** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-K/A**

** **

**Amendment No. 1**

** **

**(Mark One)**

 

**x****        ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**For the fiscalyearended                 December 31,2007**

** **

**OR**

** **

**o****        TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**For thetransition period from                    to                    **

 

**Commission File Number 0-30739**

 

**CLAYTON HOLDINGS, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                             | ** ** | **20-2660764**                      |
|------------------------------------------|------------|-------------------------------------|
| (State or other jurisdiction of          |       | (I.R.S. employer                    |
| incorporation or organization)           |       | identification no.)                 |
|                                     |       |                                |
| **2 Corporate Drive**                    | ** ** |                                |
| **Shelton, Connecticut, 06484**          | ** ** | **(203) 926-5600**                  |
| (Address of principal executive offices) |       | (Registrant’s telephone number |
| (zip code)                               |       | including area code)                |

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of each class**      | ** ** | **Name of each exchange on which registered** |
|---------------------------------------------|------------|-----------------------------------------------------------------------------|
| **Common Stock, $0.01 Par Value Per Share** |       | **Nasdaq Capital Market**                                                   |

 

Securities registered pursuant to Section 12(g) ofthe Act:

 

| **(Title of class)** |
|--------------------------------|
| **None**                       |

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes  o    No  x

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  x

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes  x    No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a small reporting company (See the definitions of “largeaccelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2of the Exchange Act).  Large acceleratedfiler o Acceleratedfiler x Non-accelerated filer o SmallReporting Company o

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o    No  x

 

As of June 29, 2007, the last business day of the registrant’smost recently completed second fiscal quarter, the aggregate market value ofthe registrant’s common stock held by non-affiliates of the registrant was$136,870,156 (based on the closing price for the registrant’s common stock onthe Nasdaq Global Market of $11.39 per share). At March 31, 2008, 22,199,289 shares of theregistrant’s common stock were outstanding.

 

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** **

**DOCUMENTSINCORPORATED BY REFERENCE**

 

None.

 

 

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# ** **

# **EXPLANATORY NOTE**

# ** **

This Form 10-K/A constitutes Amendment No. 1to the Annual Report on Form 10-K of Clayton Holdings, Inc. (“Clayton”or the “Company”) for the period ended December 31, 2007, originally filedwith the Securities and Exchange Commission on March 14, 2008 (the “OriginalFiling”). We are filing this Amendment No. 1 to our Annual Report on Form 10-K/Ato include information required by Items 10, 11, 12, 13, and 14 to Part IIIwithin the period required by General Instruction G(3) to Form 10-K.  In addition, we are filing this Amendment No. 1to our Annual Report on Form 10-K/A to include as exhibits amendments toemployment agreements with certain executive officers, as required byItem 15 in Part IV.  Except asdescribed above, no other changes have been made to the Original Filing and noattempt has been made in this Amendment No. 1 to modify or updatedisclosures for events that occurred subsequent to the Original Filing.

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

#### ***Certainstatements in this Amendment No. 1 to our Annual Report on Form 10-K/Aare “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements involve a number of risks,uncertainties and other factors that could cause our actual results,performance or achievements to be materially different from any future results,performance or achievements expressed or implied by these forward-lookingstatements.  Factors which couldmaterially affect such forward-looking statements can be found in the sectionentitled “Risk Factors” in Part 1, Item 1A. in the Original Filing.  Investors are urged to consider these factorscarefully in evaluating the forward-looking statements and are cautioned not toplace undue reliance on such forward-looking statements.  The forward-looking statements made hereinare only made as of the date hereof and we will undertake no obligation topublicly update such forward-looking statements to reflect subsequent events orcircumstances.***

#### *** ***

*References in this Amendment No. 1 toAnnual Report on Form 10-K/A to “Clayton,” the “Company,” “we,”  “us” or “our” are to Clayton Holdings, Inc.,a Delaware corporation, and its subsidiaries.*

 

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**TABLE OF CONTENTS**

 
| ** **    | ** **                                                                                      | ** ** | **Page** |
|---------------|-------------------------------------------------------------------------------------------------|------------|----------|
| ** **    |                                                                                            |       |     |
| Item          |                                                                                            |       |     |
| ** **    |                                                                                            |       |     |
| PART III |                                                                                            | 4          |
|          |                                                                                            |       |     |
| Item 10. | Directors, Executive Officers and Corporate  Governance                                         |       | 4        |
| Item 11.      | Executive Compensation                                                                          |       | 7        |
| Item 12.      | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters |       | 23       |
| Item 13.      | Certain Relationships and Related  Transactions, and Director Independence                      |       | 25       |
| Item 14.      | Principal Accounting Fees and Services                                                          |       | 26       |
|          |                                                                                            |       |     |
| PART IV  |                                                                                            | 27         |
|          |                                                                                            |       |     |
| Item 15.      | Exhibits and Financial Statement Schedules                                                      |       | 27       |

 

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**PART III**

 

**Item 10.****                            ****Directors, Executive Officers and Corporate Governance**

 

**Directors and Executive Officers**

 

The following table sets forth the currentdirectors and executive officers of the Company, their ages, and the positionscurrently held by each such person with the Company.

 
| **Name**                  | ** ** | **Age** | ** ** | **Position**                                          |
|---------------------------|------------|---------|------------|-------------------------------------------------------|
| Frank P. Filipps          |       | 60      |       | Chairman, Chief Executive Officer and Director        |
| D. Keith Johnson          |       | 48      |       | President and Chief Operating Officer                 |
| Frederick C. Herbst       |       | 50      |       | Chief Financial Officer                               |
| Kevin J. Kanouff          |       | 37      |       | Executive Vice President of Strategic Alliances       |
| Steven L. Cohen           |       | 45      |       | Senior Vice President, General Counsel and  Secretary |
| David Gilbert(2)          |       | 62      |       | Director                                              |
| Roger B. Kafker(2)        |       | 46      |       | Director                                              |
| Brian L. Libman           |       | 42      |       | Director                                              |
| Frank L. Raiter(1)(2)(3)  |       | 60      |       | Director                                              |
| Thomas J. Skelly(1)(3)    |       | 56      |       | Director                                              |
| Michael M. Sonderby(1)(3) |       | 64      |       | Director                                              |

 

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(1)           Memberof the Nominating and Corporate Governance Committee.

(2)           Memberof the Compensation Committee.

(3)           Memberof the Audit Committee.

 

***FrankP. Filipps.***  Mr. Filipps has served as a director andthe Company’s Chairman and Chief Executive Officer since April 2005 andhis current term will expire in 2009. Prior to joining the Company, he was the Chairman and Chief ExecutiveOfficer of Radian Group Inc. (NYSE:RDN), a credit enhancement provider tothe global financial and capital markets. At Radian, Mr. Filipps wasresponsible for expanding and diversifying operations in the United States, theUnited Kingdom and Asia. Mr. Filipps began his career at Radian in 1992 asSenior Vice President and Chief Financial Officer. In 1994, he was promoted toExecutive Vice President and Chief Operating Officer and in 1995 he was namedPresident, Chief Executive Officer and director. Mr. Filipps has servedsince 1995 as a director of Impac Mortgage Holdings, Inc. (NYSE: IMH), acorporation that acquires and originates non-conforming residential andcommercial loans, and has served since 2004 as a director of PrimusGuaranty, Ltd. (NYSE:PRS), a holding company primarily engaged in sellingcredit protection against investment grade debt obligations of corporate andsovereign entities.  Mr. Filippsholds an M.B.A. in corporate finance and international business from the SternSchool of Business at New York University and a B.A. from Rutgers University.

 

***D. KeithJohnson.  **** *Mr. Johnsonhas served as the Company’s President and Chief Operating Officer since May 2006.  Prior to joining the Company, Mr. Johnsonwas the President and Chief Executive Officer of Long Beach Mortgage, adivision of Washington Mutual, Inc. (NYSE: WM), from 2003 until March 2006.   From 2001 through 2003, Mr. Johnsonserved as Executive Vice President and Chief Operating Officer of thecommercial group of Washington Mutual. Prior to joining Washington Mutual, Mr. Johnson served in varioussenior management positions at Bank United, including Chief Financial Officerof the mortgage division and in operations, sales and capital marketsroles.  Mr. Johnson holds a B.A. inaccounting from Eastern Michigan University.Mr. Johnson is also a Certified Public Accountant.

 

***FrederickC. Herbst.***  Mr. Herbst has served as the Company’sChief Financial Officer since September 2005. Prior to joining theCompany, Mr. Herbst was Chief Financial Officer of Arbor Realty Trust, Inc.(NYSE:ABR), a 

 

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publicly-traded real estate investment trust,since 2003 and of Arbor Commercial Mortgage, LLC since 1999. He was amember of Arbor’s executive committee and was responsible for all aspects ofArbor’s financial operations, including financial reporting, tax planning,budgeting and the appropriate utilization of capital. Prior to joining Arbor, Mr. Herbstwas Chief Financial Officer of The Hurst Companies, Inc., where he wasresponsible for all financial operations, including financial reporting,budgeting and banking relationships. Previously, Mr. Herbst was controllerwith The Long Island Savings Bank, FSB, vice president-finance with EasternStates Bankcard Association and a senior manager with Ernst & Young. Mr. Herbstholds a B.A. from Wittenberg University. Mr. Herbst became a CertifiedPublic Accountant in 1983.

 

***KevinJ. Kanouff***.  Mr. Kanouff served as the President ofour subsidiary, Clayton Fixed Income Services, from 2003 through February 1,2008 and is currently our Executive Vice President of Strategic Alliances.  Mr. Kanouff is responsible for developingstrategic alliances to enhance the Company’s service offerings.  Before joining Clayton Fixed Income Services, Mr. Kanouff was an attorneypracticing corporate and securities law with Dorsey & Whitney LLP, aninternational law firm.  Mr. Kanouffholds a J.D. from the University of Denver College of Law and a B.A. fromSyracuse University.

 

***StevenL. Cohen.***  Mr. Cohen has served as the Company’sSenior Vice President, General Counsel and Secretary since the Company’sinception in March 2005.  From January 2005until March 2005, he served as the Senior Vice President and GeneralCounsel of the Company’s predecessor, Clayton Services. Mr. Cohen overseesthe Company’s legal affairs, manages its legal department and serves as thecorporate compliance officer.  From December 2000to January 2005, he was an Assistant General Counsel of Intuit Inc.(NASD: INTU), a financial software development and services company, where hewas a member of the general counsel management group.  Prior to joining Intuit, Mr. Cohen wasGeneral Counsel to EmployeeMatters, Inc. which was acquired by Intuit in December 2000,an Assistant General Counsel with The Prudential Insurance Company of Americaand an associate with Fulbright & Jaworski LLP, a national lawfirm.  Mr. Cohen holds a J.D. fromthe George Washington University Law School, an M.B.A. from the Stern School ofBusiness at New York University and a B.A. from Queens College.

 

***DavidGilbert.***  Mr. Gilberthas served as a director since February 2007 and his current term will expire in 2008.  Mr. Gilbert has held executivemanagement positions in a range of financial services companies, includingstart-ups and mature businesses.  Mr. Gilbert is currently the ChiefExecutive Officer of Mantara, Inc., a financial technology company.  From 2003 until his retirement in November 2005,Mr. Gilbert served as Chairman and Chief Executive Officer of ERisk, aprovider of enterprise risk management solutions. Prior to that, Mr. Gilbertserved as President and Chief Executive Officer of 401Konnect, a financialtechnology company.  Earlier in hiscareer Mr. Gilbert was the Chairman of the Board of the California FederalBank where he led a reorganization, turnaround and sale of the company.  Mr. Gilbertholds a doctorate and masters degree in Economics from Harvard University and aB.B.A. from the City University of New York. Mr. Gilbert has also held faculty appointments at HarvardUniversity, the Wharton School of Finance and the City College of New York.

 

***RogerB. Kafker.***  Mr. Kafker has served as a directorsince the Company’s inception and his current term will expire in 2008. He hasbeen employed by TA Associates, Inc. since 1989, and currently serves as aManaging Director. Mr. Kafker concentrates on transactions involving growthservice businesses in the financial, consumer and healthcare servicesindustries. He holds an M.B.A. from the Harvard Business School and a B.A. fromHaverford College.

 

***BrianL. Libman.***  Mr. Libman has served as a directorsince the Company’s inception and his current term will expire in 2010.  He was the former Chief Executive Officer ofFinance America, LLC, a nationwide mortgage lender specializing innonconforming residential mortgage loans. He served in this role from the company’s formation in July 1999until July 2004.  Prior to beingemployed at Finance America, Mr. Libman spent 13 years with LehmanBrothers. Mr. Libman holds both an M.B.A. and B.S.E. from the WhartonSchool of Business at the University of Pennsylvania.

 

***FrankL. Raiter.***  Mr. Raiter has served as a directorsince October 2005 and his current term will expire in 2008.  From March 1995 until April 2005, Mr. Raiterserved as a Managing Director of Standard & Poor’s Ratings Group.  As a Managing Director, Mr. Raitermanaged the Residential Mortgage Ratings Group and was responsible for ratingsproduction, marketing and business development for single family mortgages,bond ratings and related products. Mr. Raiter also managed the design,development and marketing of analytical ratings products utilized by Standardand Poor’s.  Prior to joining Standardand Poor’s, he was the Chief Investment Officer and Treasurer of 

 

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Caliber Bank in Phoenix, Arizona, and servedas the Assistant Director, Office of Securities Transactions, of the ResolutionTrust Corporation.  Mr. Raiter hasserved since March 2007 as a director of Luminent MortgageCapital, Inc. (NYSE: LUM), acorporation that invests in U.S. agency and other highly-rated,single-family, adjustable-rate, hybrid adjustable-rate and fixed-ratemortgage-backed securities.  Mr. Raiter holds an M.B.A. from theUniversity of North Carolina-Chapel Hill and a B.A. from North Carolina StateUniversity.

 

***ThomasJ. Skelly.***  Mr. Skelly has served as adirector since April 2007 and hiscurrent term will expire in 2009. Mr. Skelly has over thirty years experience building and managinginternational and large scale service businesses.  From 1975 until his retirement in 2004, Mr. Skellywas associated with Accenture (NYSE: ACN), where he had served as aManaging Partner since 1987.  AtAccenture, Mr. Skelly provided consulting on financial servicesand information technology matters, predominately in the insurance and theinvestment management sectors.  Mr. Skellywas a member of Accenture’s Executive Committee from 1999 until hisretirement.  Mr. Skelly hasserved as a board member of the Investment Committee of the USAccenture Foundation since 2003 and as its Chairman since 2004.  Since 2006, Mr. Skelly has served as anElected Member, Board of Independent Trustee, William Blair Mutual Funds.  From 2002 until 2004, Mr. Skelly servedon the Board of Directors to the United States Chamber of Commerce.  Mr. Skellyholds an M.B.A. from the University of Texas at Austin and a B.A. fromGeorgetown University.

 

***Michael M. Sonderby.***  Mr. Sonderby has served as a directorsince February 2007 and his currentterm will expire in 2010.  In2003, Mr. Sonderby retired from his position as Managing Partner of thePhiladelphia office of Deloitte & Touche, a national accounting firm,where he focused on the insurance industry. At the time of his retirement, he had worked for Deloitte &Touche for 38 years in both management and client service positions.  Mr. Sonderby holds a B.S.B.A. from MiamiUniversity in Ohio.  Mr. Sonderby isa Certified Public Accountant.

 

Executive officers of the Company are elected bythe Board of Directors on an annual basis and serve until their successors havebeen duly elected and qualified.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) ofthe Exchange Act requires the Company’s directors, executive officers andholders of more than 10% of the Company’s Common Stock (collectively, “ReportingPersons”) to file with the SEC initial reports of ownership and reports ofchanges in ownership of Common Stock of the Company.   Such persons are required by regulations ofthe SEC to furnish the Company with copies of all such filings.   The Company became subject to Section 16(a) reportingobligations on March 23, 2006, upon the SEC declaring the registrationstatement for our initial public offering effective.  Based on its review of the copies of suchfilings received by it from March 23, 2006 to the present and writtenrepresentations received by the Company pursuant to Section 16(a), theCompany believes that no Reporting Person filed a late report during the mostrecent fiscal year.

 

**Code ofEthics**

 

The Company has adopted a “code of ethics,” asdefined by regulations promulgated under the Securities Act of 1933, asamended, and the Exchange Act, that applies to all of the Company’s directorsand employees worldwide, including its principal executive officer, principalfinancial officer, principal accounting officer or controller, or personsperforming similar functions.  A currentcopy of the Code of Business Conduct is available at the Corporate Governancesection of the Company’s website at http://www.clayton.com.  A copy of the Code of Business Conduct mayalso be obtained, free of charge, from the Company upon a request directedto:  Clayton Holdings, Inc., 2Corporate Drive, Shelton, CT 06484, Attention: Secretary.  The Company intends to disclose any amendmentto or waiver of a provision of the Code of Business Conduct that applies to itsprincipal executive officer, principal financial officer, principal accountingofficer or controller, or persons performing similar functions, by posting suchinformation on its website available at http://www.clayton.com.

 

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For more corporategovernance information, you are invited to access the Corporate Governancesection of the Company’s website available at http://www.clayton.com.

 

**Director Candidates**

 

There have been nomaterial changes to the procedures by which security holders may recommendnominees to our Board of Directors.

 

**Audit Committee**

 

The Audit Committee of the Board of Directorscurrently consists of Messrs. Raiter, Skelly and Sonderby. Mr. Raiter is the chairman of the AuditCommittee.  TheBoard of Directors has determined that each current member of the AuditCommittee meets the independence requirements promulgated by The Nasdaq StockMarket, Inc. (“Nasdaq”) and the Securities and Exchange Commission (“SEC”),including Rule 10A-3(b)(1) under the Securities Exchange Act of 1934,as amended (the “Exchange Act”).  Inaddition, the Board of Directors has determined that each current member of theAudit Committee is financially literate and that Messrs. Raiter andSonderby each qualify as an “audit committee financial expert” under the rules ofthe SEC.  Stockholders should understandthat this designation is a disclosure requirement of the SEC related to each oftheir experience and understanding with respect to certain accounting andauditing matters. The designation does not impose upon Messrs. Raiter orSonderby any duties, obligations or liability that are greater than aregenerally imposed on other members of the Audit Committee and the Board ofDirectors, and designation as an audit committee financial expert pursuant tothis SEC requirement does not affect the duties, obligations or liability ofany other member of the Audit Committee or the Board of Directors.

 

**Item 11.                 ExecutiveCompensation**

 

**Compensation Committee**

 

The Compensation Committee currently consists ofMessrs. Gilbert, Kafker and Raiter. Mr. Gilbertis the chairman of the CompensationCommittee.  The Compensation Committee isresponsible for determining and making recommendations with respect to allforms of compensation to be granted to executive officers of the Company.  In fulfilling its role, the CompensationCommittee’s responsibilities include, but are not limited to:

 

·                  annually reviewing and approving corporate goalsand objectives relevant to the compensation of our Chief Executive Officer;

 

·                  evaluating the performance of our ChiefExecutive Officer in light of such corporate goals and objectives anddetermining the compensation of our Chief Executive Officer;

 

·                  determining the compensation of our otherexecutive officers;

 

·                  overseeing an evaluation of our seniorexecutives;

 

·                  overseeing and administering the Company’s incentive-based compensationplans and equity-based compensation plans;

 

·                  reviewing and making recommendations to theBoard of Directors with respect to director compensation;

 

·                  reviewing and recommending the Company’sCompensation Discussion and Analysis for inclusion in this and subsequentannual reports and proxy statements; and

 

·                  preparingthe Compensation Committee Report for inclusion in this and subsequent annualreports and proxy statements in accordance with applicable rules andregulations.

 

The Board of Directorshas determined that Messrs. Gilbert, Kafker and Raiter of the CompensationCommittee each meet the independence requirements promulgated by Nasdaq.  The Compensation Committee 

 

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operates under a written charter adopted by theBoard of Directors, a current copy of which is available at the CorporateGovernance section of the Company’s website at http://www.clayton.com.

 

**Compensation Discussion and Analysis**

 

We provide what we believe is a competitivetotal compensation package to our executive management team through acombination of a base salary, an annualbonus opportunity, a long-term incentive opportunity, retirement benefits,perquisites and other benefits.

 

We place significant emphasis onpay-for-performance based incentive compensation which is designed to rewardthe achievement of predetermined company and individual goals and thegeneration of increased stockholder value. This Compensation Discussion and Analysis explains our compensationphilosophy, policies and practices with respect to our chief executive officer,chief financial officer, and the other three most highly compensated executiveofficers, who are collectively referred to as our “named executive officers.”

 

***The Objectives of our Executive CompensationProgram.***

 

Our Compensation Committee is responsible forestablishing and administering our policies governing the compensation for ourexecutive officers.  The CompensationCommittee is composed entirely of independent, non-employee directors.

 

Our executive compensation program isdesigned to achieve the following objectives:

 

·   Attract and retain talented and experienced executives;

 

·   Motivate and reward executives whose knowledge, skills andperformance are critical to our success;

 

·        Align the interests of ourexecutive officers and stockholders by motivating executive officers toincrease stockholder value;

 

·        Providea competitive compensation package which is weighted towardspay-for-performance, and in which total compensation is primarily determined bythe company’s and the individual’s achievement of results and the creation ofstockholder value;

 

·   Foster a shared commitment among executives by aligning thecompany’s and their individual goals; and

 

·         Compensateour executives to manage our business to meet our objectives.

 

The Compensation Committee meets outside thepresence of all of our executive officers, including the named executiveofficers, to consider appropriate compensation for our chief executiveofficer.  For all other named executiveofficers, the Compensation Committee meets outside the presence of allexecutive officers except our chief executive officer.  The annual performance reviews of ourexecutive officers are considered by the Compensation Committee when makingdecisions on setting base salary, targets for and payments of annual bonusopportunities and grants of long-term equity incentive awards.  When making decisions on executive officers,the Compensation Committee considers competitive compensation data, theimportance of the position to us, the past salary history of the executiveofficer and the contributions we expect the executive officer to make to thesuccess of our business.

 

To assist management and the CompensationCommittee in assessing and determining competitive compensation packages, weengaged compensation consultants Mercer Human Resource Consulting (“Mercer”).

 

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We use thefollowing principles to guide our decisions regarding executive compensation:

 

***Provide compensationopportunities targeted at market median levels.***

 

To attract and retain executives with theability and the experience necessary to lead us and deliver strong performanceto our stockholders, we strive to provide a total compensation package that iscompetitive with total compensation provided by other similarly sized businessservice companies.  Our policy is totarget total compensation at median levels among this peer group, with leverageprovided through the incentive programs such that above target performanceyields above average compensation and below target performance yields belowaverage compensation.  Because a largeportion of total executive compensation is provided in the form of incentivesthat are contingent on performance, actual compensation of these executiveswill vary above and below these targeted median levels depending on ourcompanywide and their individual performance. In periods of strong performance, actual compensation will exceed thesetargeted levels.  If a downturn in performanceoccurs, the Compensation Committee expects actual compensation to be belowthese targeted levels.

 

The CompensationCommittee****periodically reviews data onindustry compensation levels and financial performance to assess competitivelevels of compensation for our executive officers.  In January 2007, the CompensationCommittee, with the assistance of Mercer, compared the total compensation ofselected named executive officers and the compensation practices of businessservice companies with similar gross revenue and full time employeeequivalents.  The process utilized by usand our consultants is as follows:

 

·        Mercer benchmarks thetotal compensation of our named executive officers relative to these peercompanies, providing advice on how to structure cash and equity incentives, andproviding guidance on changing regulatory requirements and best practices.  Compensation elements, including salary,bonus, total cash compensation, long-term incentives, and total directcompensation, are analyzed from the preceding year’s proxy disclosures by thesepeer companies.

 

·        Mercer provides marketanalysis reports showing the estimated market value for each jobbenchmarked.  Based on feedback from us,Mercer makes any necessary revisions.** **Market comparison reports aregenerated and provided for the Compensation Committee’s review.

 

***Require performance goals to be achievedand/or stockholder value to be******increased in order to increasecompensation.***

 

Our executive compensation program includespay-for-performance.  Performance ismeasured based on our overall financial performance as well as achievement ofcompany, departmental and individual performance goals, as determined by ourCompensation Committee.  The goals forour company, departments and individuals are established so that targetattainment is not assured.  Theattainment of payment for performance at or above target levels will requiresignificant effort on the part of our executives.

 

The compensation package for our executiveofficers includes both a cash opportunity and equity incentive plans that aligneach executive’s compensation with our short-term and long-term performancegoals and objectives.  Our CompensationCommittee determines an overall available bonus pool to compensate allemployees for achieving our annual financial goals at the corporate level.  The Compensation Committee then has fulldiscretion to allocate this overall available pool to executive officers toreward these individuals for achieving personal performance objectives.

 

***Offer a comprehensive benefits package to allfull-time employees.***

 

Our employees, including our executiveofficers, are entitled to various employee benefits.  These benefits include the following:medical, vision and dental care plans; flexible spending accounts forhealthcare and dependent care; life and disability insurance; a 401(k) plan;and paid time off.

 

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* *

***Provide fair and equitable compensation.***

 

We provide atotal compensation program that we believe will be perceived by both ourexecutive officers and our stockholders as fair and equitable.  In addition to conducting analyses of marketcompensation levels and considering individual circumstances related to eachexecutive officer, we have designed the total compensation programs to beconsistent for our executive management team.

 

**OurExecutive Compensation Programs**

 

We aim to deliver a substantial portion oftotal compensation in the form of cash and equity incentives to achieve itsobjective of holding executives accountable for company performance andoffering rewards for successful business results and increased shareholdervalue.  Compensation opportunities forour executive officers, including our named executive officers, are designed tobe competitive within our industry.  Webelieve that a substantial portion of each named executive officer’scompensation should be performance-based. In 2007, as a result of lower than expected overall financialperformance, variable incentive compensation ranged from approximately 0% to26% of total compensation of our named executive officers.

 

In determining whether to adjust thecompensation of our executive officers, including our named executive officers,annually we ask each of them to undertake a self-assessment.  Each named executive officer provides thecompleted self-assessment to our president and our chief executive officer fortheir review prior to submitting recommendations to the CompensationCommittee.  The president’s and chiefexecutive officer’s recommendation to the Compensation Committee consists ofeach named executive officer’s self-assessment and any revisions or commentsthe president and chief executive officer suggest.  The Compensation Committee discusses eachrecommendation with the president and chief executive officer, except that thepresident is not present when his or the chief executive officer’s compensationis discussed and the chief executive officer is not present when hiscompensation is discussed.  Once thereview process is complete, the Compensation Committee establishes the annualbase and incentive compensation target for each named executive officer.

 

**AnnualCash Compensation**

 

To attract and retain executives with theability and the experience necessary to lead us and deliver strong performanceto our stockholders, we provide a competitive total compensation package.  We target base salaries at median amongbusiness service companies with similar gross revenue and full time employeeequivalents and take into consideration individual performance and experienceto ensure that each executive is appropriately compensated.

 

***Base Salary.***

 

We design base salaries to compensate our executivesfor their position and level of responsibility. Each of our named executive officers has an employment agreement withthe Company.  The Compensation Committee****reviews base salaries annually and may adjust individualsalaries commensurately with performance, business impact, tenure andexperience, and changes in job responsibilities and market practice.  When establishing the base salary of anyexecutive officer, we also consider business requirements for certain skills,individual experience and contributions, the roles and responsibilities of theexecutive and other factors.  We believethat a competitive base salary is necessary to attract and retain an executivemanagement team with the appropriate abilities and experience required to leadus.

 

The base salaries paid to our named executiveofficers are set forth below in the Summary Compensation Table.  For the fiscal year ended December 31,2007, the aggregate annual base salary of our named executive officers wasapproximately $1,725,891, with our chief executive officer receiving $533,007of that amount.  We believe that the basesalary paid to our executive officers during 2007 achieves our executivecompensation objectives, compares favorably to our peer group and is within ourtarget of providing a base salary at the market median.

 

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***Annual Cash Bonus Awards.***

 

Target annualincentive opportunities are provided to be able to reward for the achievementof yearly performance objectives, and to provide an element of annual cashcompensation that is variable in nature. Target incentive opportunities are designed to provide compensationaround the median of the market.** **The incentive plan is largelydiscretionary though the funding of the pool through EBITDA targets isnot.  The Compensation Committee sets anEBITDA target and rate at which the bonus pool is funded for performance on,above and below target.  After performancehas been determined and the pool has been funded, the Compensation Committeehas the discretionary ability to allocate amounts of the bonus pool to anindividual based on departmental and individual performance.

 

With regardto the named executive officers, 2007 annual cash bonus awards were subject tothe size of the pool and the allocation process described above.  In 2007,  the Compensation Committee determined thatbased upon Company performance and market conditions for the Company’sservices, the Company would not pay fiscal 2007 cash bonuses with respect tofour of its five executive officers, including Frank P. Filipps, D. KeithJohnson, Frederick C. Herbst and Steven L. Cohen.  A cash bonus in the amount of $115,500 waspaid to Kevin J. Kanouff.

 

**EquityIncentive Compensation**

 

Long-term incentive awards are granted toalign our executives with our shareholders by focusing on our stock priceperformance and other indicators of long-term performance.  These awards also contribute to strongerretention rates through the application of multi-year vesting provisions.  Our policy is to use both stock options andrestricted stock to properly incentivize our executive officers to focus on thelong-term success of the Company.  Inaddition to stock options and restricted stock, we have the flexibility to useother long-term equity incentive vehicles.

 

Given thechanging and very difficult market conditions of 2007, and consistent with ourcompensation policy of retaining talented and experienced executives, weconcluded that a retention program was necessary to retain key employees aspart of an overall strategic plan to operate and grow the Company.  In August 2007, at a meeting of theBoard, there was an extensive discussion regarding the unprecedented disruptionof the non-agency segment of the mortgage market and its short and long-termimpacts on the Company.  Companymanagement discussed the need for a plan to retain employees in light of themarket disruption and the fact that the strike prices on the vast majority ofemployees’ outstanding options were substantially below the Company’s currentand anticipated future stock price.

 

In September 2007,we were increasingly concerned that employees were looking for otheropportunities as a result of extensive conversations with clients andconcurrent news in the popular and industry press to the effect that ourprimary markets were unlikely to recover in the near term.  In attempt to forestall or mitigateadditional employee departures, we re-engaged Mercer to assist us in preparingan incentive and retention plan for senior management and other key employees(the “Incentive and Retention Plan”).

 

In October 2007,Mercer delivered to us a draft of the Incentive and Retention Plan.  The draft of the Incentive and Retention Planproposed senior officers and certain other employees receive a combination ofcash and equity awards that vested over six (6) to eighteen (18)months.   Company management, theCompensation Committee and the full Board discussed the Incentive and RetentionPlan proposed by Mercer.

 

In November 2007,Company management and the Compensation Committee worked together to revise theIncentive and Retention Plan.  Companymanagement delivered a memorandum to the Compensation Committee summarizing itsrecommendation for retention equity awards and 2007 bonuses.  In December 2007, Company management andthe Compensation Committee continued to work together to revise the Incentiveand Retention Plan.

 

On December 19,2007, the Compensation Committee resolved to recommend awards of restrictedstock to Company executives, senior managers, revenue generators and other keyemployees. The Compensation Committee concluded that each of Messrs. Filipps,Herbst, Johnson and Cohen should not receive a cash bonus for 2007 as a resultof the Company’s financial performance. In lieu of a cash bonus, however, the Compensation Committee concludedthat equity awards that vested ratably every six (6) months over a two (2) yearperiod for such officers 

 

11

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would be anappropriate means to compensate them for 2007, align their interests with thoseof the stockholders for 2008 and beyond and were consistent with the Company’sdesire to retain these individuals.  * *Also on December 19,2007, the Board discussed issues related to employee retention.  The Compensation Committee then presented itsrecommendations to the Board for equity awards under the Incentive andRetention Plan.  The Board discussed theCompensation Committee’s recommendations and recommended that all such awards,and the documentation related thereto, be approved by the CompensationCommittee based upon the closing price of the Company’s stock on December 20,2007.

 

On December 21,2007, the Compensation Committee approved the awards recommended by the Boardon December 19, 2007 and the terms of the letter agreements with each of Messrs. Filipps,Herbst, Johnson and Cohen.  On December 21,2007, each of Messrs. Filipps, Johnson, Herbst and Cohen entered into aletter agreement with the Company in which the Company agreed to grant him411,356, 277,736, 189,724 and 145,276 shares of restricted commonstock (the “Phantom Awards”), respectively, on the date of the 2008 annualmeeting of Company’s stockholders, subject to the approval of an increase tothe number of shares of common stock reserved under the Company’s 2006 StockOption and Incentive Plan (the “Option Plan”).  If a Sale Event (asdefined in the Option Plan) occurs prior to stockholder approval, the entireaward is settled in cash.  On December 21, 2007, Mr. Kanouff wasawarded 62,500 shares of restricted common stock (collectively with the PhantomAwards, the “December Awards”).

 

**Other Benefits Programs**

 

We believe in creating a cooperativeenvironment in which all employees are committed to us and motivated to meetour business objectives.  Towards thisend, we offer our employees various benefits, including medical, vision anddental care plans, flexible spending accounts for healthcare and dependentcare, life and disability insurance, a 401(k) plan and paid time off.  Members of senior management are entitled tolife insurance, disability and paid time off benefits that are more generousthan those provided to other employees.

 

12

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**Compensation CommitteeInterlocks and Insider Participation**

 

The current Compensation Committee members areDavid Gilbert, Roger B. Kafker and Frank L. Raiter.  Brian L. Libman served as a member of theCompensation Committee during 2007 until his resignation after the Company’s2007 annual meeting of stockholders.  Nomember of the Compensation Committee was an employee or former employee of theCompany or any of its subsidiaries, or had any relationship with the Companyrequiring disclosure herein.

 

During 2007, no executive officer of the Companyserved as: (i) a member of the compensation committee (or other committeeof the board of directors performing equivalent functions or, in the absence ofany such committee, the entire board of directors) of another entity, one ofwhose executive officers served on the Compensation Committee of the Company; (ii) adirector of another entity, one of whose executive officers served on theCompensation Committee of the Company; or (iii) a member of thecompensation committee (or other committee of the board of directors performingequivalent functions or, in the absence of any such committee, the entire boardof directors) of another entity, one of whose executive officers served as adirector of the Company.

 

**Compensation Committee Report**

 

*No portion of this C*ompensation*Committee Report shall be deemed to be incorporatedby reference into any filing under the Securities Act of 1933, as amended, orthe Securities Exchange Act of 1934, as amended, through any general statementincorporating by reference in its entirety the Amendment No. 1 to ourAnnual Report on Form 10-K/A in which this report appears, except to theextent that the Company specifically incorporates this report or a portion ofit by reference.  In addition, thisreport shall not be deemed filed under either the Securities Act or theExchange Act.*

 

The Compensation Committee has reviewed anddiscussed with management the Compensation Discussion and Analysis contained inthis Amendment No. 1 to our Annual Report on Form 10-K/A.  Based on its review of, and the discussionswith management with respect to the Compensation Discussion and Analysis, theCompensation Committee recommended to the Board of Directors and the Board ofDirectors has agreed that the Compensation Discussion and Analysis be includedin this Amendment No. 1 to our Annual Report on Form 10-K/A.

 

 
|   |   | Respectfully submitted by the Compensation Committee, |
|--------|--------|-------------------------------------------------------|
|   |   |                                                  |
|   |   | David Gilbert (Chairman)                              |
|   |   | Roger B. Kafker                                       |
|   |   | Frank L. Raiter                                       |

 

13

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The following summarizes the compensationearned during the years ended December 31, 2007 and December 31, 2006by our Chief Executive Officer, Chief Financial Officer and our three othermost highly compensated executive officers who were serving as executive officerson December 31, 2007 and whose total compensation exceeded $100,000.

 

**Summary Compensation Table**

 
| **Name and Principal Position**   | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Stock  Awards** | ** ** | **Option  Awards** | ** ** | **All Other  Compensation(1)** | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|--------------------|------------|-------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | **($)**    | ** ** | **($)**    | ** ** | **($)**           | ** ** | **($)**            | ** ** | **($)**                             | ** ** | **($)**    | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Frank P. Filipps                                 |       | 2007       |       | 533,007    |       | —     |       | 34,960            |       | 155,553            |       | 36,411                              |       | 759,931    |       |
| Chairman and Chief Executive Officer             |       | 2006       |       | 512,423    |       | 775,500    |       | —            |       | 517,328            |       | 56,651                              |       | 1,861,902  |       |
| David Keith Johnson(2)                           |       | 2007       |       | 392,692    |       | —     |       | 111,589           |       | 166,538            |       | 5,046                               |       | 675,865    |       |
| President and Chief Operating Officer            |       | 2006       |       | 237,981    |       | 237,500    |       | —            |       | 81,229             |       | 235,135                             |       | 791,845    |       |
| Frederick C. Herbst                              |       | 2007       |       | 272,115    |       | —     |       | 65,005            |       | 21,215             |       | 25,671                              |       | 384,006    |       |
| Chief Financial Officer                          |       | 2006       |       | 250,000    |       | 285,000    |       | —            |       | 44,874             |       | 25,671                              |       | 605,545    |       |
| Steven L. Cohen                                  |       | 2007       |       | 255,962    |       | —     |       | 51,451            |       | 6,060              |       | 5,046                               |       | 318,519    |       |
| Senior Vice President and General Counsel        |       | 2006       |       | 204,692    |       | 150,000    |       | —            |       | 12,120             |       | 5,266                               |       | 372,078    |       |
| Kevin J. Kanouff                                 |       | 2007       |       | 272,115    |       | 115,500    |       | 42,709            |       | 6,981              |       | 5,046                               |       | 442,351    |       |
| Executive Vice President of Strategic  Alliances |       |       |       |       |       |       |       |              |       |               |       |                                |       |       |       |

 

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(1)           All OtherCompensation details:

** **
| **Name**            | ** ** | **Year**   | ** ** | **401(k)  Matching  Contribution** | ** ** | **Life, Short-Term  Disability and  Long-Term  Disability  Insurance  Premiums** | ** ** | **Commuting  Expense** | ** ** | **Relocation  Expense** | ** ** | **Car  Allowance** | ** ** | **Total** | ** ** |
|---------------------|------------|------------|------------|------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|--------------------|------------|-----------|------------|
| ** **          | ** ** | ** ** | ** ** | **($)**                            | ** ** | **($)**                                                                                    | ** ** | **($)**                | ** ** | **($)**                 | ** ** | **($)**            | ** ** | **($)**   | ** ** |
| Frank P. Filipps    |       | 2007       |       | 3,375                              |       | 1,671                                                                                      |       | 31,365                 |       | —                  |       | —             |       | 36,411    |       |
|                |       | 2006       |       | 3,750                              |       | 1,671                                                                                      |       | 32,790                 |       | —                  |       | 18,440             |       | 56,651    |       |
| David Keith Johnson |       | 2007       |       | 3,375                              |       | 1,671                                                                                      |       | —                 |       | —                  |       | —             |       | 5,046     |       |
|                |       | 2006       |       | 2,380                              |       | 964                                                                                        |       | —                 |       | 231,791                 |       | —             |       | 235,135   |       |
| Frederick C. Herbst |       | 2007       |       | —                             |       | 1,671                                                                                      |       | —                 |       | —                  |       | 24,000             |       | 25,671    |       |
|                |       | 2006       |       | —                             |       | 1,671                                                                                      |       | —                 |       | —                  |       | 24,000             |       | 25,671    |       |
| Steven L. Cohen     |       | 2007       |       | 3,375                              |       | 1,671                                                                                      |       | —                 |       |                    |       | —             |       | 5,046     |       |
|                |       | 2006       |       | 3,750                              |       | 1,516                                                                                      |       | —                 |       | —                  |       | —             |       | 5,266     |       |
| Kevin J. Kanouff    |       | 2007       |       | 3,375                              |       | 1,671                                                                                      |       | —                 |       |                    |       | —             |       | 5,046     |       |

 

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(2)                                  Mr. Johnsonbegan his employment with us in May 2006. His annual base salary for 2006 was $375,000.

 

**Agreementswith Named Executive Officers**

 

***FrankP. Filipps.***  Under the terms of theemployment agreement with our Chief Executive Officer, Frank P. Filipps, dated April 25,2005, as amended on April 13, 2008, the term of his employment isindefinite until terminated by either party. Mr. Filipps is entitled to a base salary and eligible for an annualperformance bonus, each as determined on an annual basis by our Board ofDirectors or Compensation Committee.  Mr. Filippsis reimbursed for travel and lodging expenses related to commuting from Pennsylvaniato our corporate offices in Shelton, Connecticut.  Mr. Filipps’ employment agreementprovides for customary health and retirement benefits. Mr. Filipps’ 2008base salary is $535,095 and his 2008 target bonus is 150% of his base salary.

 

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***DavidKeith Johnson.***  Under the terms of theemployment agreement with our President and Chief Operating Officer, DavidKeith Johnson, dated May 1, 2006, as amended on January 30, 2007 and April 13,2008, the term of his employment is indefinite until terminated by eitherparty.  In 2006, Mr. Johnsonreceived the pro rata portion of an annual base salary of $375,000, and his2006 target bonus was 100% of this pro-rated annual salary.  In 2007 and subsequent years, Mr. Johnsonis entitled to a base salary and eligible for an annual performance bonus, eachas determined on an annual basis by our Board of Directors or CompensationCommittee.  In connection with  his employment, we granted Mr. Johnsonan option, subject to time based vesting, to purchase 100,000 shares of ourcommon stock.  The stock option wasgranted to Mr. Johnson on May 31, 2006, at an exercise price of$14.05.  In addition, the Companyprovided Mr. Johnson with $231,791 in relocation assistance in connectionwith his move from the Seattle, Washington area to Connecticut.  Mr. Johnson’s employment agreementprovides for customary health and retirement benefits.  Mr. Johnson’s 2008 base salary is$395,000 and his 2008 target bonus is 125% of his base salary.

 

***FrederickC. Herbst.***  Under the terms of theemployment agreement with our Chief Financial Officer, Frederick C. Herbst,dated September 19, 2005, as amended on January 30, 2007 and April 13,2008, the term of his employment is indefinite until terminated by eitherparty.  Mr. Herbst is entitled to abase salary and eligible for an annual performance bonus, each as determined onan annual basis by our Board of Directors or Compensation Committee.  Mr. Herbst is entitled to a travelallowance in the amount of $2,000 per month for mileage andaccommodations.  Mr. Herbst’semployment agreement provides for customary health and retirementbenefits.  Mr. Herbst’s 2008 basesalary is $275,000 and his 2008 target bonus is 120% of his base salary.

 

***StevenL. Cohen.*** Under the terms of the employment agreement with our Senior VicePresident – General Counsel, Steven L. Cohen, dated January 31, 2005, asamended, the term of his employment is indefinite until terminated by eitherparty. Mr. Cohen is entitled to a base salary and eligible for an annualperformance bonus, each as determined on an annual basis by our Board ofDirectors or Compensation Committee. Mr. Cohen’s employment agreementprovides for customary health and retirement benefits.  Mr. Cohen’s 2008 base salary is $260,000and his 2008 target bonus is 70% of his base salary.

 

***Kevin J. Kanouff.***  Under the terms of the employment agreementwith our Executive Vice President of Strategic Alliances,Kevin J. Kanouff, dated March 14, 2007, as amended on April 13, 2008,the term of his employment is indefinite until terminated by either party.  Mr. Kanouff is entitled to a base salaryand eligible for an annual performance bonus, each as determined on an annualbasis by our Board of Directors or Compensation Committee.  Mr. Kanouff’s employment agreementprovides for customary health and retirement benefits.  Mr. Kanouff’s 2008 base salary is$275,000 and his 2008 target bonus is 70% of his base salary.

 

In addition to the foregoing, we have enteredinto indemnification agreements with each of our directors, and with FrankP. Filipps, Frederick C. Herbst, D. Keith Johnson, StevenL. Cohen and Kevin J. Kanouff. These agreements provide that we will indemnify these directors andexecutive officers to the fullest extent permitted by law and our certificateof incorporation and by-laws, and advance expenses to each indemnitee inconnection with any proceeding in which indemnification is available.

 

***Grantsof Plan-Based Awards***

** **

The following table sets forth informationconcerning grants of restricted stock to our named executive officers duringthe year ended December 31, 2007.

 

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**Grants of Plan-Based Awards — 2007**

 
| **Name**            | ** ** | **Grant Date**    | ** ** | **All other Stock Awards:  Number of Shares of  Stock or Units  (#)** | ** ** | **Grant Date Fair  Value of Stock and  Option Awards  ($/share)** | ** ** |
|---------------------|------------|------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| Frank P. Filipps    |       | December 21, 2007 |       | 411,356                                                                                                       |       | 4.00                                                                                            |       |
| David Keith Johnson |       | January 30, 2007  |       | 22,500                                                                                                        |       | 18.48                                                                                           |       |
|                |       | December 21, 2007 |       | 277,736                                                                                                       |       | 4.00                                                                                            |       |
| Frederick C. Herbst |       | January 30, 2007  |       | 12,500                                                                                                        |       | 18.48                                                                                           |       |
|                |       | December 21, 2007 |       | 189,724                                                                                                       |       | 4.00                                                                                            |       |
| Steven L. Cohen     |       | January 30, 2007  |       | 10,000                                                                                                        |       | 18.48                                                                                           |       |
|                |       | December 21, 2007 |       | 145,276                                                                                                       |       | 4.00                                                                                            |       |
| Kevin J. Kanouff    |       | January 30, 2007  |       | 10,000                                                                                                        |       | 18.48                                                                                           |       |
|                |       | December 21, 2007 |       | 62,500                                                                                                        |       | 4.00                                                                                            |       |

 

**Employee Equity CompensationPlans**

 

***2005 Stock Option and Grant Plan***

 

Our 2005 Stock Option and Grant Plan, or 2005Option Plan, was adopted by our Board of Directors and approved by ourstockholders on March 31, 2005.  Inconnection with the combination of Clayton Services and CFIS, the outstandingoptions held by employees and officers of each of Clayton Services and CFISwere converted into options under our 2005 Option Plan.  The existing option plans for each of ClaytonServices and CFIS were terminated in all respects.  We reserved 7,398,236 shares of our commonstock for the issuance of awards under the 2005 Option Plan.

 

The 2005 Option Plan is administered by ourCompensation Committee or by our Board of Directors.  The administrator of the 2005 Option Plan hasfull power and authority to select the participants to whom awards will begranted, to make any combination of awards to participants, to accelerate theexercisability or vesting of any award and to determine the specific terms andconditions of each award, subject to the provisions of the 2005 Option Plan.

 

The 2005 Option Plan permits us to makegrants of incentive stock options, non-qualified stock options, restrictedstock awards and unrestricted stock awards to officers, employees, directors,consultants and other key persons.  Stockoptions granted under the 2005 Option Plan have a maximum term of ten yearsfrom the date of grant and incentive stock options have an exercise price of noless than the fair market value of the common stock on the date of grant.

 

Upon the completion of our initial publicoffering on March 29, 2006, the vesting term for all options granted underthe 2005 Option Plan was automatically accelerated by one year.  In the event of a merger, sale or dissolutionof Clayton, or a similar “sale event,” all stock options will become fullyexercisable and all other awards granted under the 2005 Option Plan will becomefully vested and non-forfeitable unless the parties to the transaction, intheir discretion, provide for appropriate substitutions or assumptions ofoutstanding awards.  The 2005 Option Planwill automatically terminate upon the consummation of the “sale event,” unlessthe parties, in their sole discretion, provide otherwise.

 

In connection with the adoption of our 2006Stock Option and Incentive Plan, which is discussed in detail below, our Boardof Directors determined not to grant any further awards under the 2005 OptionPlan.

 

***2006 Stock Option and Incentive Plan***

 

Our 2006 Stock Option and Incentive Plan, or2006 Option Plan, was adopted by our Board of Directors and approved by ourstockholders in March 2006.  The2006 Option Plan permits us to make grants of incentive stock options,non-qualified stock options, stock appreciation rights, deferred stock awards,restricted stock awards, unrestricted stock awards, and dividend equivalentrights.  We reserved 1,814,130 shares ofour common stock for the issuance of awards under the 2006 Option Plan.  This number is subject to adjustment in theevent of a stock 

 

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split, stock dividend or other change in our capitalization.  Generally, shares that are forfeited orcanceled from awards under the 2006 Option Plan also will be available forfuture awards.

 

The 2006 Option Plan is administered byeither a committee of at least two non-employee directors, or by our full Boardof Directors. The administrator of the 2006 Option Plan has full power andauthority to select the participants to whom awards will be granted, to makeany combination of awards to participants, to accelerate the exercisability orvesting of any award and to determine the specific terms and conditions of eachaward, subject to the provisions of the 2006 Option Plan.

 

All full-time and part-time officers,employees, non-employee directors and other key persons (including consultantsand prospective employees) are eligible to participate in the 2006 Option Plan,subject to the discretion of the administrator. There are certain limits on the number of awards that may be grantedunder the 2006 Option Plan.  For example,no more than 750,000 shares of stock may be granted in the form of stockoptions or stock appreciation rights to any one individual during anyone-calendar-year period.

 

The exercise price of stock options awardedunder the 2006 Option Plan may not be less than the fair market value of thecommon stock on the date of the option grant and the term of each option maynot exceed ten years from the date of grant. The administrator will determine at what time or times each option maybe exercised and, subject to the provisions of the 2006 Option Plan, the periodof time, if any, after retirement, death, disability or other termination ofemployment during which options may be exercised.

 

To qualify as incentive options, stockoptions must meet additional federal tax requirements, including a $100,000limit on the value of shares subject to incentive options which first becomeexercisable in any one calendar year, and a shorter term and higher minimumexercise price in the case of certain large stockholders.  No incentive stock option awards may begranted under the 2006 Option Plan after March 2016.

 

Stock appreciation rights may also be grantedunder our 2006 Option Plan.  Stock appreciationrights allow the recipient to receive the appreciation in the fair market valueof our common stock between the exercise date and the date of grant.  The administrator determines the terms ofstock appreciation rights, including when such rights become exercisable andwhether to pay the increased appreciation in cash or with shares of our commonstock, or a combination thereof.  Theexercise price of stock appreciation rights granted under our 2006 Option Planmay not be less than the fair market value of our common stock on the date ofgrant.

 

Restricted stock may also be granted underour 2006 Option Plan.  Restricted stockawards are shares of our common stock that vest in accordance with terms andconditions established by the administrator.  The administrator will determine the number ofshares of restricted stock granted to any recipient.  The administrator may impose whatever vestingconditions it determines to be appropriate. For example, the administrator may set restrictions based on theachievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right ofrepurchase or forfeiture.

 

Deferred and unrestricted stock awards mayalso be granted under our 2006 Option Plan. Deferred stock awards are units entitling the recipient to receiveshares of stock paid out on a deferred basis, and subject to such restrictionsand conditions, as the administrator shall determine.  Certain grantees, including directors, willbe permitted to defer their compensation and receive deferred stock awards inlieu of current cash compensation.  Alldeferred compensation will be structured to meet the requirements of Section 409Aof the Internal Revenue Code. Our 2006 Option Plan also gives the administratordiscretion to grant stock awards free of any restrictions.

 

Dividend equivalent rights may be grantedunder our 2006 Option Plan.  Dividendequivalent rights are awards entitling the grantee to current or deferredpayments equal to dividends on a specified number of shares of stock.  Dividend equivalent rights may be settled incash or shares and subject to other conditions, as the administrator shalldetermine.

 

Unless the administrator provides otherwise,our 2006 Option Plan does not allow for the transfer of awards and only therecipient of an award may exercise an award during his or her lifetime.

 

17

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In the event of a merger, sale or dissolutionof Clayton, or a similar “sale event,” all stock options and stock appreciationrights granted under the 2006 Option Plan will automatically become fullyexercisable and all other awards granted under the 2006 Option Plan will becomefully vested and non-forfeitable, except that all shares of restricted stockgranted to date may be assumed or substituted for similar awards, if theparties to the transaction, in their discretion, so provide.  In addition, upon the effective time of anysuch sale event, the 2006 Option Plan and all awards will terminate unless theparties to the transaction, in their discretion, provide for appropriatesubstitutions or assumptions of outstanding awards.

 

Our Board of Directors may amend ordiscontinue the 2006 Option Plan at any time and the administrator may amend orcancel any outstanding award for the purpose of satisfying changes in law orfor any other lawful purpose. No such amendment may adversely affect the rightsunder any outstanding award without the holder’s consent. Other than in theevent of a necessary adjustment in connection with a change in the company’sstock or a merger or similar transaction, the administrator may not “reprice”or otherwise reduce the exercise price of outstanding stock options.  Further, amendments to the 2006 Option Planwill be subject to approval by our stockholders if the amendment (i) increasesthe number of shares available for issuance under the 2006 Option Plan, (ii) expandsthe types of awards available under, the eligibility to participate in, or theduration of, the plan, (iii) materially changes the method of determiningfair market value for purposes of the 2006 Option Plan; (iv) is requiredby the Nasdaq Global Market rules, or (v) is required by the InternalRevenue Code to ensure that incentive options are tax-qualified.

 

**OutstandingEquity Awards at Fiscal Year-End — 2007**

 

**Option Awards**

 
| ** **          | ** ** | **Number of** | ** ** | **Number of** | ** ** | ** **   | ** ** | ** **              | ** ** |
|---------------------|------------|--------------------|------------|--------------------|------------|--------------|------------|-------------------------|------------|
| ** **          | ** ** | **Securities**     | ** ** | **Securities**     | ** ** | ** **   | ** ** | ** **              | ** ** |
| ** **          | ** ** | **Underlying**     | ** ** | **Underlying**     | ** ** | ** **   | ** ** | ** **              | ** ** |
| ** **          | ** ** | **Unexercised**    | ** ** | **Unexercised**    | ** ** | **Option**   | ** ** | ** **              | ** ** |
| ** **          | ** ** | **Options**        | ** ** | **Options**        | ** ** | **Exercise** | ** ** | **Option**              | ** ** |
| ** **          | ** ** | **(#)**            | ** ** | **(#)**            | ** ** | **Price**    | ** ** | **Expiration**          | ** ** |
| **Name**            | ** ** | **Exercisable**    | ** ** | **Unexercisable**  | ** ** | **($)**      | ** ** | **Date**                | ** ** |
| Frank P. Filipps    |       | 488,280            |       | 32,553             |       | 6.00         |       | April 25, 2015     |       |
| D. Keith Johnson    |       | 39,582             |       | 60,418             |       | 14.05        |       | May 31, 2016       |       |
| Frederick C. Herbst |       | 41,665             |       | 8,335              |       | 6.80         |       | September 28, 2015 |       |
| Steven L. Cohen     |       | 21,366             |       | 929                |       | 0.98         |       | March 9, 2015      |       |
| Steven L. Cohen     |       | 7,834              |       | 1,121              |       | 6.36         |       | July 27, 2015      |       |
| Kevin J. Kanouff    |       | 36,068             |       | —             |       | 4.00         |       | May 24, 2014       |       |

 

**Stock Awards**

 
| ** **          | ** ** | ** **          | ** ** | **Market**               | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------|------------|------------|------------|------------|------------|
| ** **          | ** ** | **Number of**  | ** ** | **Value of**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Shares or**  | ** ** | **Shares or**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Units of**   | ** ** | **Units of**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Stock that** | ** ** | **Stock**                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Have not**   | ** ** | **That have**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Name**            | ** ** | **Vested  (#)**     | ** ** | **Not Vested  ($)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Frank P. Filipps    |       | 411,356             |       | 2,126,711                |       |       |       |       |       |
| D. Keith Johnson    |       | 300,236             |       | 1,552,220                |       |       |       |       |       |
| Frederick C. Herbst |       | 202,224             |       | 1,045,498                |       |       |       |       |       |
| Steven L. Cohen     |       | 155,276             |       | 802,777                  |       |       |       |       |       |
| Kevin J. Kanouff    |       | 72,500              |       | 374,825                  |       |       |       |       |       |

 

 

18

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***Option Exercises and Stock Vested***

 

No named executive officers exercised anyoptions or had any restricted stock vest in 2007.

 

***Potential Payments Upon Termination or Changeof Control.***

 

We have entered into certain agreements andmaintain certain plans that may require us to make certain payments and/orprovide certain benefits to the named executive officers in the event of atermination of their employment or a change of control of Clayton.  The following tables and narrative disclosuresummarize the potential payments to each named executive officer assuming thatone of the events listed in the tables below occurs. The tables assume that theevent occurred on December 31, 2007, the last day of our fiscal year.

 

***Stock Options and Restricted Stock***

 

Stock options and restricted stock held byour named executive officers fully vest upon a change of control, unless, underspecific circumstances, provision for their assumption or continuation ismade.  The following tables assumed thatthe stock options and restricted stock are not assumed or continued.

 

***FrankP. Filipps.  *** In the case of terminationby Mr. Filipps for good reason, or by us without cause, he will receive alump sum payment equal to 200% of the sum of his annual base salary and targetbonus as in effect on the date of termination. Additionally, Mr. Filipps will receive payment of the pro rataportion of his target bonus for the year in which the termination occurs, andthe partially employer-subsidized continuation of group health plan benefitsfor two years.  If Mr. Filipps’employment terminates because of his death or disability, he, or his estate,will receive the pro rata portion of his target bonus earned through suchtermination date.  In some circumstancesinvolving a change of control, all outstanding options held by Mr. Filippswill vest and become exercisable. Finally, in the event that any severance payments made to Mr. Filippswould be subject to certain excise taxes by the Internal Revenue Service, wewill “gross-up” the payments such that the net amount received by Mr. Filipps,after any such excise taxes are incurred, is equal to the severance amountpayment.

 

Mr. Filipps also entered into anemployee confidentiality and non-competition agreement with us concurrentlywith the execution of his employment agreement, whereby Mr. Filipps agreednot to compete with us, or solicit or divert our clients for a period endingtwo years following the termination of his employment with us for any reason.Additionally, Mr. Filipps agreed to refrain from soliciting or hiring anyof our employees for a period of one year following the termination of hisemployment with us for any reason.

 
| **Payments and Benefits**                           | ** ** | **Involuntary  Termination  Without Cause** | ** ** | **Voluntary  Termination for  Good Reason** | ** ** | **Change of Control  Payments** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------|------------|
| Cash Severance                                                |       | $                                                | 2,675,476  |                                                  | $          | 2,675,476                                 |       | $ | 2,675,476 | (1) |
| Pro Rata Bonus                                                |       | 802,643                                          |       | 802,643                                               |       | 802,643                                   | (1)        |
| Cash In Lieu of December 2007  Restricted Stock Award(2) |       | 1,083,355                                        |       | 1,083,355                                             |       | 2,126,711                                 | (1)        |
| Health Benefits                                               |       | 24,000                                           |       | 24,000                                                |       | 24,000                                    | (1)        |
| Tax Gross-up(3)                                               |       | —                                           |       | —                                                |       | 1,416,231                                 |       |
| **Total**                                                     |       | $                                                | 4,585,474  |                                                  | $          | 4,585,474                                 |       | $ | 7,045,061 |   |

 

----

(1)           Underthe terms of his employment agreement with us, Mr. Filipps may terminatehis employment for “Good Reason” at any time during the one-year periodfollowing a change of control.  ThisChange of Control Payment assumes Mr. Filipps invokes this provision ofhis employment agreement.

 

(2)           Under the terms of the December Awards,if Mr. Filipps’ employment is terminated by us without cause or by himwith good reason, then the award would be settled in cash in lieu of restrictedshares, and he shall be entitled to the value of the vested portion plus anadditional 12 months of vesting under the award.  Upon a change of control of the Company, theaward would be settled in cash in lieu of restricted shares, and he shall beentitled to the value of the entire award (vested and unvested).

 

19

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** **

(3)           The estimated TaxGross-up payment is based, in part, on Mr. Filipps’ 2006 compensation, which isdisproportionately low, thereby resulting in an estimated Tax Gross-uppayment which may be disproportionately high.

 

***DavidKeith Johnson. *** In the event that Mr. Johnson’semployment is terminated by us without cause or by Mr. Johnson for goodreason, then Mr. Johnson is entitled to receive a lump-sum payment equalto his annual base salary and all medical and health benefits for 12 monthsfollowing the termination date. In the event Mr. Johnson’s employment isterminated within 18 months after the consummation of a change of control by uswithout cause or by him for good reason, he will be entitled to receive alump-sum payment equal to 200% of his annual base salary and target incentivebonus in effect on the date of termination. In a change of control, alloutstanding options held by Mr. Johnson will vest and become exercisableand, in some circumstances, all shares of restricted stock will become fully vestedand nonforfeitable.

 

Mr. Johnson also entered into anemployee confidentiality and non-competition agreement with us concurrentlywith the execution of his employment agreement, whereby Mr. Johnson agreednot to compete with us, or solicit or divert our clients for a period endingone year following the termination of his employment with us for any reason orfor two years following a change of control. Additionally, Mr. Johnsonagreed to refrain from soliciting or hiring any of our employees for a periodof one year following the termination of his employment with us for any reasonor for two years following a change of control.

 
| **Payments and Benefits**                            | ** ** | **Involuntary  Termination  Without Cause** | ** ** | **Voluntary  Termination  for  Good Reason** | ** ** | **Change of  Control** | ** ** | **Involuntary  Termination  Without Cause  within 18 months of  a Change  of Control** | ** ** | **Voluntary  Termination for  Good Reason  within 18 months of  a Change of  Control** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| Cash Severance                                                 |       | $                                                | 395,000    |                                              | $          | 395,000                     |       | —                                                                                                               |       | $                                                                                                                         | 1,777,500  |   | $ | 1,777,500 |   |
| Cash In Lieu of December 2007  Restricted Stock Award (1) |       | 717,948                                          |       | 717,948                                           |       | $                           | 1,435,895  |                                                                                                                 | —     |                                                                                                                      | —     |   |
| Restricted Stock(2)                                            |       | —                                           |       | —                                            |       | 116,325                     |       | —                                                                                                               |       | —                                                                                                                    |       |
| Health Benefits                                                |       | 12,000                                           |       | 12,000                                            |       | —                      |       | —                                                                                                               |       | —                                                                                                                    |       |
| **Total**                                                      |       | $                                                | 1,130,948  |                                              | $          | 1,130,948                   |       | $                                                                                                                    | 1,552,220  |                                                                                                                      | $          | 1,777,500 |   | $ | 1,777,500 |   |

 

----

(1)           Under the terms of the December Awards,if Mr. Johnson’s employment is terminated by us without cause or by himwith good reason, then the award would be settled in cash in lieu of restrictedshares, and he shall be entitled to the value of the vested portion plus anadditional 12 months of vesting under the award. Upon a change of control ofthe Company, the award would be settled in cash in lieu of restricted shares,and he shall be entitled to the value of the entire award (vested andunvested).

 

(2)           Based upon the closing price of ourcommon stock on December 31, 2007.

 

***FrederickC. Herbst.  ***Mr. Herbst is anemployee at-will and his employment agreement may be terminated by either partyupon 30 days written notice. Notwithstanding the at-will nature of hisemployment, if his employment is terminated by us without cause or by Mr. Herbstfor good reason, Mr. Herbst is entitled to severance payments equal to oneyear’s salary payable over the twelve months following his termination andcontinuation of his group health plan benefits so long as he is receivingseverance payments. In the event Mr. Herbst’s employment is terminatedwithin 18 months after the consummation of a change of control by us withoutcause or by him for good reason, he will be entitled to receive a lump-sumpayment equal to 150% of his annual base salary and target incentive bonus ineffect on the date of termination and continuation of his group health planbenefits. In some circumstances involving a change of control, all outstandingoptions held by Mr. Herbst will vest and become exercisable and all sharesof restricted stock will become fully vested and nonforfeitable. For the periodof one year

 

20

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following the termination of his employment, regardless of the reasonfor such termination, Mr. Herbst’s employment agreement requires him torefrain from (i) performing services for a competitor in a similarcapacity as to the services he provided to us, (ii) owning any interest ina competitor, (iii) soliciting our clients or suppliers and (iv) hiringour employees or soliciting our vendors or suppliers.

 
| **Payments and Benefits**                            | ** ** | **Involuntary  Termination  Without Cause** | ** ** | **Voluntary  Termination  for  Good Reason** | ** ** | **Change of  Control** | ** ** | **Involuntary  Termination  Without Cause  within 18 months of  a Change of  Control** | ** ** | **Voluntary  Termination for  Good Reason  within 18 months of  a Change of  Control** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| Cash Severance                                                 |       | $                                                | 275,000    |                                              | $          | 275,000                     |       | —                                                                                                               |       | $                                                                                                                         | 907,500    |   | $ | 907,500 |   |
| Cash In Lieu of December 2007  Restricted Stock Award (1) |       | 490,437                                          |       | 490,437                                           |       | 980,873                     |       | —                                                                                                               |       | —                                                                                                                    |       |
| Restricted Stock(2)                                            |       | —                                           |       | —                                            |       | 64,625                      |       | —                                                                                                               |       | —                                                                                                                    |       |
| Health Benefits                                                |       | 12,000                                           |       | 12,000                                            |       | —                      |       | 18,000                                                                                                               |       | 18,000                                                                                                                    |       |
| **Total**                                                      |       | $                                                | 783,437    |                                              | $          | 783,437                     |       | $                                                                                                                    | 1,045,498  |                                                                                                                      | $          | 925,500 |   | $ | 925,500 |   |
|                                                                |            |                                                  |            |                                                   |            |                             |            |                                                                                                                      |            |                                                                                                                           |            |  |  |  |  |  |

 

----

(1)           Under the terms of the December Awards,if Mr. Herbst’s employment is terminated by us without cause or by himwith good reason, then the award would be settled in cash in lieu of restrictedshares, and he shall be entitled to the value of the vested portion plus anadditional 12 months of vesting under the award. Upon a change of control ofthe Company, the award would be settled in cash in lieu of restricted shares,and he shall be entitled to the value of the entire award (vested andunvested).

 

 (2)          Based upon the closing price of our common stock on December 31, 2007.

 

***StevenL. Cohen. ***Mr. Cohen is entitled toseverance payments equal to one year’s salary if his employment is terminatedby us without cause or by Mr. Cohen for good reason. In the event Mr. Cohen’semployment is terminated within 18 months after the consummation of a change ofcontrol by us without cause or by him for good reason, he will be entitled toreceive a lump-sum payment equal to 150% of his annual base salary and targetincentive bonus in effect on the date of termination. In some circumstancesinvolving a change of control, all outstanding options held by Mr. Cohenwill vest and become exercisable and all shares of restricted stock shallbecome fully vested and nonforfeitable. Mr. Cohen’s employment agreementprovides customary fringe and retirement benefits, and requires him to refrainfrom (i) competing with us or soliciting our clients for a period of sixmonths and (ii) hiring our employees or soliciting our vendors orsuppliers for a period of one year, following the termination of hisemployment, regardless of the reason for such termination.

 
| **Payments and Benefits**                            | ** ** | **Involuntary  Termination  Without Cause** | ** ** | **Voluntary  Termination  for  Good Reason** | ** ** | **Change of  Control** | ** ** | **Involuntary  Termination  Without Cause  within 18 months of  a Change of  Control** | ** ** | **Voluntary  Termination for  Good Reason  within 18 months of  a Change of  Control** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| Cash Severance                                                 |       | $                                                | 260,000    |                                              | $          | 260,000                     |       | —                                                                                                               |       | $                                                                                                                         | 663,000    |   | $ | 663,000 |   |
| Cash In Lieu of December 2007  Restricted Stock Award (1) |       | 375,538                                          |       | 375,538                                           |       | $                           | 751,077    |                                                                                                                 | —     |                                                                                                                      | —     |   |
| Option Acceleration(2)                                         |       | —                                           |       | —                                            |       | 3,892                       |       | —                                                                                                               |       | —                                                                                                                    |       |
| Restricted Stock(2)                                            |       | —                                           |       | —                                            |       | 51,700                      |       | —                                                                                                               |       | —                                                                                                                    |       |
| **Total**                                                      |       | $                                                | 635,538    |                                              | $          | 635,538                     |       | $                                                                                                                    | 806,669    |                                                                                                                      | $          | 663,000 |   | $ | 663,000 |   |

 

21

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----

(1)           Under the terms of the December Awards,if Mr. Cohen’s employment is terminated by us without cause or by him withgood reason, then the award would be settled in cash in lieu of restrictedshares, and he shall be entitled to the value of the vested portion plus anadditional 12 months of vesting under the award. Upon a change of control ofthe Company, the award would be settled in cash in lieu of restricted shares,and he shall be entitled to the value of the entire award (vested andunvested).

 

(2)           Based upon the closing price of ourcommon stock on December 31, 2007.

 

***KevinJ. Kanouff. *** Mr. Kanouff is entitled toseverance payments equal to one year’s salary if his employment is terminatedby us without cause or by Mr. Kanouff upon a material reduction in hisduties or authority. In the event Mr. Kanouff’s employment is terminatedwithin 9 months after the consummation of a change of control by us withoutcause or by him upon a material reduction in his duties or authority, he willbe entitled to receive severance payments equal to one year’s salary. In somecircumstances involving a change of control, all outstanding options held by Mr. Kanouffwill vest and become exercisable and all shares of restricted stock shallbecome fully vested and nonforfeitable. Mr. Kanouff’s employment agreementprovides customary fringe and retirement benefits, and requires him to refrainfrom (i) competing with us or soliciting our clients for a period of oneyear and (ii) hiring our employees or soliciting our vendors or suppliersfor a period of one year, following the termination of his employment,regardless of the reason for such termination.******Inconnection with a change in Mr. Kanouff’s duties in the first quarter of2008, the Company and Mr. Kanouff also acknowledged that Mr. Kanouffmay terminate his employment with the Company on or prior to August 1,2008 and receive the severance payments to which he would be entitled if heresigned after a material reduction in his duties or authority.

 
| **Payments and Benefits** | ** ** | **Involuntary  Termination  Without Cause** | ** ** | **Voluntary  Termination  for  Good Reason** | ** ** | **Change of  Control** | ** ** | **Termination  Within 9 months  of a Change  of Control** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------|------------|
| Cash Severance                      |       | $                                                | 275,000    |                                              | $          | 275,000                     |       | —                                                    |       | $ | 275,000 |   |
| Restricted Stock(1)                 |       | —                                           |       | —                                            |       | $                           | 374,825    |                                                      | —     |   |
| **Total**                           |       | $                                                | 275,000    |                                              | $          | 275,000                     |       | $                                                         | 374,825    |   | $ | 275,000 |   |

 

----

(1)           Based upon the closing price of ourcommon stock on December 31, 2007.

 

***2007 DirectorCompensation***

 

The following table sets forth a summary of thecompensation we paid to our non-employee directors in 2007.

 

22

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| **Name**              | ** ** | **Fees Earned or Paid in Cash** | ** ** | **Stock Awards** | ** ** | **Total ** | ** ** |
|-----------------------|------------|----------------------------------------------------------|------------|-----------------------|------------|-----------------|------------|
| ** **            | ** ** | **($)**                                                  | ** ** | **($)**               | ** ** | **($)**         | ** ** |
| Margaret Sue Allon(1) |       | 28,000                                                   |       | 28,500                |       | 56,500          |       |
| Todd R. Crockett(2)   |       | —                                                   |       | —                |       | —          |       |
| David Gilbert         |       | 41,900                                                   |       | 50,000                |       | 91,900          |       |
| Roger B. Kafker       |       | —                                                   |       | —                |       | —          |       |
| Brian L. Libman       |       | 42,000                                                   |       | 17,500                |       | 59,500          |       |
| Frank L. Raiter       |       | 59,000                                                   |       | 17,500                |       | 76,500          |       |
| Thomas J. Skelly      |       | 35,500                                                   |       | 39,990                |       | 75,490          |       |
| Michael M. Sonderby   |       | 30,150                                                   |       | 64,250                |       | 94,400          |       |

 

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(1)           Ms. Allonresigned from the Board of Directors effective February 29, 2008.

(2)            Mr. Crocketdeclined to stand for reelection and stepped down from our Board of Directorsat our 2007 annual meeting of stockholders.

 

**Discussionof Director Compensation**

 

In January 2007, the Board of Directorsadopted a Non-Employee Directors’ Compensation Plan, under which the Company’snon-employee directors will receive cash and equity awards for their service tothe Company. Our non-employee directors each receive an annual fee from us of$30,000. In addition, we pay our non-employee directors a fee of $1,000 foreach in-person board of directors meeting they attend and $500 for eachtelephonic board of directors meeting they attend. The chairperson of our AuditCommittee receives an additional annual fee of $10,000, and the chairperson ofeach of our Compensation Committee and Nominating and Corporate GovernanceCommittee receives an additional annual fee of $5,000. We also reimbursenon-employee directors for reasonable expenses incurred in connection withattending board of directors and committee meetings. The equity awards underthe Non-Employee Directors’ Compensation Plan will consist of initial award of$60,000 worth of restricted deferred stock units and subsequent annual awardsof $30,000 worth of restricted deferred stock units, pro rated for years ofpartial service. All the restricted deferred stock units granted under ourNon-Employee Directors’ Compensation Plan vest generally one year from theaward date.

 

Directors who are also our employees receiveno additional compensation for their services as directors. In addition,directors who are affiliated with TA Associates have agreed to forego board andboard committee compensation, including the equity compensation describedbelow, for so long as TA Associates, Inc. beneficially owns more than 10%of our common stock.

 

**Item 12.****                                                   ****Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

 

**Securities Authorized For Issuance Under Equity Compensation Plans**

 

The followingtable sets forth information regarding securities authorized for issuance underour equity compensation plans as of December 31, 2007.

 
| **Plan Category**                                         | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                          | ** ** | **(c)**                                                                                                                                                                                                          | ** ** |
| Equity compensation plans approved by  security holders(1)     |       | 1,051,781                                                                                                                                            |       | $                                                                                                                | 6.94       |                                                                                                                                                                                                             | 513,105    |   |
| Equity compensation plans not approved by  security holders(2) |       | —                                                                                                                                               |       | —                                                                                                           |       | —                                                                                                                                                                                                           |       |
| Total                                                          |       | 1,051,781                                                                                                                                            |       | $                                                                                                                | 6.94       |                                                                                                                                                                                                             | 513,105    |   |

 

23

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----

(1)           Includesour 2005Stock Option and Grant Plan and our 2006 Stock Option and Incentive Plan.

(2)           There are no equity compensation plans in place notapproved by shareholders.

 

**SecurityOwnership of Certain Beneficial Owners and Management**

 

The followingtable sets forth certain information regarding beneficial ownership of theCompany’s Common Stock as of March 31, 2008: (i) by each person who is known bythe Company to beneficially own more than 5% of the outstanding shares ofCommon Stock; (ii) by each director or nominee of the Company; (iii) by eachexecutive officer of the Company named in the Summary Compensation Table setforth above; and (iv) by all directors and executive officers of the Company asa group.

 

The applicableownership percentage is based upon 22,199,289 shares of our Common Stockoutstanding as of March 31, 2008.

 
| ** **                                                           | ** ** | **Shares**       | ** ** | ** **     | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|----------------|------------|
| ** **                                                           | ** ** | **Beneficially** | ** ** | ** **     | ** ** |
| **Name and Address of Beneficial Owner(1)** | ** ** | **Owned**        | ** ** | **Percentage** | ** ** |
| TA Associates Funds(2)                                               |       | 8,283,227        |       | 37.3           | %          |
|                                                                 |       |             |       |           |       |
| Franklin Resources, Inc.(3)                                          |       | 2,843,503        |       | 12.8           |       |
|                                                                 |       |             |       |           |       |
| Security Investors, LLC(4)                                           |       | 2,201,300        |       | 9.9            |       |
|                                                                 |       |             |       |           |       |
| Symphony Technology II GP, LLC(5)                                    |       | 2,006,793        |       | 9.0            |       |
|                                                                 |       |             |       |           |       |
| J. Carlo Cannell(6)                                                  |       | 1,132,490        |       | 5.1            |       |
|                                                                 |       |             |       |           |       |
| Frank P. Filipps(7)                                                  |       | 530,834          |       | 2.4            |       |
|                                                                 |       |             |       |           |       |
| Frederick C. Herbst(8)                                               |       | 77,375           |       | *              |       |
|                                                                 |       |             |       |           |       |
| D. Keith Johnson(9)                                                  |       | 72,500           |       | *              |       |
|                                                                 |       |             |       |           |       |
| Steven L. Cohen(10)                                                  |       | 44,063           |       | *              |       |
|                                                                 |       |             |       |           |       |
| Kevin J. Kanouff(11)                                                 |       | 124,693          |       | *              |       |
|                                                                 |       |             |       |           |       |
| David Gilbert(12)                                                    |       | 2,705            |       | *              |       |
|                                                                 |       |             |       |           |       |
| Roger B. Kafker(13)                                                  |       | 8,283,227        |       | 37.3           |       |
|                                                                 |       |             |       |           |       |
| Brian L. Libman(14)                                                  |       | 140,668          |       | *              |       |
|                                                                 |       |             |       |           |       |
| Frank L. Raiter(15)                                                  |       | 13,100           |       | *              |       |
|                                                                 |       |             |       |           |       |
| Thomas J. Skelly(16)                                                 |       | 3,541            |       | *              |       |
|                                                                 |       |             |       |           |       |
| Michael M. Sonderby(17)                                              |       | 5,878            |       | *              |       |
|                                                                 |       |             |       |           |       |
| All executive officers and directors as a  group (10 persons) (18)   |       | 9,173,891        |       | 40.1           | %          |

 

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| *   | Represents  less than 1% of the outstanding shares of Common Stock.                                                                                                                                                                                                                                         |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Except as  otherwise indicated, addresses are c/o Clayton Holdings, Inc., 2 Corporate  Drive, Shelton, Connecticut, 06484. The address of TA Associates, Mr. Kafker  is c/o TA Associates, Inc., John Hancock Tower, 56th Floor, 200 Clarendon  St., Boston, Massachusetts 02116.                           |
| (2) | Amounts  shown are based upon a Schedule 13G filed with the SEC on February 13, 2007  and reflect the aggregate number shares of Common Stock held by TA IX, L.P.,  TA/Atlantic and Pacific IV, L.P., TA Strategic Partners Fund A, L.P., TA  Strategic Partners Fund B, L.P., TA Investors II, L.P. and TA |

 

24

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|   | Subordinated  Debt Fund, L.P. (collectively, “TA Associates Funds”). Investment and voting  control of the TA Associates Funds is held by TA Associates, Inc. No  stockholder, director or officer of TA Associates, Inc. has voting or  investment power with respect to our shares of Common Stock held by the TA  Associates Funds. Voting and investment power with respect to such shares is  vested in a five-person investment committee consisting of the following  employees of TA Associates: Jeffrey T. Chambers, Todd R. Crockett, Jonathan  M. Goldstein, Roger B. Kafker and C. Kevin Landry. Mr. Kafker is a Managing  Director of TA Associates, Inc., the manager of the general partner of TA IX  L.P. and TA Subordinated Debt Fund L.P., and the general partner of  TA/Atlantic and Pacific IV, L.P., TA Strategic Partners Fund A L.P., TA  Strategic Partners Fund B L.P. and TA Investors II, L.P. Mr. Kafker has been  a member of our Board of Directors since August 2004. See Note 13 below. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3)    | Information  regarding Franklin Resources, Inc. is based solely upon a Schedule 13G/A  filed by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr.  and Franklin Advisers, Inc. with the SEC on January 31, 2008, which indicates  that the reporting persons held sole voting and investment power over  2,843,503 shares. The address of the reporting persons is One Franklin  Parkway, San Mateo, CA 94403-1906.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (4)    | Information  regarding Security Investors, LLC is based solely upon a Schedule 13G/A filed  by Security Investors, LLC with the SEC on February 14, 2008, which indicates  that Security Investors, LLC held sole voting and investment power over  2,201,300 shares. The address of Security Investors, LLC is One Security  Benefit Place, Topeka, Kansas 66636-0001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (5)    | Information  regarding Symphony Technology II GP, LLC is based solely upon a Schedule  13D/A filed by Symphony Technology II GP, LLC, Symphony Technology II-A,  L.P., STG III, L.P., STG III-A, L.P., STG III GP, L.P., STG UGP, LLC and Dr.  Romesh Wadhwani with the SEC on January 15, 2008, which indicates that the  reporting persons held sole voting and investment power over 2,006,793  shares. The address of the reporting persons is 4015 Miranda Avenue, Palo  Alto, California 94304.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (6)    | Information  regarding J. Carlo Cannell is based solely upon a Schedule 13G/A filed by Mr.  Cannell with the SEC on February 15, 2008, which indicates that Mr. Cannell  held sole voting and investment power over 1,132,490 shares. The address of  Mr. Cannell is P.O. Box 3459, 240 E. Deloney Ave., Jackson, WY 83001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (7)    | Includes  520,834 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (8)    | Includes  46,875 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008. Also includes 9,375 shares  subject to restrictions on disposition that lapse ratably on January 30,  2009, 2010 and 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (9)    | Includes  50,000 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008. Also includes 16,875 shares  subject to restrictions on disposition that lapse ratably on January 30,  2009, 2010 and 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (10)   | Includes  31,063 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008. Also includes 7,500 shares  subject to restrictions on disposition that lapse ratably on January 30,  2009, 2010 and 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (11)   | Includes  51,693 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008. Also includes 7,500 shares  subject to restrictions on disposition that lapse ratably on January 30,  2009, 2010 and 2011 and 62,500 shares subject to restrictions on disposition  that lapse ratably on June 15, 2008, December 15, 2008, June 15, 2009 and  December 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (12)   | Includes  2,705 shares subject to deferred stock units that are immediately exercisable  or exercisable within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (13)   | Mr. Kafker  is a Managing Director of TA Associates and may be considered to have  beneficial ownership of TA Associates, Inc.’s interest in us. Mr. Kafker  disclaims beneficial ownership of all such shares. See Note 2 above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (14)   | Includes  9,100 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (15)   | Includes  6,600 shares subject to options that are immediately exercisable or exercisable  within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (16)   | Includes  3,541 shares subject to deferred stock units that are immediately exercisable  or exercisable within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (17)   | Includes  5,878 shares subject to deferred stock units that are immediately exercisable  or exercisable within 60 days of March 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (18)   | Includes  664,472 shares subject to options that are immediately exercisable or  exercisable within 60 days of March 31, 2008, and includes 12,124 shares  subject to deferred stock units that are immediately exercisable or  exercisable within 60 days of March 31, 2008. Also includes 33,750 shares  subject to restrictions on disposition that lapse ratably on January 30,  2009, 2010 and 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

**Item 13.****                                                   ****Certain Relationships andRelated Transactions, and Director Independence**

 

**Transactions with RelatedPersons**

 

In accordance with its charter, the Audit Committee conducts anappropriate review of all related party transactions for potential conflict ofinterest situations on an ongoing basis, and the approval of the AuditCommittee is required for all related party transactions.

 

Harvey Allon, the husband of Margaret SueAllon, a former director through February 29, 2008, is a Managing Directorof Braddock Financial Corporation (“Braddock”), an investment firm. ClaytonFixed Income Services has provided credit risk management services to Braddocksince 1999. All members of our Board of Directors, including the members of ourAudit Committee, are aware of this pre-existing relationship. Any services weprovide to Braddock are on standard terms and negotiated at arms’ length. During2007, we received approximately $203,000 in revenue from Braddock for theseservices. Our provision of services to Braddock in 2007 was ratified by theAudit Committee. In connection with the resignation of Ms. Allon from ourBoard of Directors, the provision of continued services to Braddock no longerconstitute transactions with a related party.

 

**Independence of Members of theBoard of Directors**

 

The Board of Directors has determined that Messrs. Gilbert,Libman, Raiter, Skelly and Sonderby are independent within the meaning of thedirector independence standards of both Nasdaq and the SEC, including Rule 10A-3(b)(1) underthe Exchange Act. Mr. Kafker is independent within the meaning of theNasdaq independence

 

25

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standards,but not the SEC standards. The Board of Directors has determined that each ofthe committees of the Board of Directors is currently independent within themeaning of Nasdaq’s and the SEC’s director independence standards.

 

**Executive Sessions ofIndependent Directors**

 

Non-management members of the Board of Directorstypically meet without the employee director of the Company following regularlyscheduled in-person meetings of the Board of Directors. Executive sessions ofthe independent directors are held at least one time each year followingregularly scheduled in-person meetings of the Board of Directors. Theseexecutive sessions include only those directors who meet the independencerequirements promulgated by Nasdaq, and Mr. Kafker is responsible forchairing these executive sessions.

 

**Item 14.****                                                   ****Principal Accounting Feesand Services**

 

**Matters Concerning OurIndependent Auditors**

 

The Audit Committee charter contains proceduresfor the pre-approval of audit and non-audit services (the “Pre-Approval Policy”)to ensure that all audit and permitted non-audit services to be provided to theCompany have been pre-approved by the Audit Committee. Specifically, the AuditCommittee pre-approves the use of our independent registered public accountingfirm for specific audit and non-audit services, except that pre-approval ofnon-audit services is not required if the “de minimus” provisions of Section 10A(i)(1)(B) ofthe Exchange Act are satisfied. If a proposed service has not been pre-approvedpursuant to the Pre-Approval Policy, then it must be specifically pre-approvedby the Audit Committee before it may be provided by our independent registeredpublic accounting firm. All of the audit-related, tax and all other servicesprovided by Grant Thornton LLP to the Company in 2007 were approved by theAudit Committee by means of specific pre-approvals or pursuant to thePre-Approval Policy. All non-audit services provided in 2007 were reviewed withthe Audit Committee, which concluded that the provision of such services byGrant Thornton LLP was compatible with the maintenance of that firm’sindependence in the conduct of its auditing functions.

 

**Fees Billed by Grant ThorntonLLP**

 

The following table shows the aggregate fees forprofessional services rendered by Grant Thornton LLP to the Company and itspredecessor for the years ended December 31, 2007 and December 31,2006.

 
| ** **         | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit Fees         |       | $        | 1,342,297  |     | $          | 894,648 |   |
| Audit-Related Fees |       | 6,728    |       | 64,952   |       |
| Tax Fees           |       | —   |       | 219,514  |       |
| All Other Fees     |       | —   |       | —   |       |
| Total              |       | $        | 1,349,025  |     | $          | 1,179,175 |   |

 

*Audit Fees*

 

Audit Fees for both years consist of fees forprofessional services associated with the annual consolidated financialstatements audit, review of the interim consolidated financial statements andservices that are normally provided by Grant Thornton LLP in connection withstatutory audits required in regulatory filings.

 

*Audit-Related Fees*

 

Audit-Related Fees represent fees primarily foruse of accounting research software in 2007 and professional services renderedin reviewing the Company’s internal controls in accordance with Statements onAuditing Standards No. 70 in 2006.

 

26

----

 

*Tax Fees*

 

Tax Fees consist of fees forprofessional services rendered for assistance with federal and state taxcompliance.

 

**PART IV**

 

**Item 15.****                Exhibitsand Financial Statement Schedules**

 

(a)      The following documents arefiled as part of this Form 10-K:

 

(1)       Financial Statements.

 

Previously filed.

 

(2)       Financial Statement Schedules.

 

Previously filed.

 

All other schedules have been omitted becausethe information required to be set forth therein is not applicable or is shownin the accompanying Consolidated Financial Statements or notes thereto.

 

(3)       Exhibits.

 

Exhibits are as set forth in the sectionentitled “Exhibit Index” which follows the section entitled “Signatures”in this Amendment No. 1 to our Annual Report on Form 10-K. Exhibitswhich are incorporated herein by reference can be inspected and copied at thepublic reference rooms maintained by the SEC in Washington, D.C., New York, NewYork, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for furtherinformation on the public reference rooms. SEC filings are also available tothe public from commercial document retrieval services and at the Web sitemaintained by the SEC at*http://www.sec.gov*.

 

27

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** **

**SIGNATURES**

** **

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, asamended, the Registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

 

Date:   April 29,2008
|   | Clayton  Holdings, Inc. |
|--------|------------------------------|
|   | (Registrant)                 |
|   |                         |
|   | By:                          | /s/ Frederick C. Herbst |
|   |                         | Frederick C. Herbst, Chief Financial Officer |
|   |                         | (Duly Authorized Officer and Principal Financial Officer) |

 

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, as amended, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| **Signature**       | ** ** | **Title**                                     | ** ** | **Date**            |
|---------------------|------------|-----------------------------------------------|------------|---------------------|
| Frank P. Filipps    |       |                                          |       | April 29, 2008 |
| Frank P. Filipps    |       | Chief  Executive Officer and Director         |       |                |
|                |       | (Principal  Executive Officer)                |       |                |
| Frederick C. Herbst |       | ** **                                    | ** ** | April 29, 2008 |
| Frederick C. Herbst |       | Chief  Financial Officer                      |       |                |
|                |       | (Principal  Financial and Accounting Officer) |       |                |
| *                   |       |                                          |       | April 29, 2008 |
| David Gilbert       |       | Director                                      |       |                |
|                |       |                                          |       |                |
| *                   |       | ** **                                    | ** ** | April 29, 2008 |
| Roger B. Kafker     |       | Director                                      |       |                |
|                |       |                                          |       |                |
| *                   |       |                                          |       | April 29, 2008 |
| Brian L. Libman     |       | Director                                      |       |                |
|                |       |                                          |       |                |
| *                   |       |                                          |       | April 29, 2008 |
| Frank L. Raiter     |       | Director                                      |       |                |
|                |       |                                          |       |                |
| *                   |       |                                          |       | April 29, 2008 |
| Thomas J. Skelly    |       | Director                                      |       |                |
|                |       |                                          |       |                |
| *                   |       |                                          |       | April 29, 2008 |
| Michael M. Sonderby |       | Director                                      |       |                |

 
| *By:   | /s/ Frederick C. Herbst |   |
|--------|-------------------------|--------|
|   | Frederick C. Herbst     |
|   | Attorney-in-fact        |

 

28

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** **

**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                        | ** ** | **Method of Filing**                                                                                                                                                                                                 |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                   |       |                                                                                                                                                                                                                           |
| 2.1        |       | Agreement  and Plan of Merger, dated April 13, 2008, by and among Clayton  Holdings, Inc., Cobra Green, LLC and Cobra Acquisition Corp. |       | Incorporated  by reference to Exhibit 2.1 to our Current Report on Form 8-K (File  No. 000-51846) filed with the Securities and Exchange Commission on  April 14, 2008                                     |
| 3.1        |       | Form of  Fourth Amended and Restated Certificate of Incorporation of the Registrant                                                               |       | Incorporated  by reference to Exhibit 3.2 to Amendment No. 2 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on February 9, 2006  |
| 3.2        |       | Amended  and Restated By-laws of the Registrant                                                                                                        |       | Incorporated  by reference to Exhibit 3.3 to Amendment No. 2 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on February 9, 2006  |
| 4.1        |       | Specimen  Stock Certificate                                                                                                                            |       | Incorporated  by reference to Exhibit 4.1 to Amendment No. 4 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on March 16, 2006    |
| 4.2        |       | Registration  Rights Agreement by and among the Registrant, the Investors and the Founders  named therein, dated as of March 31, 2005             |       | Incorporated  by reference to Exhibit 4.2 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and Exchange  Commission on November 7, 2005                          |
| 10.1       |       | 2005  Stock Option and Grant Plan                                                                                                                      |       | Incorporated  by reference to Exhibit 10.1 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.2       |       | Form of  Incentive Stock Option Agreement under the 2005 Stock Option and Grant Plan                                                              |       | Incorporated  by reference to Exhibit 10.2 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.3       |       | Form of  Non-Qualified Stock Option Agreement under the 2005 Stock Option and Grant  Plan                                                         |       | Incorporated  by reference to Exhibit 10.3 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.4       |       | 2006  Stock Option and Incentive Plan                                                                                                                  |       | Incorporated  by reference to Exhibit 10.4 to Amendment No. 4 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on March 16, 2006   |
| 10.5       |       | Form of  Incentive Stock Option Agreement under the 2006 Stock Option and Incentive  Plan                                                         |       | Incorporated  by reference to Exhibit 10.5 to Amendment No. 2 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on February 9, 2006 |
| 10.6       |       | Form of  Non-Qualified Stock Option Agreement under the 2006 Stock Option and  Incentive Plan                                                     |       | Incorporated  by reference to Exhibit 10.6 to Amendment No. 2 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on February 9, 2006 |

 

29

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| **Number** | ** ** | **Description**                                                                                                                                                                                                                    | ** ** | **Method of Filing**                                                                                                                                                                                                  |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                            |
| 10.7       |       | Form of  Restricted Stock Award Agreement under the 2006 Stock Option and Incentive  Plan                                                                                                                                     |       | Incorporated  by reference to Exhibit 10.7 to Amendment No. 2 to our Registration  Statement on Form S-1 (File No. 333-129526) filed with the  Securities and Exchange Commission on February 9, 2006  |
| 10.8       |       | Stockholders  Agreement by and among the Registrant, the Investors and the Founders named  therein, dated as of March 31, 2005                                                                                                |       | Incorporated  by reference to Exhibit 10.9 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                          |
| 10.9       |       | Employment  Agreement between the Registrant and Frank Filipps, dated April 25, 2005                                                                                                                                          |       | Incorporated  by reference to Exhibit 10.10 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.10      |       | Employee  Agreement between the Registrant and Frank Filipps, dated April 25, 2005                                                                                                                                            |       | Incorporated  by reference to Exhibit 10.11 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and Exchange  Commission on November 7, 2005                         |
| 10.11      |       | Amended  and Restated Non-Competition Agreement between Clayton Services, Inc.  and Stephen M. Lamando, dated August 2, 2004                                                                                             |       | Incorporated  by reference to Exhibit 10.13 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.12      |       | Employment  Agreement between the Registrant and Frederick C. Herbst, dated  September 19, 2005                                                                                                                               |       | Incorporated  by reference to Exhibit 10.14 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.13      |       | Employment  Agreement between Clayton Services, Inc. and Steven L. Cohen, dated  December 21, 2004                                                                                                                       |       | Incorporated  by reference to Exhibit 10.17 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.14      |       | Form of  Indemnification Agreement between the Registrant and each of its Directors  and its executive officers                                                                                                               |       | Incorporated  by reference to Exhibit 10.18 to Amendment No. 2 to our  Registration Statement on Form S-1 (File No. 333-129526) filed with  the Securities and Exchange Commission on February 9, 2006 |
| 10.15      |       | Commercial  Lease between Clayton Services, Inc. and Robert D. Scinto for 2  Corporate Drive, 8th Floor, Shelton, CT, dated December 2, 2002                                                                             |       | Incorporated  by reference to Exhibit 10.31 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.16      |       | Commercial  Lease between Clayton Fixed Income Services Inc. and Fifth Street—Denver  Center, LLC for 1700 Lincoln Street, Suite 1600, Denver, CO, dated  April 1, 2003, and as amended on March 15, 2004 |       | Incorporated  by reference to Exhibit 10.32 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.17      |       | Sublease  Agreement between Clayton Services, Inc. and Employers Insurance Company  of Wausau for 13101 Telecom Drive, Tampa Telecom Park, Temple Terrace, FL,  dated August 11, 2004                               |       | Incorporated  by reference to Exhibit 10.33 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |
| 10.18      |       | First  Amendment to the Stockholders Agreement by and among the Registrant, the  Investors and the Founders named therein, dated as of November 4, 2005                                                                       |       | Incorporated  by reference to Exhibit 10.36 to our Registration Statement on  Form S-1 (File No. 333-129526) filed with the Securities and  Exchange Commission on November 7, 2005                         |

 

30

----

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                | ** ** | **Method of Filing**                                                                                                                                                                                                   |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                           |       |                                                                                                                                                                                                                             |
| 10.19      |       | Sublease  Agreement between Clayton Services, Inc. and Rx Solutions, Inc. for  13101 Telcom Drive, Tampa Telcom Park, Temple Terrace, FL, dated  October 31, 2005.                                                                                                              |       | Incorporated  by reference to Exhibit 10.36 to Amendment No. 1 to our  Registration Statement on Form S-1 (File No. 333-129526) filed with  the Securities and Exchange Commission on December 21, 2005 |
| 10.20      |       | Credit  Agreement, dated as of December 8, 2005, by and among the Registrant.,  as Company, the Lender listed therein, as Lenders, BNP Paribas, as  Administrative Agent and JPMorgan Chase Bank, N.A., as Syndication Agent                                                         |       | Incorporated  by reference to Exhibit 10.37 to Amendment No. 1 to our  Registration Statement on Form S-1 (File No. 333-129526) filed with  the Securities and Exchange Commission on December 21, 2005 |
| 10.21      |       | First  Amendment, dated as of January 11, 2006, to Credit Agreement, dated as  of December 8, 2005, by and among the Registrant., as Company, the  Lender listed therein, as Lenders, BNP Paribas, as Administrative Agent and  JPMorgan Chase Bank, N.A., as Syndication Agent |       | Incorporated  by reference to Exhibit 10.38 to Amendment No. 2 to our  Registration Statement on Form S-1 (File No. 333-129526) filed with  the Securities and Exchange Commission on February 9, 2006  |
| 10.22      |       | Form of  Non-Qualified Stock Option Agreement for Non-Employee Directors under the  2006 Stock Option and Incentive Plan                                                                                                                                                                  |       | Incorporated  by reference to Exhibit 10.39 to Amendment No. 2 to our  Registration Statement on Form S-1 (File No. 333-129526) filed with  the Securities and Exchange Commission on February 9, 2006  |
| 10.23      |       | Employment  Agreement between the Registrant and David Keith Johnson, dated May 1,  2006                                                                                                                                                                                                  |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on May 5, 2006                                         |
| 10.24      |       | Separation  Agreement between the Registrant and Louis Iannaccone, dated October 18,  2006                                                                                                                                                                                                |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on October 18, 2006                                    |
| 10.25      |       | Lease,  effective as of January 3, 2007, by and between Clayton  Services, Inc. and FOA for approximately 51,134 square feet of office  space located at 6302 East Dr. Martin Luther King, Jr. Boulevard,  Tampa, Florida, dated January 3, 2007                      |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on January 5, 2007                                     |
| 10.26      |       | Form of  Deferred Stock Unit Award Agreement                                                                                                                                                                                                                                              |       | Incorporated  by reference to Exhibit 10.2 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on February 2, 2007                                    |
| 10.27      |       | Amendment  No. 1 to Employment Agreement between the Registrant and Frederick C.  Herbst dated January 30, 2007                                                                                                                                                                      |       | Incorporated  by reference to Exhibit 10.3 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on February 2, 2007                                    |
| 10.28      |       | Amendment  No. 1 to Employment Agreement between the Registrant and Steven L. Cohen  dated January 30, 2007                                                                                                                                                                          |       | Incorporated  by reference to Exhibit 10.4 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on February 2, 2007                                    |
| 10.29      |       | Amendment  No. 1 to Employment Agreement between the Registrant and David Keith  Johnson dated January 30, 2007                                                                                                                                                                      |       | Incorporated  by reference to Exhibit 10.5 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on February 2, 2007                                    |
| 10.30      |       | Amended  and Restated Employment Agreement between the Registrant and Kevin J.  Kanouff, dated March 23, 2007                                                                                                                                                                             |       | Incorporated  by reference to Exhibit 10.40 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 23, 2007                                     |

 

31

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| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                  | ** ** | **Method of Filing**                                                                                                                                                                 |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                             |       |                                                                                                                                                                                           |
| 10.31      |       | Amendment  No. 1 to 2005 Stock Option and Grant Plan                                                                                                                                                                                                        |       | Incorporated  by reference to Exhibit 10.41 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 23, 2007   |
| 10.32      |       | Amendment  No. 1 to 2006 Stock Option and Incentive Plan                                                                                                                                                                                                    |       | Incorporated  by reference to Exhibit 10.42 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 23, 2007   |
| 10.33      |       | Non-Employee  Directors’ Deferred Compensation Program                                                                                                                                                                                                      |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on July 31, 2007     |
| 10.34      |       | Form of  Non-Employee Directors’ Deferral Election                                                                                                                                                                                                     |       | Incorporated  by reference to Exhibit 10.2 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on July 31, 2007     |
| 10.35      |       | Amended  and Restated Non-Employee Directors’ Compensation Plan                                                                                                                                                                                             |       | Incorporated  by reference to Exhibit 10.3 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on July 31, 2007     |
| 10.36      |       | Award  Letter between the Registrant and Frank P. Filipps, dated December 27,  2007                                                                                                                                                                         |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on December 28, 2007 |
| 10.37      |       | Award  Letter between the Registrant and D. Keith Johnson, dated December 27,  2007                                                                                                                                                                         |       | Incorporated  by reference to Exhibit 10.2 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on December 28, 2007 |
| 10.38      |       | Award  Letter between the Registrant and Frederick C. Herbst, dated December 27,  2007                                                                                                                                                                      |       | Incorporated  by reference to Exhibit 10.3 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on December 28, 2007 |
| 10.39      |       | Award  Letter between the Registrant and Steven L. Cohen, dated December 27,  2007                                                                                                                                                                          |       | Incorporated  by reference to Exhibit 10.4 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on December 28, 2007 |
| 10.40      |       | Second  Amendment to Credit Agreement, dated as of April 27, 2006, by and among  the Registrant, as Company, the Lender listed therein, as Lenders, and BNP  Paribas, as Administrative Agent                                                               |       | Incorporated  by reference to Exhibit 10.40 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008   |
| 10.41      |       | Third  Amendment to Credit Agreement, dated as of March 15, 2007, by and among  the Registrant, as Company, BNP Paribas, as Administrative Agent, and the  other Lenders party thereto                                                                      |       | Incorporated  by reference to Exhibit 10.41 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008   |
| 10.42      |       | Limited Waiver and Fourth Amendment to Credit Agreement, dated as of February 21, 2008, by and among the Registrant., as Company, the Financial Institutions listed therein, as Lenders, BNP Paribas, as Administrative Agent and the Subsidiary Guarantors |       | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51846) filed with the Securities and Exchange Commission on February 27, 2008    |
| 10.43      |       | Lease  Termination Agreement, dated as of February 29, 2008, by and between 2  Corporate Drive, LLC and Clayton Services, Inc.                                                                                                                         |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on February 29, 2008 |
| 10.44      |       | Amendment  No. 2 to 2006 Stock Option and Incentive Plan                                                                                                                                                                                                    |       | Incorporated  by reference to Exhibit 10.44 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008   |

 

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| **Number** | ** ** | **Description**                                                                                                                                             | ** ** | **Method of Filing**                                                                                                                                                              |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                        |       |                                                                                                                                                                                        |
| 10.45      |       | Limited  Guaranty, dated April 13, 2008, between Greenfield Acquisition Partners  V, L.P., a limited partnership, and Clayton Holdings, Inc. |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on April 14, 2008 |
| 10.46      |       | Voting  Agreement by and between Cobra Green, LLC and the TA Funds, dated  April 13, 2008.                                                        |       | Incorporated  by reference to Exhibit 10.2 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on April 14, 2008 |
| 10.47      |       | First Amendment to  Amended and Restated Employment Agreement by and between the Company and  Kevin J. Kanouff, dated April 13, 2008.                  |       | Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on April 17, 2008 |
| 10.48      |       | First  Amendment to Employment Agreement by and between the Company and Frank P.  Filipps, dated April 13, 2008.                                       |       | Filed  herewith                                                                                                                                                                             |
| 10.49      |       | Second  Amendment to Employment Agreement by and between the Company and D. Keith Johnson,  dated April 13, 2008.                                      |       | Filed  herewith                                                                                                                                                                             |
| 10.50      |       | Second  Amendment to Employment Agreement by and between the Company and Frederick C.  Herbst, dated April 13, 2008.                                   |       | Filed  herewith                                                                                                                                                                             |
| 10.51      |       | Second  Amendment to Employment Agreement by and between the Company and Steven L.  Cohen, dated April 13, 2008.                                       |       | Filed  herewith                                                                                                                                                                             |
| 16.1       |       | Letter  from Grant Thornton LLP to the Securities and Exchange Commission dated  March 31, 2008.                                                       |       | Incorporated  by reference to Exhibit 16.1 to our Current Report on Form 8-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on April 3, 2008  |
| 21.1       |       | List  of Subsidiaries                                                                                                                                       |       | Incorporated  by reference to Exhibit 21.1 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008 |
| 23.1       |       | Consent  of Grant Thornton LLP                                                                                                                              |       | Incorporated  by reference to Exhibit 23.1 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008 |
| 24.1       |       | Power  of Attorney                                                                                                                                          |       | Incorporated  by reference to Exhibit 24.1 to our Annual Report on Form 10-K  (File No. 000-51846) filed with the Securities and Exchange Commission  on March 14, 2008 |
| 31.1       |       | Rule 13a-14(a)/15d-14(a) Certification  executed by Frank P Filipps, Chief Executive Officer and Director                                         |       | Filed  herewith                                                                                                                                                                             |
| 31.2       |       | Rule 13a-14(a)/15d-14(a) Certification  executed by Frederick C Herbst, Chief Financial Officer                                                   |       | Filed  herewith                                                                                                                                                                             |
| 32.1       |       | Section 1350  Certifications executed by Frank P. Filipps, Chief Executive Officer and  Frederick C. Herbst, Chief Financial Officer                   |       | Filed  herewith                                                                                                                                                                             |

 

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