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Related Party Transactions
12 Months Ended
Jun. 30, 2013
Related Party Transactions [Abstract]  
Related Party Transactions

21. Related Party Transactions

On August 6, 2009, the board of directors agreed to award options to purchase 250,000 shares of common stock to Mr. J. David Luce, a member of the board of directors as a fee for services rendered in connection with our ExpressMD™ Solutions joint venture (the “Joint Venture”). The options were awarded under our 2000 Plan and are exercisable for a period of ten years at a per share exercise price of $4.00, subject to vesting conditions. The options initially provided that they will vest solely in the event that the joint venture or successor telehealth business of the company achieves revenues in the aggregate amount of at least $5.0 million prior to the second anniversary of the option grant date (the “Target Date”). In the event such metric is achieved, 125,000 options will vest. The remaining options will vest only if the business achieves revenues in the aggregate amount of $10.0 million prior to the Target Date. Due to this arrangement, the company’s board of directors determined that Mr. Luce no longer satisfies the criteria for independence under the applicable rules of the Nasdaq Stock Market and accordingly, Mr. Luce resigned from his membership on the company’s Management Resources and Compensation Committee and Nominating and Corporate Governance Committee. Mr. Luce, however, continues to serve as a member of the company’s board of directors. Following earlier amendments to the vesting terms of this option award that extended the Target Date, the company, on August 5, 2013, further amended the vesting terms to provide that the Target Date shall be the sixth anniversary of the date of grant.

 

As discussed in greater detail in Note 20 to Consolidated Financial Statements, on October 13, 2010, the company completed a transaction in which it sold a total of 1,250,000 units of its securities to certain institutional and accredited investors for gross proceeds of $5.0 million. As a result of the consummation of this transaction, two investors, Lazarus Investment Partners LLLP and AQR Capital Management LLC, subsequently filed reports on Schedule 13G indicating that following such transaction, such persons became beneficial owners of in excess of 5% of the company’s common stock. Subsequently, in May 2011, the company’s stockholders elected Dr. Todd A. Borus to serve on its board of directors and he has been re-elected as a director at each of our subsequent annual meetings. Dr. Borus is the brother of the manager of the general partner of Lazarus Investment Partners, LLLP.

As described in greater detail in Note 20 of Notes to Consolidated Financial Statements, on October 7, 2011, the company entered into a securities purchase agreement with certain accredited and/or institutional investors relating to a registered direct offering by the company for an aggregate of 2,937,497 shares of common stock of the company and warrants to purchase up to an aggregate of 1,468,752 shares of common stock. One of the investors in this offering, Lazarus Investment Partners LLLP, which was the beneficial owner of approximately 13.7% of the company’s outstanding shares of common stock immediately prior to the offering, agreed to purchase 714,285 shares of common stock and warrants to purchase 357,143 shares of common stock. The manager of the general partner of Lazarus Investment Partners, LLLP, is the brother of Dr. Todd A. Borus, a member of our board of directors. In addition, Douglas B. Luce, the brother of J. David Luce, a member of our board of directors, agreed to purchase 285,714 shares of common stock and warrants to purchase 142,857 shares of common stock. The participation by these investors was on the same terms as the other investors in the offering.

As discussed in greater detail in Note 11 of Notes to Consolidated Financial Statements, on March 9, 2012, the company entered into a Series C Consent and Voting Agreement with the holders of a majority of its outstanding shares of Series C preferred stock, including Lazarus Investment Partners, LLLP, which owned approximately 16.2% of our common stock and 40% of our Series C preferred stock at such time. At the special meeting of stockholders held on April 9, 2012, the stockholders of the company approved the amendment to the certificate of designation of Series C preferred stock to extend the maturity date and increase the dividend rate of the Series C preferred stock. In connection with this, the company issued the holders of the Series C preferred stock warrants to purchase an aggregate of 825,000 shares of common stock, based on the number of Series C shares held by each such holder.

As described in greater detail in Note 8 of Notes to Consolidated Financial Statements, J. David Luce, a member of our board of directors, John J. Waters who was, a member of our board of directors at the time of the transactions, O’Connell Benjamin, our chief executive officer and a member of our board of directors, William Marshall, our chief financial officer and Lazarus Investment Partners LLLP, the manager of which is the brother of Dr. Todd A. Borus a member of our board of directors, participated in one or both of the company’s senior secured note transactions completed in March 2012 and September 2012 and the agreement to extend the maturity date of the March 2012 notes.

On September 25, 2012, the company entered into a Board Nomination and Observer Agreement (the “Board Agreement”) with Lazarus Investment Partners, LLLP (“Lazarus Investment”) pursuant to which the company granted Lazarus Investment the right to appoint either an observer to its board of directors or to nominate an individual for election to its board of directors. So long as Lazarus Investment owns 5% or more of the company’s outstanding common stock it may designate an observer to attend all meetings of its board in a non-voting capacity for a period of two years. In addition, in lieu of designating an observer, so long as it owns at least 10% of the company’s outstanding common stock, Lazarus Investment shall have the right to designate one person to be nominated for election to the board. If Lazarus Investment nominates an individual for election to the board, the company shall promptly increase the size of the board, appoint such nominee as a member of the board and, subject to the terms of the Board Agreement, use best efforts to include such nominee in the slate of nominees recommended for election as a director for three years.

On March 22, 2013, the company entered into an agreement with certain purchasers that were a party to the securities purchase agreement dated October 12, 2010 and who held a majority of the currently outstanding securities sold by us in our October 2010 private placement, to amend the terms of the 2010 purchase agreement, in order to provide for a six-month restriction on the transferability of the shares of common stock issuable upon conversion of the Series C preferred stock. We entered into this amendment agreement with the purchasers holding a majority of the outstanding securities which were issued under the 2010 purchase agreement, including Lazarus Investment Partners, LLLP, which as of the record date for our special meeting held on April 5, 2013, owned approximately 23.8% of our common stock and 40% of our Series C preferred stock. In connection with the execution of this amendment agreement, on March 22, 2013, we also amended the Board Agreement discussed above to extend for 90 days the time period within which Lazarus Investment Partners must decide whether to nominate an individual for election to our board of directors.

At the special meeting of stockholders held on April 5, 2013, our stockholders approved the automatic conversion of the outstanding shares of Series C preferred stock into an aggregate of 3,551,541 shares of common stock, including 1,051,541 shares of common stock issued in lieu of accrued but unpaid dividends on the Series C preferred stock. Lazarus Investment Partners was issued 1,420,616 shares of common stock upon conversion of the shares of Series C preferred stock held by it. In addition, we issued an aggregate of 1,420,616 shares of common stock upon conversion of the shares of Series C preferred stock to certain funds affiliated with AQR Capital Management LLC.

As described in greater detail in Note 20 of Notes to Consolidated Financial Statements, in June 2013, we entered into a securities purchase agreement with certain accredited investors pursuant to which we agreed to issue a total of 665,000 shares of Series D preferred stock and warrants to purchase 6,650,000 shares of common stock. The shares of Series D preferred stock and warrants were sold as units, with each unit consisting of one share of Series D preferred stock and ten warrants. Investors that held an aggregate principal amount of $6,500,000 of senior notes agreed to surrender their notes in consideration of the issuance of the shares of Series D preferred stock and warrants and other investors purchased $150,000 of such securities. At closing, which occurred on June 20, 2013, we received an aggregate of $6,650,000 in cancellation of indebtedness and the $150,000 of additional funds. An aggregate principal amount of $4,850,000 of the senior notes surrendered in this transaction were held by certain of our officers, directors and our largest stockholder, as follows: an entity affiliated with J. David Luce, a member of our board of directors, and his spouse, held an aggregate principal amount of $2,650,000 of senior notes, and O’Connell Benjamin, our chief executive officer and a member of our board of directors, and our chief financial officer, William Marshall, each held an aggregate principal amount of $100,000 of senior notes. The parties affiliated with Mr. Luce acquired 265,000 shares of Series D preferred stock and 2,650,000 warrants and each of Mr. Benjamin and Mr. Marshall acquired 10,000 shares of Series D preferred stock and 100,000 warrants. Further, Lazarus Investment Partners LLLP, which was the beneficial owner of approximately 24.9% of our outstanding shares of common stock immediately prior to this transaction, held an aggregate principal amount of $2,000,000 of senior notes. We issued to Lazarus Investment Partners a total of 200,000 shares of Series D preferred stock and 2,000,000 warrants. The manager of the general partner of Lazarus Investment Partners, LLLP, is the brother of Dr. Todd A. Borus, a member of our board of directors. In addition, Dr. Todd A. Borus participated in this transaction as an investor and purchased 2,500 shares of Series D preferred stock and 25,000 warrants.

 

In addition, in connection with the foregoing, we further amended our Board Agreement with Lazarus Investment Partners LLLP. Under this amendment, we again extended by 90 days, to September 19, 2013, the time period within which Lazarus Investment Partners must decide whether to nominate an individual for election to our board of directors. Subsequently, on September 19, 2013, we further amended the Board Agreement to extend by an additional 90 days, to December 18, 2013, the time period within which Lazarus Investment Partners must decide whether to nominate an individual for election to our board of directors.

In connection with the Series D preferred stock transaction, our chief executive officer, O’Connell Benjamin and a member of our board of directors, David Luce, agreed to grant a holder of senior notes an option to require them to purchase from him, commencing October 15, 2013, an aggregate of $350,000 of shares of Series D preferred stock and 350,000 warrants pursuant to the terms and conditions of a Put/Call Option Agreement. Under the Put/Call Option Agreement, if the holder declines to exercise its right to require the sale of these securities to Messrs. Luce and Benjamin, then they shall thereafter have a 30-day right to purchase all of such securities from the holder. Under this arrangement, each of Mr. Luce and Mr. Benjamin could acquire 50% of these additional securities.