Post by
15Stanmore on Mar 13, 2021 8:26pm
A Tale of Two Options (apologies to Charles Dickens)
Dear fellow Verde shareholders,
Following the disclosure on SEDI on Friday of the granting of 750,000 options to CEO Cristiano Veloso with a strike price of $1.22 with an expiry date of March 5 2031 (yes, that is a 10 year time horizon for these particular options, not a misprint in my posting), I have been trying to come to terms with the immediate negative gut reaction I experienced as a shareholder as I read the SEDI report.
Twenty four hours later I am still struggling. Let me explain.
Also disclosed in the same SEDI report on Friday was the fact that Mr. Veloso had also exercised his 456,208 March 12, 2021 $1 warrants to purchase another 456,208 NPK shares at $1 each, contributing another $456,208 to the Company's bank account. These warrants were issued as part of the March 2019 private placement financing which offered qualified investors the chance to purchase 1,666,666 Verde "units" at $0.60 each. Each "unit" consisted of one Verde common share and one-half an ordinary share purchase warrant, so those two warrants would allow the holder to purchase an additional common share for $1 at any time up to March 12, 2020 (a common and standard two year option duration).
The Verde shares had been trading in the 4 weeks preceeding the private placement announcement between $0.65 and $0.80 and at an average weighted average of $0.68, so the offer price of $0.60 per "unit" was, I would suggest, very attractive. The common share acquired was at a discount to the recent and current market price, and the "free" warrant provided an option to benefit if the price rose $0.20 from the recent high any time over the next two years. As a result, the private placement was significantly oversubscribed - investors knew a good deal when they saw one - as did the Company insiders. President & CEO Cristiano Veloso, who already held 5,533,677 Ordinary Shares, purchased 912,416 Units; CFO Felipe Paolucci purchased 166,667 Units; and Director Michael St Aldwyn, who already held 32,340 Ordinary Shares, purchased 83,333 Units.
As it turned out, a total of 2,820,114 "units" were taken up by the qualified investors, an over subscription of 79% over the initial 1,666,666 on offer.
So let's be clear, when investors are offered a chance to purchase an option with a two year exercise duration with a strike price 66% above the current share acquisition cost they jump at the opportunity, including CEO Veloso, who personally paid $547,450 to acquire 912,416 common shares and 456,208 $1 warrants with a 2 year life. This was a great opportunity, he knew it was a great opportunity and he jumped at the chance to participate, investing more of his personal capital.
Two years later the shares are trading up to $1.50 and Mr. Veloso (and we expect many others) exercised the warrants days before they would have expired worthless. Coincidentally, on the same day, Mr. Veloso is awarded at no cost to him or benefit to the Comapny 750,000 options with an exercise price of $1.22 with a 10 year life. Had these options been issued on the same valuation basis as the warrant options offered to qualified investors in 2019 (which he had enthusiastically purchased), they would have had a strike price of $2.03 and would have expired in March 2023 (after the standard 2 year duration).
I find it hard to understand the decision to issue a further 750,000 options to Mr. Veloso (who already held 1,242,308 options with strike prices averaging $0.60 and good until 2028, 2029 and 2030) with a beneficial strike price and duration which are so clearly beyond what was considered appropriate for non-insiders in 2019, and how it can in any way meet the required test of "in the best interests of the Company and its stakeholders".
A Tale of Two Options for sure, with a vast degree of valuation difference depending on whom the benaficiary might be.
The current Verde Stock Option Plan which facilitated this recent transaction is scheduled to be presented at the 2021 Annual General Meeting under the TSX requirement that it be reviewed and approved by shareholders every three years (last presented at the 2018 AGM). In anticipation of this requirement, I am aware that the Verde Shareholder Group has developed a number of recommended changes to the terms and conditions of the Stock Option Plan that will be presented to the Board for their consideration ahead of the distribution of the information circular which will include the details of the Plan for shareholders to consider.
I for one will be following this particular component of the annual governance cycle very closely and will vote my 1% of the common shares of the Company to support a more reasonable and "best practices" Stock Option Plan, and one which accurately reflects the significantly changed circumstances of the Company in 2021 versus where it was in 2018. I am sure many other shareholders will be doing the same, and I will be encouraging them to do so in the months leading up to the AGM.
As Mr. Dickens observed: "It is a far, far better thing that I do, than I have ever done; it is a far, far better rest that I go to, than I have ever known."
While my actions might not be quite so noble as those of Sydney Carton, and the consequences not so dire, I do believe shareholders have a responsibility to speak up where the circumstances warrant, and to exercise their all too few voting rights with care and diligence.
Respectfully,
S