my thoughts on the proposed option planSome thoughts on the new proposal (option plan)
I think we all know where this is heading (ie. if not a takeover by management, then certainly a squeezing out of minority shareholders). Under the new plan, the same 20% maximum granting of options is present like the old plan. Management was 100% max-ed out under this old plan; no more options were available to be granted.
We know they have a history of diluting shareholders. Despite a shareholder equity of $12 million at the time (it’s now $14.7mil) and only 2.4 million shares outstanding last year (book value = $5.00/sh (less whatever the preferred shares might be worth), they decided to retire a measly debt of $1.1mil last January 2014 and converted this amount @ $.27/share, thus taking their ownership from 37.9% to 77.3% of the outstanding shares through the conversion of 4.1mil shares. So we know they have a history of diluting shareholders.
We also know that on March 4th, 2014, despite the stock trading at .38 all day, 500 shares were suspiciously sold at the end of the day for .28 and the next day, they promptly issued 224,000 options at a discounted price of $.22 (which was subsequently reversed and changed to $.29, as this was illegal).
Now, under this new stock option plan, management can dilute shareholders even more. Not only can they grant 1.3mill more options immediately bringing their potential ownership from 77.3% to 81.0%, but they can take a discount. Under the old plan they couldn’t take that discount.
My #1 concern with this option plan was what was stopping them from issuing options to themselves, exercising them, granting and exercising more options, ad infinitum, basically wiping out minority shareholders?
I contacted Janet Herington at the Venture Exchange to find out and she explained that even though there is a 4mo. holding period, the 20% grant can only be done once per 12 month period. She said under the old plan, they would normally be allowed to grant themselves only 248K options instead of 1.3mil options but Venture Exchange rules allow any company a granting of 10% per 12 month period, so that is all they would get (650K options) (if we successfully defeat it).
Another thing: under the old plan, they were not allowed to take a discount to the grant price, so there would be no way they could give themselves the 25% discount like they tried doing last spring.
If this proposal gets passed, however, they would be allowed to take a 25% discount (if the shares are under .50), a 20% discount if the stock price is between .50-2.00, and a 15% discount if it’s over $2.00. The old plan said that the option price could be no lower than the share price at the time.
(BTW, we wouldn’t be having this conversation if the stock price were trading at a decent multiple, like an 8 p/e of $2.42 (based on .29 eps), plus the $.43 of net cash found on the FY14 balance sheet for a total of $2.85/share)
All of us minority shareholders can make a difference, even if some of our holdings are small. All it takes is a phone call to vote. If you already voted for management's recommendations, all it takes is a quick letter to reverse your approval; it’s that simple (address is found under “Changing your Vote” in the circular).
They need us minority shareholders to approve this deal but the problem is this proposal was only designed for them, it helps only them, and it actually hurts us.
Please vote against this plan.
(Also, if you have any other concerns/complaints, feel free to contact complianceanddisclosure@tsxventure.com they won’t be able to get back to you with their findings but they will investigate it.