1. As at the last filing date, for the period ended March 31, 2008, MRVC’s (unaudited) NCAV was around $113.9M or $0.72 per share, which is yesterday’s closing price. Note that the liquidation value is likely negligible and the financial statements are more than a year out of date (which makes any valuation problematic). One positive is the revenue: the company has annualized revenue of around $500M. A small improvement in margins could result in a big improvement in earnings.
2. Value Investors for Change believes the company has a “valuable franchise and a strong market position” and we like their approach, described in the preliminary proxy documents thus:
The main problem with any analysis of MRVC is that the financial statements are more than a year out of date. As at the last filing, MRVC’s NCAV was around $113.9M or $0.72 per share. We believe that the liquidation value is likely neglible. We’ve set out the valuation below in the usual manner (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):
REASONS FOR THE SOLICITATION
Value Investors for Change believes that the Company has a valuable franchise and a strong market position. However, we believe this value has been masked and the Company’s potential remains unrealized due to the Board’s lack of effective oversight and appropriate corporate governance policies.
Our Nominees will provide new independent voices in the Company’s boardroom and they will seek to start the process of rebuilding stockholder value. Our Nominees are committed to fully implementing and embracing long overdue corporate governance reforms.
We do not believe the current directors serving on the Board are acting in the best interests of stockholders and are concerned that this Board will fail to take the steps we believe are necessary to preserve stockholder value.
Fate of the Company’s remaining cash balance
This Annual Meeting may be the only opportunity for stockholders to determine the fate of MRVC’s substantial remaining cash balance (this amount was $73.7 million as of June 30, 2009, including short-term investments, as per the Company’s press release attached as an exhibit to its Form 8-K filed on July 27, 2009). Actions and statements by the Company indicate that the existing management and Board are prepared to ignore the best interests of the Company’s stockholders. Indeed, their track record of negative operating cash flows over the past several years is reflective of the same. If the incumbent Board and management are not replaced at this Annual Meeting, stockholders may not only lose any hope of determining the fate of MRVC’s remaining cash reserves, but also will likely have their share value further eroded. If elected to the Board, none of our Nominees intend to accept any cash fees from the Company. The Funds’ only interest here is as a stockholder.
Deficient Corporate Governance Procedures; Recent Options Scandal
The Company continues to be embroiled in an options scandal. We believe the Board was in need of change even before the current scandal broke, but the options scandal has served to underscore the need for urgent reform.
According to a press release issued by the Company on June 5, 2008, beginning in the middle of 2006 through early 2007, MRVC conducted an informal review of its share-based award practices and concluded that there was no evidence that grant dates of options were designed to occur on dates with more favorable exercise prices (i.e., on dates with lower market prices). Given subsequent events, it appears though that this review, which lasted over six months, was inadequate and did not discover certain inappropriate practices which had taken place. During this lengthy investigation and after its completion, the Company filed numerous quarterly reports and an annual report on Form 10-K for the fiscal year ended December 31, 2007, certifying to the accuracy of those financial statements. Well after this investigation and after these filings, management then determined that the conclusions reached from the earlier review were incorrect with respect to certain options granted during the period from 2002 through the first quarter of 2004. The Board determined that the financial statements for the periods from 2002 to 2008 and the related reports of MRVC’s independent public accountants, earnings press releases, and similar communications previously issued by MRVC should not be relied upon as a consequence of the pending restatement of its historical financial statements. It has been over a year since the press release announcing this major problem for the Company was issued and yet no restatements of the Company’s financial statements have been filed.
As a result of these actions,
• the Company currently faces an inquiry by the Securities and Exchange Commission (the “Commission”);
• the Company has been unable to file its annual report on Form 10-K for the year ended December 31, 2008;
• the Company has been unable to file its quarterly reports on Form 10-Q for the periods ended June 30, 2008, September 20, 2008, March 31, 2009 and June 30, 2009;
• the Company has received 6 determination letters from NASDAQ informing the Company that it would be subject to delisting as a result of its failure to timely file its financial statements and, on June 17, 2009, NASDAQ suspended the listing of the Company’s common stock from the NASDAQ Stock Market as a result of the Company’s failure to file such financial statements;
• on August 19, 2009, the NASDAQ Stock Market announced that it will delist the Company’s common stock (NASDAQ will file a Form 25 with the Commission to complete the delisting which becomes effective ten days after the Form 25 is filed); and
• the Company faces various lawsuits related to its stock option practices.
These option grants raise serious questions about the Board’s judgment and apparent disregard for the interests of stockholders. Such behavior raises significant doubts about the integrity of the Board.
Mishandling of the Acquisition of Fiberxon
On June 26, 2007, the Company amended an Agreement and Plan of Merger between affiliates of the Company and Fiberxon, Inc. that was initially entered into on January 26, 2007 (the “Merger Agreement”) to, among other things, remove as a condition precedent for the consummation of the merger that Fiberxon, Inc. deliver to MRVC its audited consolidated financial statements prior to the closing of the transaction. This amendment was unanimously approved by MRVC’s Board despite their knowledge that:
• there were allegations of financial and accounting irregularities that called into question the reliability of Fiberxon’s consolidated financial statements for its fiscal years ended December 31, 2004 and 2005 raising serious concerns regarding Fiberxon’s financial and reporting processes;
• in addition to the irregularities, Fiberxon’s independent auditors called into question the commitment of Fiberxon’s management to maintain reliable financial reporting systems, including accounting books and records, in conformity with accounting principles generally accepted in the United States and the People’s Republic of China;
• in the view of Fiberxon’s auditors, these matters also raised doubt on the ability of Fiberxon’s existing management to provide its auditors the written representations required under auditing standards generally accepted in the United States; and
• the suspension by the independent auditors of its audit of Fiberxon’s financial statements in June 2007 would likely have an adverse impact on the Company’s ability to obtain and file Fiberxon’s financial statement within the time allowed by, and in the form and content required by, the Commission’s rules thereby leading to:
• MRVC not being eligible to use the Commission’s short-form registration statement on Form S-3 to register the issuance of its securities; and
• the delisting of the Company’s common stock from the NASDAQ Stock Market and, as a result of the delisting, a default on the Company’s outstanding convertible notes.
Additionally, the Board was aware that if MRVC delayed filing with the Commission certain financial statements relating to the Fiberxon acquisition, as required by the Commission, this would put at risk the Company’s ability to use an effective registration statement to issue securities, thus handcuffing the Company’s ability to raise funds if it became necessary to do so. We believe this lack of regard that the Board showed for the stockholders of the Company highlights the incompetence of the Board and the management of the Company.
Failure to Hold an Annual Meeting
The Annual Meeting is the once-a-year event for all stockholders to voice their views and concerns. Despite the Company’s professed commitment to stockholder democracy and good corporate governance, the Company appears unable to take appropriate actions regarding governance.
On July 20, 2009, Spencer Capital Opportunity Fund, LP filed a lawsuit in Delaware pursuant to Section 211(c) of the Delaware General Corporation Law requesting that the Court of Chancery of the State of Delaware (the “Chancery Court”) order MRVC to hold its 2009 annual meeting of stockholders without delay and to grant other relief deemed appropriate by the Court. Under Delaware law, if a corporation fails to hold an annual meeting of stockholders or take action by written consent to elect directors for a period of 13 months, any stockholder may petition the Chancery Court to order that a meeting be held. MRVC has not held an annual meeting of stockholders since May 29, 2007 and accordingly has not met its obligations under Delaware law.
Pursuant to a Stipulated Order entered into in the Chancery Court dated August 7, 2009 (the “Order”), MRVC will hold its Annual Meeting on or before November 11, 2009. In the event that the Company’s Board or its outside auditor determines that the Company’s restatement of its financial statements is complete such that the Annual Meeting could be held at a date earlier than November 11, 2009, then the Company will hold the Annual Meeting not more than 40 days after this determination.
Damage to Company’s Credibility
It seems clear to us that the crucial issue of the credibility of the Company’s Board and management has been identified both outside and inside the Company. We believe MRVC is at a crossroads. The Company is beset by problems arising out of actions taken by management and overseen by the Board. Moreover, these issues have diverted the Board and management from attending to the successful operation of the business. In the face of these developments, the Company’s stock price meaningfully lags behind its peers. It is up to us, as MRVC’s stockholders, to send a clear and definite message to MRVC’s Board and management that meaningful change is needed. By voting for our Nominees, you will join us in sending that message to the current Board and help put MRVC back on the right course.
Dismal Share Price Performance
Last, but certainly not least, is MRVC’s ever-worsening stock price. Between January 1, 2005 and July 20, 2009, the date on which Spencer Capital Opportunity Fund, LP, filed a complaint requesting that the Chancery Court compel the Company to hold its Annual Meeting, MRVC’s stock price has fallen by 87.2%. We believe this is due to the perception of the investment community that this Board will destroy the Company’s remaining value.
An action plan to rebuild stockholder value is needed, and fast. Value Investors for Change proposes to take the following steps which we believe will return the Company to a positive track and serve the best interests of all of MRVC’s stockholders:
(1) Restore confidence in the Board and management by:
• appointing new independent, unbiased directors to the Board who are both expertly capable and determined to steer a new course for the Company; and
• instituting corporate governance reforms, including applying a pay for performance compensation plan for management.
(2) Create and implement a new corporate strategy by:
• assessing the Company’s competitive prospects and strategic options for growth and profitability and implementing a new corporate strategy; and
• enlisting the guidance of telecommunications industry executives to assist with this review and strategy.
(3) Resolve the outstanding accounting, legal and regulatory issues by:
• concluding the internal accounting review and taking appropriate steps to rectify this matter;
• coming into full compliance with the rules of the Commission; and
• engaging with plaintiffs in the various lawsuits against the Company to seek timely resolutions.
Value Investors for Change urges you to vote FOR the Funds’ proposal to elect our Nominees on the enclosed WHITE proxy card, thereby ending this disregard for stockholder interests. For too long, MRVC has operated without proper oversight by the Board and has hidden behind poor corporate governance policies that neither respect the interests of the Company’s stockholders nor provide meaningful Board accountability. Vote to elect a new slate of directors who are willing to stand up for the interests of all stockholders and work to maximize stockholder value.
1. MRVC’s NCAV is around $113.9M or $0.72 per share, although we note that the liquidation value is likely negligible and the financial statements are more than a year out of date, which makes any valuation problematic. One positive is the revenue: the company has annualized revenue of around $500M. A small improvement in margins could result in a big improvement in earnings.
2. We like the approach of Value Investors for Change.
MRVC closed yesterday $0.72.
The S&P500 closed yesterday at 1,025.56.
[Full Disclosure: We do not have a holding in MRVC. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]