Why I am Voting Against the Escrow Shares (part 3)
What are the options, if the escrow shares are not extended?
An examination of how other companies operate might be of value. I am drawing on information from the forty-three stocks (yes, too many!) that BJ and I hold.
Salary and stock options are the normal form of compensation and incentive for management. Also, executives may be granted interest free or low interest loans from the company to exercise their stock options.
In Pyng’s case, the monetary possibilities are very limited. It may well be that the generous stock options granted to Pyng’s management are an attempt to compensate for the low salaries. With a decreasing stock price, this form of compensation has been of little value. Shareholders have also suffered significantly.
I understand that the defeat of the escrow shares would decrease the number of shares outstanding and, therefore, the number of stock options available to the company. Using a 10% limit, I calculate that the number of available stock options would decrease from 1,221,908 to 846,908. This would pose a significant problem, particularly when we are voting on an expanded Board of Directors. High quality candidates are often not interested in micro-cap biotechs and they do expect reasonable compensation.
Possible solutions:
1. Extend the term of stock options from Pyng’s two years to a more common term of five years. This increases the time value of the stock options.
2. Follow the example of Continental Home Healthcare and pass a resolution increasing the number of stock options to 20% of the shares outstanding. I calculate the number of available stock options would then be slightly less than 1.7 million.
These stock options could compensate for the lost escrow shares and the expanded Board of Directors. The benefit of stock options to minority shareholders is that exercised options provide substantial capital inflow to the company. Escrow shares are virtually a freebee and they contribute little to the company’s cash position.
Personally, I would support an increased number of stock options and a lengthening of their term to compensate for the lost escrow shares and the expanded Board.
You are in luck! I have only one more post.:-):-)
Regards,
Ed |
