbent Board members and other
well-qualified individuals as potential director nominees. The
Nominating & Corporate Governance Committee will determine
whether to retain an executive search firm to identify Board
candidates, and if so, will identify the search firm and approve
the search firm’s fees and other retention terms and will
specify for the search firm the criteria to use in identifying
potential candidates, consistent with the director qualification
criteria described above. The Nominating & Corporate
Governance Committee will review each potential candidate.
Management may assist the Nominating & Corporate
Governance Committee in the review process at the
Nominating & Corporate Governance Committee’s
direction. The Nominating & Corporate Governance Committee
will select the candidate or candidates it believes are the most
qualified to recommend to the Board for selection as a director
nominee. Our Nominating & Corporate Governance Committee
will consider candidates recommended by our stockholders in
accordance with the procedures set forth in the
Nominating & Corporate Governance Committee Charter. Such
recommendations must be submitted in writing to the Chairman of the
Nominating & Corporate Governance Committee, c/o the
Corporate Secretary, 4100-4210 W. Vanowen Place, Burbank, CA 91505
no later than 120 days prior to the anniversary of the date on
which the Company’s proxy statement was mailed or made
available to stockholders in connection with the previous
year’s annual meeting of stockholders. The recommendations
must be accompanied by the following information: the name and
address of the nominating stockholder, a representation that the
nominating stockholder is a record holder, a representation that
the nominating stockholder intends to appear in person or by proxy
at the annual meeting to nominate the person or persons specified,
information regarding each nominee that would be required to be
included in a proxy statement, a description of any arrangements or
understandings between the nominating stockholder and the nominee,
and the consent of each nominee to serve as a director, if elected.
Candidates recommended by the stockholders are evaluated in the
same manner as candidates identified by a Nominating &
Corporate Governance Committee member.
Each of the nominees for election as director at the 2017 Annual
Meeting is recommended by the Nominating & Corporate
Governance Committee. Messrs. Bush, Casutto, Desmond and Drexler
are presently directors and stand for re-election by the
stockholders.
Stockholders who wish to nominate persons for election to the Board
of Directors at an annual meeting must be a stockholder of record
both at the time of giving the notice and at the meeting, must be
entitled to vote at the meeting and must comply with the notice
provisions in our bylaws. A stockholder’s notice of
nomination to be made at an annual meeting must be delivered to our
principal executive offices not less than 90 days nor more than 120
days before the anniversary date of the immediately preceding
annual meeting. However, if an annual meeting is more than 30 days
before or more than 60 days after such anniversary date, the notice
must be delivered no later than the 90th day prior to such annual
meeting or, if later, the 10th day following the day on which the
first public announcement of the date of such annual meeting was
made. A stockholder’s notice of nomination to be made at a
special meeting at which the election of directors is a matter
specified in the notice of meeting must be delivered to our
principal executive offices not earlier than the 120th day prior to
and not later than the 90th day prior to such special meeting or,
if later, the 10th day following the day on which first public
announcement of the date of such special meeting was made. The
stockholder’s notice must include the following information
for the person making the nomination:
●
the
class and number of shares of the Company owned beneficially or of
record;
●
disclosure
regarding any derivative, swap or other transactions which give the
nominating person economic risk similar to ownership of shares of
the Company or provide the opportunity to profit from an increase
in the price or value of shares of the Company;
●
any
proxy, agreement, arrangement, understanding or relationship that
confers a right to vote any shares of the Company;
●
any
agreement, arrangement, understanding or relationship, engaged in
to mitigate economic risk related to, or the voting power with
respect to, shares of the Company;
●
any
rights to dividends on the shares that are separate from the
underlying shares;
●
any
performance related fees that the nominating person is entitled to
be based on any increase or decrease in the value of any shares of
the Company; and
●
any
other information relating to the nominating person that would be
required to be disclosed in a proxy statement filed with the
SEC.
The stockholder’s notice must also include the following
information for each proposed director nominee:
●
description of all
direct and indirect financial or other relationships between the
nominating person and the nominee during the past three
years;
●
the
same information as for the nominating person (see above);
and
●
all
information required to be disclosed in a proxy statement in
connection with a contested election of directors.
The stockholder’s notice must be updated and supplemented, if
necessary, so that the information required to be provided in the
notice is true and correct as of the record date for the meeting
and as of the date that is ten business days prior to the
meeting.
The chairman of the meeting will determine if the procedures in the
bylaws have been followed, and if not, declare that the nomination
be disregarded. The nominee must be willing to provide any other
information reasonably requested by the Nominating &
Corporate Governance Committee in connection with its evaluation of
the nominee’s independence.
Stockholder Communications with the Board of Directors
Stockholders may send correspondence to the Board of Directors or
any member of the Board of Directors, c/o the Corporate Secretary
at our principal executive offices at the address set forth above.
The Corporate Secretary will review all correspondence addressed to
the Board of Directors, or any individual Board member, for any
inappropriate correspondence and correspondence more suitably
directed to management. However, the Corporate Secretary will
summarize all correspondence not forwarded to the Board of
Directors and make the correspondence available to the Board of
Directors for its review at the Board of Director’s request.
The Corporate Secretary will forward stockholder communications to
the Board of Directors prior to the next regularly scheduled
meeting of the Board of Directors following the receipt of the
communication.
Director Compensation
Non-Employee Director Compensation Arrangements
The
Board of Directors has adopted a non-employee director compensation
policy that provides annual retainer fees to each of our
non-employee directors. The annual retainer fee was at a rate of
$42,500 for the first and second quarter of 2016, and at a rate of
$55,000 for the third and fourth quarter of 2016. The Lead Director
receives an additional $25,000 annual retainer. Additionally,
Committee members receive annual retainers as follows:
|
|
|
|
|
|
|
|
Audit
Committee
|
$
20,000
|
$
8,500
|
$
25,000
|
$
8,500
|
Compensation
Committee
|
15,000
|
6,500
|
20,000
|
6,500
|
Nominating &
Corporate Governance Committee
|
7,500
|
5,000
|
—
|
5,000
|
Strategic
Initiative Committee
|
7,500
|
5,000
|
—
|
—
|
We pay
fees to the Board of Directors quarterly. We also reimburse our
non-employee directors for their travel and out of pocket expenses.
Members of the Board of Directors who also are our employees do not
receive any compensation for their service as directors. Our
directors do not receive board meeting fees. During the first six
months of 2016, each of our non-employee directors received
restricted common stock having an annual grant date value of
$80,000, which was distributed quarterly. The number of shares for
each quarterly award is determined by dividing $20,000 by the
average closing price of MusclePharm’s common stock for the
first fifteen business days of the first month of each quarter.
These quarterly common stock awards are vested upon grant. During
the second six months of 2016, each of our non-employee directors
received restricted common stock having an annual grant date value
of $175,000. The number of shares for this annual award is
determined by dividing the annual grant value by the average
closing price of MusclePharm’s common stock for the first
fifteen business days in the third quarter. This annual common
stock award is vested quarterly.
2016 Director Compensation.
The table below sets forth the
compensation paid to each non-employee member of the Board of
Directors during the year ended December 31, 2016. Mr. Drexler
receives no additional compensation for his service as a director,
and, consequently, is not included in this table. The compensation
received by Mr. Drexler as our Chief Executive Officer and
President is set forth in the “Summary Compensation
Table” below.
2017 Director Compensation.
In July 2017, the Board met and
ratified a new compensation program for independent directors. As
of July 1, 2017, Mr. Bush and Mr. Desmond will earn cash
compensation of $140,000 and $100,000, annually, respectively, and
be granted an annual grant of shares of $100,000 and $150,000,
respectively.
|
Total FeesEarned or Paidin
Cash ($)
|
Stock Option Awards($)
(1)
|
|
|
Michael Doron
(3)
)
|
$
108,750
|
$
94,505
|
$
233,632
|
$
436,887
|
William J.
Bush
|
$
81,750
|
|
$
214,996
|
$
296,746
|
Stacey Y. Jenkins
(4)
|
$
69,750
|
|
$
214,996
|
$
284,746
|
Noel Thompson
(5)
|
$
30,750
|
|
$
39,996
|
$
70,746
|
Richard Estalella
(5)
|
$
21,250
|
|
$
39,996
|
$
61,246
|
(1)
The amount listed
in the Option Awards column reflects the grant date fair value of
the stock option granted to Mr. Doron in 2016, calculated in
accordance with FASB ASC Topic 718, disregarding the effects of
estimated forfeitures. The grant date fair value of the stock
option was determined using the Black-Sholes option-pricing model,
with the following assumptions:
|
For the Year Ended
December
31
, 2016
|
Expected
term of options
|
|
Expected
stock price volatility
|
131.0
%
|
Expected
dividend yield
|
0
%
|
Risk-free
interest rate
|
1.71
%
|
As of
December 31, 2016, Mr. Doran held stock options to purchase an
aggregate of 54,945 shares of our common stock, of which 20,604
were vested. As of December 31, 2016, no other non-employee
director held stock options.
(2)
The grant date fair
value of stock awards was calculated in accordance with FASB ASC
Topic 718, disregarding the effects of estimated forfeitures, based
upon the 15-day average closing price of a share of our common
stock on the date of grant. As of December 31, 2016, the aggregate
number of stock awards held by our non-employee directors was as
follows:
|
Number of Stock
Awards Outstanding as of December 31, 2016
|
Michael
Doron
|
97,142
|
William J.
Bush
|
90,529
|
(3)
Mr. Doron did
not receive his first quarter 2015 stock grant due to a
recordkeeping oversight. Mr. Doron was issued 2,167 shares in
2016, the same number of shares other non-employee board members
received in the first quarter 2015. The grant date fair value of
this stock grant $18,636 is included for 2016 in the Stock Awards
column. The grant date fair value was calculated in accordance with
FASB ASC Topic 718, disregarding the effects of estimated
forfeitures, based upon the 15-day average closing price of the
common stock of $8.60. Mr. Doron resigned as a director on July 7,
2017 and will not stand for re-election at the
meeting.
(4)
Stacey Jenkins
resigned as a director on December 15, 2016, which resulted in the
forfeiture of 16,085 shares of unvested restricted stock held by
him. Mr. Jenkins will not stand for re-election at this
meeting.
(5)
The Company’s
2016 Annual Meeting of Stockholders of MusclePharm Corporation was
held on June 27, 2016. Mr. Richard Estalella and Mr. Noel Thompson
did not stand for re-election at this meeting.
Code of Conduct
Our Board of Directors established a Code of Conduct applicable to
our officers and employees. The Code of Conduct is accessible on
our website at www.musclepharmcorp.com. If we make any substantive
amendments to the Code of Conduct or grant any waiver, including
any implicit waiver, from a provision of the Code of Conduct to our
officers, we will disclose the nature of such amendment or waiver
on our website or in a report on Form 8-K.
Corporate Governance Overview
Our business, assets and operations are managed under the direction
of our Board of Directors. Members of our Board of Directors are
kept informed of our business through discussions with our Chief
Executive Officer, Interim Principal Financial Officer, our
external counsel, members of management and other Company employees
as well as our independent auditors, and by reviewing materials
provided to them and participating in meetings of the Board of
Directors and its committees.
In addition to its management function, our Board of Directors
remains committed to strong and effective corporate governance,
and, as a result, it regularly monitors our corporate governance
policies and practices to ensure we meet or exceed the requirements
of applicable laws, regulations and rules, the NASDAQ listing
standards, as well as the best practices of other public
companies.
Our corporate governance program features the
following:
●
a
Board of Directors that is up for election annually;
●
all of
our directors, other than our Chief Executive Officer, President
and Chairman of the Board of Directors and our Executive Vice
President of Sales and Operations, are independent;
●
we
have no stockholder rights plan in place;
●
periodically
updated charters for each of the Board’s committees, which
clearly establish the roles and responsibilities of each such
committee;
●
regular executive
sessions among our non-employee and independent
directors;
●
a
Board of Directors that enjoys unrestricted access to our
management, employees and professional advisers;
●
in
2016, each director attended at least 75% of the aggregate of the
total number of Board meetings and total number of meetings of
Board committees on which such director served during the time he
served on the Board of Directors or committees;
●
a
clear Code of Conduct that is reviewed regularly for best
practices;
●
a
clear Insider Trading Policy that is reviewed
regularly;
●
a
Corporate Communications Policy that is reviewed with employees and
the Board periodically;
●
a
clear set of Corporate Governance Guidelines that is reviewed
regularly for best practices;
●
our
Compensation Committee or Board of Directors may require the
forfeiture, recovery or reimbursement of incentive compensation
from an executive officer as required under United States
securities laws;
●
no
board member is serving on an excessive number of public company
boards; and
●
the
Compensation Committee’s engagement of an independent
compensation consultant.
Board of Directors’ Role in Risk Management
The Board of Directors oversees an enterprise-wide approach to risk
management, designed to support the achievement of organizational
objectives, including strategic objectives, to improve long-term
organizational performance and enhance stockholder value. Risk
management includes not only understanding company specific risks
and the steps management implements to manage those risks, but also
the level of risk acceptable and appropriate for us. Management is
responsible for establishing our business strategy, identifying and
assessing the related risks and implementing appropriate risk
management practices. Our Board of Directors reviews our business
strategy and management’s assessment of the related risk, and
discusses with management the appropriate level of risk for us. For
example, the Board of Directors meets with management at least
quarterly to review, advise and direct management with respect to
strategic business risks, risks related to our new product
development, financial risks, among others. The Board of Directors
also delegates oversight to Board committees to oversee selected
elements of risk.
The Audit Committee oversees financial risk exposures, including
monitoring the integrity of our financial statements, internal
controls over financial reporting, and the independence of our
Independent Registered Public Accounting Firm. The Audit Committee
reviews periodic internal controls and related assessments from our
finance department. The Audit Committee also assists the Board of
Directors in fulfilling its oversight responsibility with respect
to compliance matters and meets at least quarterly with our finance
department, Independent Registered Public Accounting Firm and
internal or external legal counsel to discuss risks related to our
financial reporting function. In addition, the Audit Committee
ensures that our business is conducted with the highest standards
of ethical conduct in compliance with applicable laws and
regulations by monitoring our Code of Business Conduct and our
Corporate Compliance Hotline, and the Audit Committee discusses
other risk assessment and our risk management policies periodically
with management.
The Compensation Committee participates in the design of
compensation structures that create incentives that encourage a
level of risk-taking behavior consistent with our business
strategy, as is further described in the Compensation Discussion
and Analysis section.
The Nominating & Corporate Governance Committee oversees
governance-related risks by working with management to establish
corporate governance guidelines applicable to us, and making
recommendations regarding director nominees, the determination of
director independence, Board of Directors leadership structure and
membership on Board committees.
The
Strategic Initiative
Committee.
The
responsibilities of the Strategic Initiative Committee were
transferred to the Board of Directors in the third quarter of
2016.
EXECUTIVE COMPENSATION
Overview
We
became eligible to take advantage of the rules applicable to a
“smaller reporting company,” as defined in the Exchange
Act, effective as of December 31, 2016. As a “smaller
reporting company” we are permitted, and have opted, to
comply with the scaled back executive compensation disclosure rules
applicable to a “smaller reporting company” under the
Exchange Act. The following discussion relates to the compensation
of our named executive officers (“NEOs”). For the year
ended December 31, 2016, our NEOs were:
●
Ryan
Drexler—Chief Executive Officer, President and Chairman of
the Board of Directors;
●
Brian Casutto
– Executive Vice President of Sales and
Operations;
●
Brad
Pyatt—Former Chief Executive Officer;
(1)
and
●
Brent Baker –
Former Executive Vice President of International
Business.
(2)
(1)
Mr. Pyatt served as our Chief Executive Officer until
his resignation on March 15, 2016.
(2)
Mr. Baker’s employment with the Company ended on
March 23, 2017.
Our executive compensation program is designed to attract, motivate
and retain talented executives that will drive Company growth and
create long-term stockholder value. The Compensation Committee
oversees and administers our executive compensation program, with
input and recommendations from our Chief Executive
Officer.
ELEMENTS OF EXECUTIVE COMPENSATION
Our executive compensation program has three main components: base
salary, cash bonuses and incentive equity awards. Our named
executive officers are also entitled to employee benefits that are
made available to our salaried employees generally, certain
compensation and benefits in connection with a change in control or
termination of employment, and certain perquisites, as described
below.
Independent Compensation Consultant
The
Compensation Committee has retained Longnecker Associates
(Longnecker), an independent executive compensation consulting
firm, since 2013, to assist it in providing advice and data with
respect to executive compensation matters. Longnecker reports to
the Compensation Committee, and may not conduct any other work for
the Company without the authorization of the Compensation
Committee. Longnecker did not provide any additional services to
MusclePharm in 2016 beyond its engagement as an advisor to the
Compensation Committee on executive and director compensation
matters. After review and consultation with Longnecker, the
Compensation Committee has determined that Longnecker is
independent and there is no conflict of interest resulting from the
engagement of Longnecker. In reaching these conclusions, the
Compensation Committee considered the factors set forth under SEC
rules.
In
2016, Longnecker worked with the Compensation Committee and
management to provide advice related to the non-employee director
compensation program described below. Additionally, Longnecker
provided advice regarding the separation payments made in
connection with resignation of the Company’s former Chief
Executive Officer.
Base Salary
The Compensation Committee determined the initial base salary for
each of our named executive officers and each year determines
whether to approve any base salary adjustments based upon the
Company’s performance, the named executive officer’s
individual performance, changes in duties and responsibilities of
the named executive officer and the recommendations of our Chief
Executive Officer (other than with respect to his own base salary).
For 2016, our named executive officers’ base salaries were as
follows:
Name
|
|
Ryan
Drexler
|
$
550,000
|
Brian
Casutto
|
$
400,000
|
Brad
Pyatt
|
$
425,000
|
Brent
Baker
|
$
300,000
|
Cash Bonuses
Pursuant to their employment agreements, each of our named
executive officers is eligible to earn a cash bonus, with a target
amount established by the Compensation Committee, based on the
achievement of specified performance goals. For 2016, the target
bonus amounts were $300,000 for Mr. Casutto, $250,000 for Mr.
Pyatt, and $400,000 for Mr. Baker. For 2016, Messrs. Casutto and
Baker earned cash bonuses in the amounts set forth in the
“Summary Compensation Table” below. Mr. Pyatt forfeited
any entitlement to a bonus for 2016 when he resigned as our Chief
Executive Officer in March 2016. Pursuant to his amended and
restated employment agreement, Mr. Drexler is eligible to, and did,
receive cash bonuses based on the achievement of specified
performance goals, as described under “Narrative Disclosure
to Summary Compensation Table” below.
Incentive Equity Awards
Incentive
equity awards granted by the Company have historically been in the
form of restricted stock awards. The Company also grants stock
options from time to time. The Compensation Committee believes that
equity based awards are an effective retention tool that also align
our executives’ interests with those of our stockholders. In
2016, we granted Mr. Drexler a stock option to purchase 137,362
shares of our common stock, which vests in equal quarterly
installments over the two-year period following the grant date, and
200,000 shares of restricted stock, which vest in full on the first
anniversary of the grant date. Mr. Drexler’s equity awards
vest in full upon termination of his employment or upon change in
control. Mr. Drexler is eligible to receive additional equity-based
awards upon the achievement of specified performance goals, as
described under “Narrative Disclosure to Summary Compensation
Table” below. In 2016, Mr. Casutto was granted 50,000 shares
of restricted stock, which vest in accordance with the schedule
listed under “Outstanding Equity Awards at Year-End
Table” below. Mr. Casutto’s restricted stock vests in
full upon certain terminations of his employment or a change in
control, as described under “Narrative Disclosure to Summary
Compensation Table” below.
Employment Agreements
We have entered into employment agreements with each of Mr. Drexler
and Mr. Casutto that include certain severance and change in
control payments and entered into separation agreements with each
of Mr. Pyatt and Mr. Baker that provide for severance
benefits.
For details, including
with respect to the severance paid to Mr. Pyatt and Mr. Baker in
connection with their employment terminations, see “Narrative
Disclosure to Summary Compensation Table”
below.
Employee Benefit Plans and Perquisites
We
maintain a Section 401(k) Savings/Retirement Plan (the 401(k)
Plan) to cover eligible employees of the Company and any designated
affiliate in the United States, including our named executive
officers. The 401(k) Plan permits eligible employees to defer up to
the maximum dollar amount allowed by law. The employee’s
elective deferrals are immediately vested upon contribution to the
401(k) Plan. We currently make discretionary matching contributions
to the 401(k) Plan in an amount equal to 100% of each eligible
employee’s deferrals up to 4% of his or her qualifying
compensation, subject to a total employer contribution maximum of
$10,600 and limits imposed by applicable law.
We do
not maintain any other defined benefit, defined contribution or
deferred compensation plans for our employees.
Our
executive officers are eligible to participate in all of our
employee benefit plans, such as medical, dental, vision, group life
and disability insurance, in each case on the same basis as other
employees, subject to applicable law. We also provide vacation and
other paid holidays to all employees, including our executive
officers. In addition, we provide certain highly-compensated
employees, including our named executive officers, with life
insurance and supplemental long-term disability coverage. Certain
of our executives are also entitled to certain perquisites, as
described and quantified in the Summary Compensation Tables below
under “All Other Compensation.”
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table for 2016
The
following summary compensation tables sets forth all compensation
awarded to, earned by, or paid to our named executive officers for
2016 and, where applicable, 2015, in respect of their employment
with the Company.
Name and
Principal Position
|
|
Year
|
|
|
|
|
|
Non-EquityIncentive
Plan Compensation ($)
|
All
Other
Comp-ensation ($)
|
|
|
Ryan Drexler
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive
Officer,
|
|
2016
|
466,667
|
750,000
|
454,000
|
(2
)
|
236,200
(3)
|
—
|
76,155
|
(8
)
|
1,983,085
|
President
|
|
2015
|
250,000
(1)
|
—
|
—
|
|
—
|
—
|
77,876
|
|
327,876
|
Brian
Casutto
(4)
|
|
2016
|
395,833
|
233,750
|
94,500
|
(5
)
|
—
|
—
|
28,176
|
(8
)
|
752,259
|
Executive Vice
President of Sales and Operations
|
|
|
|
|
|
|
|
|
|
|
|
Brent Baker
(6)
|
|
2016
|
300,000
|
210,000
|
—
|
|
—
|
—
|
30,179
|
(8
)
|
540,179
|
Former Executive
Vice President of International Business
|
|
|
|
|
|
|
|
|
|
|
|
|
Brad Pyatt
(7)
|
|
2016
|
233,858
|
—
|
—
|
|
—
|
—
|
1,329,727
|
(8
)
|
1,563,585
|
Former Chief
Executive Officer
|
|
2015
|
420,833
|
—
|
—
|
|
—
|
244,375
|
133,278
|
|
798,486
|
(1)
On August 26,
2015, our Board of Directors appointed Mr. Drexler as the
Company’s Chairman. On February 11, 2016,
Mr. Drexler entered into an employment agreement with the
Company, pursuant to which the Company agreed to pay him a lump sum
cash payment of $250,000 in respect of his service to the Company,
in lieu of any base salary for 2015. On March 15, 2016,
Mr. Drexler was appointed as our Interim Chief Executive
Officer, Interim President and Chairman of the Board of Directors.
On November 18, 2016, Mr. Drexler agreed to continue to serve as
the Chairman of the Board of Directors and to serve as our Chief
Executive Officer and President. Mr. Drexler earned cash bonuses of
$750,000 in respect of this 2016 performance. For information
regarding restricted stock granted to Mr. Drexler in connection
with his individual guaranty of Company debt, and loans to the
Company in the form of convertible debt, see “Related Party
Transactions” below.
(2)
Reflects the full
grant date fair value of restricted stock award granted in 2016
calculated in accordance with FASB ASC Topic 718, disregarding the
effects of estimated forfeitures, based on the closing price of the
common stock of $2.27 on the date of the grant.
(3)
The fair value of
the option awards of $1.72 was determined using the Black-Sholes
option-pricing model, with the following assumptions:
|
For the Year
Ended
December 31,
2016
|
Expected term of
options
|
|
Expected stock
price volatility
|
131.0
%
|
Expected dividend
yield
|
0
%
|
Risk-free interest
rate
|
1.71
%
|
(2)
Mr. Casutto joined
the Company on July 15, 2015 as our Executive Vice President of
Sales and Operations. Because Mr. Casutto was not a named executive
officer for 2015, his compensation for 2015 is not included in the
Summary Compensation Table.
(3)
Reflects the grant
date fair value of the restricted stock granted to Mr. Casutto in
2016, calculated in accordance with FASB ASC Topic 718,
disregarding the effects of estimated forfeitures, based on the
closing price of our common stock of $1.89 on the date of the grant
multiplied by the number of shares of restricted stock
granted.
(4)
Mr. Baker joined
the Company in 2012 to spearhead all aspects of our international
business. Mr. Baker’s employment with the Company was
terminated on March 23, 2017. Because Mr. Baker was not a named
executive officer for 2015, his compensation for 2015 is not
included in the Summary Compensation Table.
(5)
Mr. Pyatt
resigned from his position as the Company’s Chief Executive
Officer on March 15, 2016. Mr. Pyatt had also previously
served as our President until he resigned from that position in
April 2014.
(6)
Amounts under All
Other Compensation for 2016 include Company 401(k) matching
contributions, insurance premiums paid by the Company on behalf of
our named executive officers, perquisites and severance
payments, as
follows:
|
|
|
|
|
Company
401(k) Matching Contributions
|
$
—
|
$
—
|
$
10,600
|
$
10,500
|
Severance
(a)
|
—
|
—
|
—
|
1,312,000
|
Miscellaneous
(b)
|
10,843
|
900
|
900
|
1,250
|
Automobile Expenses
(c)
|
8,809
|
20,809
|
12,000
|
—
|
Attorney Fees
(d)
|
56,503
|
—
|
—
|
—
|
Insurance
Premiums
|
—
|
6,467
|
6,679
|
5,977
|
TOTAL
|
$
76,155
|
$
28,176
|
$
30,179
|
$
1,329,727
|
(a)
Represents the
amount of severance paid or accrued in 2016 relating to Mr.
Pyatt’s resignation of employment under his separation
agreement. For details relating to Mr. Pyatt’s separation
agreement, see “Narrative Disclosure to Summary Compensation
Table” below.
(b)
These amounts
include amounts paid by the Company for miscellaneous expenses,
including Company-provided matching contributions to health savings
accounts for our named executive officer and amounts paid for
expenses incurred by our named executive officers that were not
adequately substantiated or did not qualify as a reimbursable
business expense under our expense reimbursement
policy.
(c)
We provided an
automobile allowance for Mr. Casutto and Mr. Baker, and the use of
a Company car by Mr. Drexler and Mr. Casutto while they are in
Colorado. For the Company car provided to Mr. Drexler and Mr.
Casutto, the Company insures the car under its insurance programs,
pays all registration, license, taxes and other fees on the car,
pays for all repairs and reimburses for all gas and maintenance
costs on the car. The amount disclosed in the table above for each
of Mr. Drexler and Mr. Cassuto represents one-half of the total
annual cost to the Company for the Company car.
(d)
Represents legal
fees in relation to the convertible note that the Company entered
into with Mr. Drexler and execution of the amended employment
agreement with Mr. Drexler, as described under “Related Party
Transactions” below.
Narrative Disclosure to Summary Compensation Table
We have entered into employment agreements with each of Mr. Drexler
and Mr. Casutto that include certain severance and change in
control payments and entered into separation agreements with each
of Mr. Pyatt and Mr. Baker that provide for severance benefits, as
described below, and the negotiation of Mr. Drexler’s amended
and restated employment agreement. As used below, the terms
“without cause,” “good reason,”
“qualifying sale of the Company,” and “change in
control” are defined in the applicable
agreements.
Mr. Drexler.
Mr. Drexler is party to an employment
agreement with the Company, which was entered into as of
February 11, 2016 and was amended and restated as of November
18, 2016. The term of his agreement is for three years from
February 11, 2016 and is subject to automatic one-year renewals
upon the expiration of the initial term or subsequent term, unless
either party provides at least three months’ written notice
of its or his intention not to renew. Under his employment
agreement, Mr. Drexler is entitled to a base salary of
$550,000 per year, subject to adjustment. In connection with the
execution of the employment agreement on February 11, 2016, Mr.
Drexler was granted a stock option to purchase 137,362 shares of
our common stock, with the option vesting in equal quarterly
installments during the two-year period following the grant date,
and 200,000 shares of restricted stock that will vest in full upon
the first anniversary of the grant date under his amended and
restated employment agreement dated November 18, 2016. He was also
granted a $750,000 cash bonuses in respect of 2016 performance. In
addition, Mr. Drexler is eligible to receive cash- and equity-based
incentive bonuses of up to $600,000 in cash (in addition to the
$750,000 cash bonus described above) and 350,000 shares of
additional restricted stock, respectively, based upon the
achievement of specified performance goals and a transaction bonus
equal to between 5% and 10% of the aggregate purchase price
received upon a qualifying sale of the Company for $150 million or
more that is consummated on or prior to February 10, 2019 (or
February 10, 2021 as provided for below). Mr. Drexler is also
eligible for grants of equity awards available to other senior
executives of the Company as may be determined by the Board of
Directors or the Compensation Committee.
If Mr.
Drexler’s employment is terminated for any reason, each
equity award granted to him will fully vest and he will be entitled
to any unpaid transaction bonus and cash- and equity-based
performance bonuses, to the extent earned as of the date of such
termination, in addition to any amounts required by law or Company
policy. In addition, if Mr. Drexler’s employment is
terminated for any reason other than by the Company for cause or by
Mr. Drexler without good reason, Mr. Drexler will remain eligible
to receive the transaction bonus described above if a qualifying
sale of the Company occurs prior to February 10, 2021, subject, in
certain cases, to his execution of a release of claims in favor of
the Company and its affiliates.
Under
the employment agreement, Mr. Drexler has agreed to certain
restrictions on competition and solicitation, which continue for 12
months following the termination of his employment, if his
employment is terminated due to disability, by him for good reason
or by the Company with or without cause. The employment agreement
also contains restrictions with respect to disclosure of the
Company’s confidential information.
Mr. Casutto.
Mr. Casutto is party to an employment agreement
with the Company, which was entered into as of July 15, 2015. The
term of the employment agreement ends on December 31, 2017, and may
be extended. Under his employment agreement, Mr. Casutto is
entitled to a base salary of $300,000 per year, which may be
increased at the discretion of the Compensation Committee. In
addition, Mr. Casutto is eligible to receive cash bonuses based on
performance criteria to be adopted by the Compensation Committee,
with a potential bonus pool of up to $300,000 per year, which may
be adjusted at the discretion of the Compensation Committee. Under
his employment agreement he is entitled to a monthly vehicle
allowance of $1,000 and a miscellaneous expense allowance of up to
$5,000.
If Mr.
Casutto’s employment is terminated without cause or he
resigns for good reason, he will be entitled to receive (i) base
salary continuation for the lesser of 12 months and the remainder
of the term of the employment agreement, (ii) a bonus equal to the
greater of 25% of his target bonus for the year (or 50%, if the
termination of employment occurs between July 1 and December 31 of
the year) and the bonus for the year of termination of employment,
as determined by the Compensation Committee at its discretion, and
(iii) reimbursement of COBRA premiums for up to 12 months. In
addition, unless otherwise provided in an equity award agreement,
all equity awards held by Mr. Casutto will vest in full. If Mr.
Casutto’s employment is terminated without cause or he
resigns for good reason within six months prior to (under certain
circumstances) or two years following a change in control (or the
end of the term of the employment agreement, if earlier), then Mr.
Casutto will be entitled to receive, in lieu of the amounts
described above, (i) base salary continuation for 12 months,(ii) a
bonus equal to the greater of 100% of his target bonus and the
bonus for the year of termination of employment as determined by
the Compensation Committee, (iii) a lump sum cash payment of
$500,000, (iv) reimbursement of COBRA premiums for up to 12 months
and (v) all equity and other incentive awards held by Mr. Casutto
will fully vest. If Mr. Casutto’s employment is terminated
due to his death or disability, he will be entitled to receive (i)
the greater of 100% of his target bonus for the year of termination
or the bonus for such year as determined by the Compensation
Committee, (ii) reimbursement of COBRA premiums for up to 12 months
and (iii) if such termination is due to his disability, base salary
continuation for 6 months. All severance payable to Mr. Casutto
under his employment agreement is subject to his execution (and
non-revocation) of a release of claims in favor of the
Company.
Under
the employment agreement, Mr. Casutto has agreed to certain
restrictions on competition and solicitation, which continue for 12
months following the termination of his employment. The employment
agreement also contains restrictions with respect to disclosure of
the Company’s confidential information.
Mr. Baker.
Mr. Baker was party to an employment agreement
with the Company, which was entered into as of January 1, 2016.
Under his employment agreement, Mr. Baker was entitled to a
base salary of $300,000 for 2016 and $350,000 for 2017, subject to
increase at the discretion of the Compensation Committee. In
addition, Mr. Baker was eligible to receive cash bonuses based on
performance criteria to be adopted by the Compensation Committee,
with a potential bonus pool of up to $400,000 per year, payable
quarterly.
Under
the employment agreement, Mr. Baker agreed to certain restrictions
on competition and solicitation, which continue for 12 months
following the termination of his employment. The employment
agreement also contained restrictions with respect to disclosure of
the Company’s confidential information.
Mr.
Baker’s employment terminated on March 23, 2017. In
connection with his termination of employment, subject to his
execution (and non-revocation) of a release of claims in favor of
the Company, Mr. Baker became entitled to receive (i) severance in
the amount of $350,000, payable over a 12-month period, a lump sum
payment of $39,378, representing Mr. Baker’s accrued and
unused vacation time, and a first quarter bonus of $80,311, and
10,000 shares of unvested restricted stock held by Mr. Baker became
fully vested, which was fully accrued for in the quarter ended
March 31, 2017. In addition, the restrictions on competition
contained in his employment agreement were reduced to 6 months
following his termination of employment.
Mr. Pyatt
. We had been party to an employment agreement with
Mr. Pyatt, which terminated in connection with his resignation of
employment. In connection with his employment termination in March
2016, we entered into a separation agreement with Mr. Pyatt. Under
the separation agreement, in exchange for a release of claims, the
Company agreed to pay Mr. Pyatt severance in the amount of
$1,062,000, payable over a 12-month period, a lump sum payment of
$250,000 and to reimburse COBRA premiums for him and his eligible
dependents for up to 12 months, which was fully accrued for in the
second quarter ended March 31, 2016. In addition, all outstanding
equity awards held by Mr. Pyatt vested in full upon his resignation
of employment. Under the separation agreement, Mr. Pyatt agreed to
certain restrictions on competition and solicitation, which
continue for 12 months and 24 months, respectively, following the
termination of his employment. The agreement also contained
restrictions with respect to disclosure of the Company’s
confidential information.
Outstanding Equity Awards at Year End
The
following table provides information concerning restricted stock
and options to purchase shares of our common stock held by our
named executive officers as of December 31, 2016.
Outstanding
Equity Awards at Year End
|
|
|
|
|
|
|
|
Grant
Date
|
Number of
Securities Underlying Unexercised Options (#)
Exercisable
|
Number of
Securities Underlying Unexercised Options (#)
Unexercisable
|
Option Exercise
Price ($)
|
|
Number of
Shares of Stock that Have Not Vested
(1)
(#)
|
Market Value of
Shares or Units of Stock that Have Not Vested
(2)
|
Ryan
Drexler
(3)
|
|
12/8/2016
|
|
|
|
|
200,000
|
$
350,000
|
|
2/22/2016
|
51,510
|
85,852
|
$
1.89
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Casutto
|
|
2/23/2016
|
—
|
—
|
—
|
—
|
50,000
|
87,500
|
|
10/1/2014
|
—
|
—
|
—
|
—
|
30,000
|
52,500
|
|
|
|
|
|
|
|
|
Brent
Baker
(4)
|
|
4/28/2015
|
—
|
—
|
—
|
—
|
10,000
|
17,500
|
|
|
|
|
|
|
|
|
Brad
Pyatt
|
|
|
—
|
—
|
—
|
—
|
—
|
—
|
(1)
The table below
shows the vesting dates for the unvested shares of restricted stock
listed in the above Outstanding Equity Awards at Year-End for 2016
Table, generally subject to the named executive officer’s
continued employment through such date. The restricted stock
granted to Mr. Drexler in 2016 would vest in full upon a
termination of his employment or a change in control and the
restricted stock granted to Mr. Baker vested in full in connection
with his termination of employment on March 23, 2017. The
restricted stock granted to Mr. Casutto would vest in connection
with a termination of Mr. Casutto’s employment under certain
circumstances, as described under “Narrative Disclosure to
Summary Compensation Table” above.
Vesting
Date
|
|
|
|
12/8/2017
|
200,000
|
—
|
—
|
3/23/2017
|
—
|
—
|
10,000
|
5/23/2017
|
—
|
30,000
|
—
|
12/31/2017
|
—
|
15,000
|
—
|
5/23/2018
|
—
|
10,000
|
—
|
12/31/2018
|
—
|
15,000
|
—
|
5/23/2019
|
—
|
10,000
|
—
|
(2)
|
The
market value of the restricted stock represents the product of the
closing price of a share of our common stock as of
December 30, 2016 (the last trading day of the year), which
was $1.75, and the number of shares of restricted stock held by the
named executive officer on December 31, 2016.
|
(3)
|
The
stock options granted to Mr. Drexler vest in equal quarterly
installments over the two-year period commencing from the date of
grant, subject to Mr. Drexler’s continued employment. The
stock options granted to Mr. Drexler would vest in full upon a
termination of his employment or upon change in
control.
|
(4)
|
The
restricted stock granted to Mr. Baker vested in full with his
termination of employment on March 23, 2017.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of shares of our common stock by (i) each
current director, (ii) each named executive officer, and
(iii) each person who we know beneficially owns more than 5%
of our common stock as of November 1, 2017.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the persons
and entities named in the table below have sole voting and
investment power with respect to all shares of common stock that
they beneficially own, subject to applicable community property
laws.
|
Shares Beneficially Owned
|
|
|
|
|
|
Named Executive
Officers:
|
|
|
Ryan Drexler
(3)
|
10,821,148
|
46.3
%(4)
|
Brian
Casutto
|
125,000
|
*
|
Non-Employee
Directors:
|
|
|
William
Bush
|
154,086
|
1.0
%
|
John J.
Desmond
|
80,214
|
*
|
Officers and
Directors as a Group (four persons):
|
11,180,448
|
47.7
%
|
*
Represents less
than one percent.
(1)
This
column lists beneficial ownership of voting securities as
calculated under SEC rules. Otherwise, except to the extent noted
below, each director, named executive officer or entity has sole
voting and investment power over the shares reported. Standard
brokerage accounts may include nonnegotiable provisions regarding
set-offs or similar rights.
(2)
Percent of total
voting power represents voting power with respect to 14,650,554
shares of common stock outstanding as of November 1, 2017, plus
8,619,625 shares of common stock as if the conversion option of the
outstanding convertible debt was exercised and options to purchase
common shares 106,021 shares (23,390,370 common shares) were also
exercised.
(3)
Ryan
Drexler, the Company’s Chief Executive Officer, President and
Chairman of the Board of Directors is the sole member of Consac,
LLC, and as such has voting and investment power over the
securities owned by the stockholder. These shares are also included
in the beneficial owners of more than five percent table
below.
(4)
Following the
Refinancing (defined below) on November 3, 2017, Mr. Drexler
beneficially owns 59.4% of our common stock outstanding as of
November 1, plus 16,216,216 shares of common stock as if the
conversion option of the outstanding convertible debt was exercised
and options to purchase 106,021 shares (30,986,961 common shares)
were also exercised.
Beneficial Owners of More than Five Percent
The
following table shows the number of shares of our common stock, as
of November 1, 2017, held by persons known to us to beneficially
own more than five percent of our outstanding common
stock.
|
Shares Beneficially Owned
|
|
|
|
|
|
Wynnefield Capital
(3)
|
1,636,305
|
11.3
%
|
Consac, LLC
(4)
|
10,821,148
|
46.3
%
|
Amerop Holdings,
Inc. (5)
|
2,211,781
|
15.3
%
|
(1)
This column lists
beneficial ownership of voting securities as calculated under SEC
rules. Otherwise, except to the extent noted below, each director,
named executive officer or entity has sole voting and investment
power over the shares reported. Standard brokerage accounts may
include nonnegotiable provisions regarding set-offs or similar
rights.
(2)
Percent of total
voting power represents voting power with respect to 14,650,554
shares of common stock outstanding as of November 1, 2017.
To
compute the percentage of outstanding shares of common stock held
by each person and unless otherwise noted, any share of common
stock which such person has the right to acquire pursuant to the
exercise of stock options exercisable within 60 days of November 1,
2017 or upon conversion of convertible debt is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other
person.
(3)
Joshua Landes and
Nelson Obus may be deemed to hold an indirect beneficial interest
in these shares, which are directly beneficially owned by
Wynnefield Partners Small Cap Value, L.P., Wynnefield Partners
Small Cap Value, L.P. I, Wynnefield Small Cap Value Offshore Fund
and Wynnefield Capital, Inc. Profit Sharing Plan because they are
co-managing members of Wynnefield Capital Management, LLC and
principal executive officers of Wynnefield Capital, Inc. The
principal place of business for Wynnefield Capital is 450 Seventh
Avenue, Suite 509, New York, New York 10123. This information is
based on a Schedule 13D/A filed on November 1, 2017 with the
SEC.
(4)
Ryan Drexler, the
Company’s Chief Executive Officer, President and Chairman of
the Board of Directors is the sole member of Consac, LLC, and as
such has voting and investment power over the securities owned by
the stockholder. These shares are also included in the Named
Executive Officers portion of the Management Beneficial Ownership
table above. Mr. Drexler disclaims such beneficial ownership except
to the extent of his pecuniary interests therein.
(5)
Amerop
Holdings, Inc. reported sole voting power with respect to 2,211,781
shares. The address of Amerop Holdings, Inc. is 1800 Broadway,
Suite 100, Boulder, CO 80302.
This information is based on a
Schedule 13D filed on October 17, 2017 with the SEC.
EQUITY COMPENSATION PLAN INFORMATION
In
2015, we adopted the MusclePharm Corporation 2015 Incentive
Compensation Plan (the “2015 Plan”). The 2015 Plan was
approved by our stockholders and replaced our 2010 Equity Incentive
Plan. The following table sets forth the number and
weighted-average exercise price of securities to be issued upon
exercise of outstanding options, warrants and rights, and the
number of securities remaining available for future issuance under
all of our equity compensation plans, at December 31,
2016:
|
Number of securities
to be issued upon exercise of outstanding options,
warrants and rights (a)
|
Weighted average
exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column (a)(c)
|
Equity compensation
plans approved by security holders:
|
|
|
|
2015 Incentive
Compensation Plan
|
331,584
|
$
2.10
|
1,374,519
|
|
|
|
|
Total
|
331,584
|
$
2.10
|
1,374,519
|
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the “Audit
Committee”) has furnished this report concerning the
independent audit of the Company’s financial statements. Each
member of the Audit Committee meets the enhanced independence
standards established by the Sarbanes-Oxley Act of 2002 and
rulemaking of the Securities and Exchange Commission (the
“SEC”) and the NASDAQ Stock Market regulations. A copy
of the Audit Committee Charter is available on the Company’s
website at
ir.musclepharmcorp.com/governance-documents.
The Audit Committee’s responsibilities include assisting the
Board of Directors regarding the oversight of the integrity of the
Company’s financial statements, the Company’s
compliance with legal and regulatory requirements, the Independent
Registered Public Accounting Firm’s qualifications and
independence, and the performance of the Company’s
Independent Registered Public Accounting Firm.
In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed the Company’s financial statements for
the year ended December 31, 2016 with the Company’s
management and EKS&H LLLP, the Company’s Independent
Registered Public Accounting Firm. In addition, the Audit Committee
has discussed with EKS&H LLLP, with and without management
present, their evaluation of the Company’s internal
accounting controls and overall quality of the Company’s
financial reporting. The Audit Committee also discussed with
EKS&H LLLP the matters required to be discussed by AICPA,
Professional Standards, Vol. 1, AU Section 380 (Communication
with Audit Committees), as modified or supplemented. The Audit
Committee also received the written disclosures and the letter from
EKS&H LLLP required by the Public Company Accounting Oversight
Board Rule 3526 (Communication with Audit Committees Concerning
Independence) and the Audit Committee discussed with EKS&H LLLP
the independence of EKS&H LLLP from the Company and the
Company’s management.
Based on the Audit Committee’s review and discussions noted
above, the Audit Committee recommended to the Board of Directors,
and the Board of Directors approved, that the audited financial
statements be included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2016 for filing with the
Securities and Exchange Commission.
The Audit Committee and the Board of Directors also have
recommended, subject to stockholder approval, the selection of
EKS&H LLLP as the Company’s Independent Registered Public
Accounting Firm for the year ending December 31,
2017.
RELATED PARTY TRANSACTIONS
Related-Party Promissory Notes
In July 2017, the Company entered into a Secured Demand Promissory
Note (the “Demand Note”) in the principal amount of
$1.0 million to Ryan Drexler, the Chief Executive Officer,
President and Chairman of the Board of Directors of the Company.
The Demand Note bore interest at the rate of 15% per annum and was
payable on demand by the Mr. Drexler. Any interest not paid when
due would be capitalized and added to the principal amount of the
Note and would bear interest on the applicable interest payment
date along with all other unpaid principal, capitalized interest,
and other capitalized obligations. The Company could prepay the
note without penalty any time prior to a demand request from the
Holder. The Note was secured by all of the assets of the Company
pursuant to the terms and conditions of a Second Amended and
Restated Security Agreement between the Company and Mr.
Drexler.
In November 2016, the Company entered into a convertible secured
promissory note agreement (the “2016 Convertible Note”)
with Mr. Drexler, pursuant to which Mr. Drexler loaned the
Company $11.0 million. Proceeds from the 2016 Convertible Note
were used to fund settlement of litigation. The 2016 Convertible
Note was secured by all assets and properties of the Company and
its subsidiaries, whether tangible or intangible. The 2016
Convertible Note carried interest at a rate of 10% per annum, or
12% upon an event of default. Both the principal and the interest
under the 2016 Convertible Note would have been due on November 8,
2017, unless converted earlier. Mr. Drexler had the right to
convert the outstanding principal and accrued interest into
6,010,929 shares of the Company’s common stock for $1.83 per
share at any time. The Company had the right to prepay the 2016
Convertible Note at the aggregate principal amount therein, plus
accrued interest, by giving Mr. Drexler between 15 and 60
day-notice depending upon the specific circumstances, provided that
Mr. Drexler could convert the 2016 Convertible Note during the
applicable notice period.
The Company recorded the
2016 Convertible Note
as a
liability in the balance sheet and also recorded a beneficial
conversion feature of $601,000 as a debt discount upon issuance of
the convertible note, which was amortized over the term of the debt
using the effective interest method. The beneficial conversion
feature was calculated based on the difference between the fair
value of common stock on the transaction date and the effective
conversion price of the convertible note. As of December 31,
2016, the
2016 Convertible Note
had an outstanding principal balance of $11.0 million and a
carrying value of $10.5 million.
In
December 2015, the Company entered into a convertible secured
promissory note agreement (the “2015 Convertible Note”)
with Mr. Drexler, pursuant to which he loaned the Company
$6.0 million. Proceeds from the 2015 Convertible Note were
used to fund working capital requirements. The 2015 Convertible
Note is secured by all assets and properties of the Company and its
subsidiaries whether tangible or intangible. The 2015 Convertible
Note originally carried an interest at a rate of 8% per annum, or
10% in the event of default. Both the principal and the interest
under the 2015 Convertible Note were originally due in
January 2017, unless converted earlier.
The due date of the 2015 Convertible Note was
extended to November 8, 2017 and the interest rates were raised
to
10% per annum, or 12% in the event of default
. Mr. Drexler had the right to convert
the
outstanding principal and accrued interest into 2,608,695 shares of
common stock for $2.30 per share at any time. The Company had the
right to prepay the convertible note at the aggregate principal
amount therein plus accrued interest by giving the holder between
15 and 60 day-notice, depending upon the specific circumstances,
provided that Mr. Drexler could
convert the 2015 Convertible Note during the applicable notice
period
. The Company recorded the 2015 Convertible Note as a
liability in the balance sheet and also recorded a beneficial
conversion feature of $52,000 as a debt discount upon issuance of
the 2015 Convertible Note, which was amortized over the original
term of the debt using the effective interest method. The
beneficial conversion feature was calculated based on the
difference between the fair value of common stock on the
transaction date and the effective conversion price of the
convertible note. As of December 31, 2016 and 2015, the
convertible note had an outstanding principal balance of $6.0
million.
In connection with the
Company entering into the 2015 Convertible Note with
Mr. Drexler, the Company granted Mr. Drexler the right to
designate two directors to the Board.
For the
years ended December 31, 2016 and 2015, interest expense related to
the related party convertible secured promissory notes was $0.7
million and $33,000, respectively. During the year ended December
31, 2016, $0.5 million in interest was paid in cash to Mr. Drexler.
No interest was paid during the year ended December 31,
2015.
Notes Refinancing
On
November 3, 2017, the Company entered into a refinancing
transaction (the “Refinancing”) with Mr. Drexler,
pursuant to which the parties entered an amended and restated
convertible secured promissory note (the “Refinanced
Convertible Note”) in the original principal amount of
$18,000,000, which amends and restates the Demand Note, the 2016
Convertible Note and the 2015 Convertible Note. The Refinanced
Convertible Note bears interest at the rate of 12% per annum.
Interest payments are due on the last day of each quarter. At the
Company’s option (as determined by its independent
directors), the Company may repay up to one sixth of any interest
payment by either adding such amount to the principal amount of the
note or by converting such interest amount into an equivalent
amount of the Company’s common stock. Any interest not paid
when due shall be capitalized and added to the principal amount of
the Refinanced Convertible Note and bear interest on the applicable
interest payment date along with all other unpaid principal,
capitalized interest, and other capitalized obligations. Following
an event of default, interest will accrue at the rate of 14% per
annum. In addition, following an event of default, any conversion,
redemption, payment or prepayment of the Refinanced Convertible
Note will be at a premium of 105%.
Mr.
Drexler may convert the outstanding principal and accrued interest
into shares of the Company’s common stock at a conversion
price of $1.11 per share at any time. The Company may prepay the
Refinanced Convertible Note by giving Mr. Drexler between 15 and 60
days’ notice depending upon the specific circumstances,
subject to Mr. Drexler’s conversion right.
Debt Guaranty
In October 2015, the Company entered into loan modification
agreements with the banking institution under its line of credit
and term loan to: (i) change the maturity date of the loans to
January 15, 2016, (ii) prohibit the loans to be declared in
default prior to December 10, 2015, except for defaults
resulting from failure to make timely payments, and (iii) delete
certain financial covenants from the line of credit. In
consideration for these modifications, Ryan Drexler, and a family
member, provided their individual guaranty for the remaining
balance of the loans of $6.2 million. In consideration for
executing his guaranty, the Company issued to Mr. Drexler
28,571 shares of common stock with a grant date fair value of
$80,000, based upon the closing price of the Company’s common
stock on the date of issuance.
Key Executive Life Insurance
The Company had purchased split dollar life insurance policies on
certain key executives. These policies provide a split of 50% of
the death benefit proceeds to the Company and 50% to the
officer’s designated beneficiaries. All policies were
terminated or transferred to the former employees as of December
31, 2016.
Indemnification Agreements
We
adopted indemnification agreements with each of our directors and
named executive officers. The indemnification agreements and our
bylaws require us to indemnify our directors to the fullest extent
permitted by Nevada law.
Review, Approval or Ratification of Transactions with Related
Parties
We
adopted a written related person transactions policy that our
executive officers, directors, nominees for election as a director,
beneficial owners of more than 5% of our common stock, and any
members of the immediate family of and any entity affiliated with
any of the foregoing persons, are not permitted to enter into a
material related person transaction with us without the review and
approval of our Audit Committee, or a committee composed solely of
independent directors in the event it is inappropriate for our
Audit Committee to review such transaction due to a conflict of
interest. The policy provides that any request for us to enter into
a transaction with an executive officer, director, nominee for
election as a director, beneficial owner of more than 5% of our
common stock or with any of their immediate family members or
affiliates, in which the amount involved exceeds $120,000 will be
presented to our Audit Committee for review, consideration and
approval. In approving or rejecting any such proposal, we expect
that our Audit Committee will consider the relevant facts and
circumstances available and deemed relevant to the Audit Committee,
including, but not limited to, whether the transaction is on terms
no less favorable than terms generally available to an unaffiliated
third party under the same or similar circumstances and the extent
of the related persons interest in the transaction.
Although
we have not had a written policy for the review and approval of
transactions with related persons our Board of Directors has
historically reviewed and approved any transaction where a director
or officer had a financial interest. Prior to approving such a
transaction, the material facts as to a director’s or
officer’s relationship or interest as to the agreement or
transaction were disclosed to our Board of Directors. Our Board of
Directors would take this information into account when evaluating
the transaction and in determining whether such transaction was
fair to us and in the best interest of all of our stockholders. In
considering the Refinancing documents, the members of our Board of
Directors not interested in the transaction considered and approved
the Refinancing after consideration by a Special Committee
comprised solely of independent directors.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act, requires our directors and
named executive officers, and persons who beneficially own more
than 10% of our common stock, to file initial reports of ownership
and reports of changes in ownership of our common stock and our
other equity securities with the SEC. As a practical matter, we
assist our directors and officers by monitoring transactions and
completing and filing Section 16 reports on their behalf.
Based solely on a review of the copies of such forms in our
possession and on written representations from reporting persons,
we believe that during 2016, all of our named executive officers
and directors filed the required reports on a timely basis under
Section 16(a) of the Exchange Act, except for as
follows:
Name
|
|
Date of Award
|
|
|
Michael
Doron
|
|
1/22/2016
|
|
9,049
|
William J.
Bush
|
|
1/22/2016
|
|
9,049
|
Stacey Y.
Jenkins
|
|
1/22/2016
|
|
9,049
|
Noel
Thompson
|
|
1/22/2016
|
|
9,049
|
Richard
Estalella
|
|
1/22/2016
|
|
9,049
|
Michael
Doron
|
|
4/20/2016
|
|
6,779
|
William J.
Bush
|
|
4/20/2016
|
|
6,779
|
Stacey Y.
Jenkins
|
|
4/20/2016
|
|
6,779
|
Noel
Thompson
|
|
4/20/2016
|
—
|
6,779
|
Richard
Estalella
|
|
4/20/2016
|
—
|
6,779
|
Michael
Doron
|
|
7/16/2016
|
|
64,338
|
William J.
Bush
|
|
7/16/2016
|
|
64,338
|
Stacey Y.
Jenkins
|
|
7/16/2016
|
|
64,338
|
PROPOSAL 1
ELECTION OF DIRECTORS
General
The Board of Directors has nominated the four (4) individuals
identified under “Director Nominees” below for election
as directors, all of whom are currently directors of the Company.
Each of the nominees has agreed to be named in this proxy statement
and to serve as a director if elected. Our Board of Directors is
currently comprised of four (4) members. Directors are elected
at each annual meeting and hold office until their successors are
duly elected and qualified at the next annual meeting. In the
absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the
election of the four (4) nominees designated below to serve
until the 2018 Annual Meeting of Stockholders and until their
respective successors shall have been duly elected and
qualified.
Director Nominees
The following table sets forth certain information concerning the
nominees for directors of the Company as of November 1,
2017.
|
|
|
Position with the Company
|
Ryan
Drexler
|
46
|
2015
|
Chairman of the
Board, Chief Executive Officer and President
|
Brian
Casutto
|
46
|
2017
|
Executive Vice
President of Sales and Operations and Director
|
William
Bush
|
52
|
2015
|
Director
|
John J.
Desmond
|
66
|
2017
|
Director
|
Required Vote
The election of the directors of the Company requires the
affirmative vote of the majority of the votes cast by stockholders,
who are entitled to vote, present in person or represented by Proxy
at the Annual Meeting.
THE BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH
OF THE DIRECTOR NOMINEES
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF EXTERNAL AUDITORS
The Audit Committee has selected EKS&H LLLP, an independent
registered public accounting firm, to audit the consolidated
financial statements of MusclePharm Corporation for the year ending
December 31, 2017 and recommends that stockholders vote for
ratification of such appointment. Although we are not required to
submit to a vote of the stockholders the ratification of the
appointment of EKS&H LLLP, the Company, the Board and the Audit
Committee, as a matter of good corporate governance, have
determined to ask the stockholders to ratify the appointment. If
the appointment of EKS&H LLLP is not ratified, the Audit
Committee will take the vote under advisement in evaluating whether
to retain EKS&H LLLP.
Representatives of EKS&H LLLP attend meetings of the Audit
Committee of the Board including executive sessions of the Audit
Committee at which no members of MusclePharm’s management are
present. EKS&H LLLP has audited the Company’s financial
statements for each year since the year ended December 31,
2013. Representatives of EKS&H LLLP are not expected to be
present at the Annual Meeting. However, if they are present they
will have an opportunity to make a statement if they desire to do
so, and if they are present they would be expected to be available
to respond to appropriate questions from stockholders.
The following table shows fees and expenses that we paid (or
accrued) for professional services rendered by EKS&H LLLP for
the years ended December 31, 2016 and 2015:
|
|
|
Audit fees
(1)
|
$
239,000
|
$
305,000
|
Audit-related fees
(2)
|
60,000
|
55,000
|
Tax fees
(3)
|
0
|
0
|
All other fees
(4)
|
25,000
|
20,000
|
|
|
|
Total
|
$
324,000
|
$
380,000
|
(1)
Represents the
aggregate fees billed for the audit of the Company’s
financial statements, review of the financial statements included
in the Company’s quarterly reports and services in connection
with the statutory and regulatory filings or engagements for those
years.
(2)
Represents the
aggregate fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the
Company’s financial statements and are not reported under
audit fees.
(3)
Represents the
aggregate fees billed for tax compliance, advice and
planning.
(4)
Represents the
aggregate fees billed for all products and services provided that
are not included under audit fees, audit-related fees or tax fees.
These services included a review of the agreement to sell our
wholly-owned subsidiary, BioZone Labortories, Inc. and various
Forms 8-K.
Audit Committee Pre-Approval Policies
Before an Independent Registered Public Accounting Firm is engaged
by us or our subsidiaries to render audit or non-audit services,
the Audit Committee shall pre-approve the engagement. Audit
Committee pre-approval of audit and non-audit services will not be
required if the engagement for the services is entered into
pursuant to pre-approval policies and procedures established by the
Audit Committee regarding our engagement of the Independent
Registered Public Accounting Firm, provided the policies and
procedures are detailed as to the particular service, the Audit
Committee is informed of each service provided and such policies
and procedures do not include delegation of the Audit
Committee’s responsibilities under the Exchange Act to our
management. The Audit Committee may delegate to one or more
designated members of the Audit Committee the authority to grant
pre-approvals, provided such approvals are presented to the Audit
Committee at a subsequent meeting. If the Audit Committee elects to
establish pre-approval policies and procedures regarding non-audit
services, the Audit Committee must be informed of each non-audit
service provided by the Independent Registered Public Accounting
Firm. Audit Committee pre-approval of non-audit services (other
than review and attest services) also will not be required if such
services fall within available exceptions established by the SEC.
All non-audit services provided by EKS&H LLLP during years 2015
and 2016 were pre-approved by the Audit Committee in accordance
with the pre-approval policy described above.
Required Vote
The affirmative vote of the holders of a majority of the
outstanding shares of common stock present or represented by proxy
and entitled to vote at the Annual Meeting will be required to
ratify the appointment of EKS&H LLLP.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF EKS&H LLLP AS THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR
THE YEAR ENDING DECEMBER 31, 2017.
PROPOSAL 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (Dodd-Frank Act) enables our stockholders to vote to approve,
on an advisory (non-binding) basis, the compensation of our named
executive officers as disclosed in this proxy statement in
accordance with SEC rules.
Our executive officer compensation program is designed to attract
and retain talented and qualified senior executives to manage and
lead our Company and to motivate them to pursue and meet our
corporate objectives. Under this program, our named executive
officers are rewarded for individual and collective contributions
to our success consistent with our “pay for
performance” orientation. Furthermore, the executive officer
total compensation program is aligned with the nature and dynamics
of our business, which focuses management on achieving the
Company’s annual and long-term business strategies and
objectives. Additional details about our executive compensation
programs are described under the section titled “Compensation
Discussion and Analysis.”
Our Compensation Committee regularly reviews the executive officer
compensation program to ensure that it achieves the desired goals
of emphasizing long-term value creation and aligning the interests
of management and stockholders through the use of equity-based
awards. We are asking our stockholders to indicate their support
for our named executive officer compensation as described in this
proxy statement. This proposal, commonly known as a
“say-on-pay” proposal, gives our stockholders the
opportunity to express their views on our named executive
officers’ compensation. This vote is not intended to address
any specific item of compensation, but rather the overall
compensation of our named executive officers and the philosophy,
policies and practices described in this proxy statement.
Accordingly, we ask our stockholders to vote “FOR” the
following resolution at the Annual Meeting:
“RESOLVED,
that the Company’s stockholders approve, on an advisory
basis, the compensation of the named executive officers, as
disclosed in the Company’s proxy statement for the 2016
Annual Meeting of Stockholders pursuant to the compensation
disclosure rules of the SEC, including the Compensation Discussion
and Analysis, the Summary Compensation Table and the other related
tables and disclosure.”
Required Vote
The affirmative vote of the holders of a majority of the
outstanding shares of common stock present or represented by proxy
and entitled to vote at the Annual Meeting will be required to
approve the compensation of the named executive officers as
disclosed in this proxy statement.
The “say-on-pay” vote is advisory, and therefore not
binding on the Company, the Compensation Committee or our Board of
Directors. Although the vote is non-binding, the Compensation
Committee and the Board of Directors value the opinions of the
stockholders and will consider the outcome of the vote when making
future compensation decisions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE
APPROVAL OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS, AS
DESCRIBED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION
DISCLOSURE RULES OF THE SEC.
HOUSEHOLDING OF PROXY MATERIALS
We have adopted a procedure approved by the SEC known as
“householding.” This procedure allows multiple
stockholders residing at the same address the convenience of
receiving a single copy of our Annual Report on Form 10-K and proxy
statement, if they have elected to receive proxy materials by mail.
This allows us to save money by reducing the number of documents we
must print and mail, and helps protect the environment as
well.
Householding is available to both registered stockholders (i.e.,
those stockholders with certificates registered in their name) and
streetname holders (i.e., those stockholders who hold their shares
through a brokerage).
Registered Stockholders
If you are a registered stockholder that has requested to receive
proxy materials by mail and you have consented to our mailing of
proxy materials and other stockholder information only to one
account in your household, as identified by you, we will deliver or
mail a single copy of our Annual Report on Form 10-K and proxy
statement for all registered stockholders residing at the same
address. Your consent will be perpetual unless you revoke it, which
you may do at any time by contacting the Householding Department of
Broadridge Financial Solutions, Inc., at 51 Mercedes Way, Edgewood,
NY 11717, or by calling 1-800-542-1061. If you revoke your consent,
we will begin sending you individual copies of future mailings of
these documents within 30 days after we receive your revocation
notice. If you received a householded mailing this year, and you
would like to receive additional copies of our Annual Report on
Form 10-K and proxy statement mailed to you, please call Investor
Relations at (301) 279-5980, send an e-mail request to
investors@musclepharm.com, or write to c/o Investor Relations,
MusclePharm Corporation, 4100-4210 W. Vanowen Place, Burbank, CA
91505 and we will promptly deliver the requested copy.
Registered stockholders that have requested to receive proxy
materials by mail and have not consented to householding will
continue to receive copies of our Annual Reports on Form 10-K and
our proxy statements for each registered stockholder residing at
the same address. As a registered stockholder, you may elect to
participate in householding and receive only a single copy of the
Annual Reports on Form 10-K and proxy statements for all registered
stockholders residing at the same address by contacting Broadridge
as outlined above.
Streetname Holders
Stockholders who hold their shares through a brokerage may elect to
participate in householding or revoke their consent to participate
in householding by contacting their respective
brokers.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement, as well as other written reports and oral
statements that we make from time to time, includes statements that
express our opinions, expectations, beliefs, plans, objectives,
assumptions or projections regarding future events or future
results and therefore are, or may be deemed to be,
“forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 (the
“Act”). The words “ongoing,”
“believes,” “expects,” “may,”
“will” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain these identifying words. Forward-looking
statements are not guarantees that the future results, plans,
intentions or expectations expressed or implied will be achieved.
Matters subject to forward-looking statements involve known and
unknown risks and uncertainties, including regulatory, competitive
and other factors, which may cause actual financial or operating
results or the timing of events to be materially different than
those expressed or implied by forward-looking statements. Important
factors that could cause or contribute to such differences include,
but are not limited to: inability to raise capital with agreeable
terms or at all, resolve litigation, failure of our manufacturers
to meet our production needs; failure to successfully invest in or
launch new product introductions; general economic conditions in
the markets in which we operate, including financial market
conditions, and the other factors set forth in the “Risk
Factors” section of our Annual Report on Form 10-K for the
year ended December 31, 2016 and in other public filings with
the SEC. Given these risks and uncertainties, you are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. We undertake no obligation to
update any forward-looking statements or to publicly announce the
results of any revisions to any of those statements to reflect
future events or developments.
OTHER MATTERS
We are not aware of any matters that may come before the meeting
other than those referred to in the Notice of Annual Meeting of
Stockholders. If any other matter shall properly come before the
Annual Meeting, however, the persons named in the accompanying
proxy intend to vote all proxies in accordance with their best
judgment.
Accompanying this proxy statement is our Annual Report on Form 10-K
for the year ended December 31, 2016. Copies of our Annual
Report on Form 10-K for the year ended December 31, 2016, as
filed with the SEC, are available free of charge on our website at
www.musclepharmcorp.com or you can request a copy free of charge by
calling Investor Relations at 301-279-5980 or sending an e-mail
request to investors@musclepharm.com. Please include your contact
information with the request.
Burbank, California
November 13, 2017
PROXY
|
|
ANNUAL MEETING OF STOCKHOLDERS
|
|
PROXY
|
|
|
OF
|
|
|
|
|
MUSCLEPHARM CORPORATION
|
|
|
|
|
December 15, 2017
|
|
|
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The
undersigned hereby appoints Ryan Drexler as proxy, with power of
substitution, to vote all shares of the undersigned at the annual
meeting of stockholders of MusclePharm Corporation to be held on
December 15, 2017 at 11:00 a.m. Pacific time at the 4100-4210 W.
Vanowen Place, Burbank, CA 91505, or at any adjournment thereof,
upon the matters set forth in the proxy statement for such meeting,
and in their discretion, on such other business as may properly
come before the meeting.
1.
TO ELECT DIRECTORS, EACH TO SERVE SUCH TERM AS SET FORTH IN THE
PROXY STATEMENT OR UNTIL HIS SUCCESSOR HAS BEEN DULY ELECTED AND
QUALIFIED.
☐
FOR THE NOMINEES
LISTED BELOW
☐
WITHHOLD AUTHORITY
to vote for the nominee listed below
☐
FOR ALL EXCEPT
(See instructions below)
|
|
|
|
|
|
|
(INSTRUCTION:
|
|
To
withhold authority to vote for any individual nominee(s) mark
“
FOR ALL EXCEPT
”
and fill in the box next to each nominee you wish to withhold as
shown here:
|
|
|
|
|
|
|
|
☐
Ryan
Drexler
|
|
☐
William
J. Bush
|
|
|
☐
John
J. Desmond
|
|
☐
Brian
Casutto
|
2.
TO RATIFY THE APPOINTMENT OF EKS&H LLLP AS THE INDEPENDENT
AUDITORS.
|
|
|
|
|
|
|
|
|
☐ FOR
|
|
☐ AGAINST
|
|
☐ ABSTAIN
|
3.
TO HOLD AN ADVISORY VOTE ON EXECUTIVE COMPENSATION.
|
|
|
|
|
|
|
|
|
☐ FOR
|
|
☐ AGAINST
|
|
☐ ABSTAIN
|
|
|
|
|
|
|
|
4.
TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJORNMENT OR POSTPONEMENT THEREOF.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, & 3. IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO TRANSACT ANY OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE MEETING. PLEASE MARK, SIGN AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
|
|
|
|
|
Dated:
|
|
|
|
, 2017
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
Signature
if held jointly
|
|
|
|
|
NOTE
: When shares are held by joint tenants,
both
should sign. Persons signing as executor,
administrator,
trustee, etc., should so indicate.
Please
sign exactly as the name appears on the
proxy.
|
|
|
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