Thanks for the clarification on the (presumably often used by other companies as well) ratio of options value to RSU value to determine how many RSUs are worth the equivalent number of options. Wow, that really says a lot about the sheer magnitude of Dan's attempt at fleecing ADXS shareholders.
To put some context on the point of companies who switch to RSUs issues few RSUs vs options, asContinued from above...prior to King O'Connor ascending to the ADXS throne, the previous ADXS management incentive comp policy was a maximum of 4m options awarded to anyone in a given year, which is equivalent to 32,000 options post reverse split. As cited in the WSJ article, companies that switch to RSUs only need to issue fewer RSUs in order equate to the same value of options. So that means normal policy would be that if ADXS switched to RSUs from options the maximum number of RSUs issued to anyone one in a given year would be an amount less than 32,000 (I don't have the exact valuation calculation of the options, only that the equivalent value of 32,000 options equates to a lower number of RSUs). Nonetheless, Dan awarded himself an astronomical 250,000 RSUs at year end. Mayes was awarded a 150,000 signing award. Even if you look at Mayes' award over four years (as you pointed out, Donjay in another post), which is 37,500 RSUs a year, whereas IF ADXS were using RSUs like most companies in a way that reduces rather than increases shareholders dilution, ADXS would issue Mayes instead of 37,500 shares a year somewhere less than 32,000 a year (this doesn't address whether Mayes deserves these RSUs to begin before proving himself and creating any value). So...it is no wonder ADXS is stuck at $2.67 and can only attract new investors at a 40% discount to the recent price.
It is clear as day to anyone who is not a moron that ADXS' new CEO (King O'Connor) has attempted to royally screw the company's shareholders (his peasants).
Donjay, I just read an article online "Last Gasp for Stock Options?" It's worth a read for anyone who has a minute. It says there are more companies turning to RSUs now due to tax issues, as well as more certainty with RSUs than options and because RSUs are less dilutive than options as companies do not need to issue as many RSUs to provide the same amount to equivalent options (i.e., RSUs are valued at the full current pps while as options are valued at a fraction of the current pps since they are only worth anything above the strike price - the equivalent value of RSUs to options involves issuing less RSUs). On this last point, here's where ADXS is blatantly kicking shareholders already down - not only did ADXS switch to RSUs from options but instead of issuing the lower equivalent RSUs vs options, ADXS actually significantly increased their RSUs. So while some companies have moved to RSUs in part because they are able to reduce dilution to shareholders as they issue fewer RSUs equating to the same value of a higher number of options, ADXS has done the opposite - moved to RSUs (which honest companies do coupled with lowering the number of RSUs to reduce the dilution impact to shareholders) ADXS jacked up amount of RSUs resulting in a significant increase in dilution. The article also says some companies like Trulia have issued RSUs that vest when the stock price doubles, for instance. But again, the biggest point I got from the article though, as mentioned above, is that a big reason some companies have switched to RSUs is that they are able to reduce dilution by issuing a lower number of RSUs vs the higher equivalent number of options (this is admirable as it is a benefit to shareholders, which balances out the other two reasons to issue RSUs, which are benefits to management - more certain return and tax simplicity). However, our leader Mr. O'Connor has moved to RSUs in a strategy that dilutes shareholders significantly MORE rather than less than options.
Well said Donjay, the right decision is clear as day, and the market has confirmed as much as seen by the current stock price DESPITE three licensing deals in the last several months. Hopefully Dan is wise enough to see it and restore confidence in his leadership.
Nice quote. Funny how one's actions tend to have consequences, whether unintended or not. Dan thought he could get away with (after telling shareholders last year he was committed to aligning management interests with shareholders and removing the OIP proposal) then lying to them and doing the exact opposite in an attempt to try enrich himself at their expense. Little did he think about the potential consequences that not only shareholders but also prospective investors would see through his stunt. Hence here we sit at $2.67. What could have been a significant catalyst for ADXS with the vet deal, investors instead sat on the sidelines fearful of the signals that the new ADXS CEO has sent to the market that his first priority is to redistribute shareholder equity to management. No matter how promising a licensing deal, a company with this kind of mis-alignment shareholders end up last.
Keeping the faith that Dan will take this opportunity to restore confidence in his leadership and trustworthiness with the revised proxy.
Lisa should have finished her thought "we will run the company" with "even if it's in a way that falls short our fiduciary responsibilities and not in the best interests of our shareholders"
The argument about keeping quality personnel is skewed. It is standard compensation policy to offer employees options as an incentive for the upside potential that lures them to a company like ADXS. By changing to RSUs Dan is attempting to completely de-risk the decision for an employee to choose to work at ADXS, which has the effect of LESSONING their incentive to work to create shareholder value, because they know even if the stock doesn't go up they will still be paid very well. Options on the other had pay them above and beyond their standard duties directly in proportion to how much shareholder value they create. Dan has made comments before about how he didn't want to worry about funding and instead focus on advancing the business - that's easy for him to say because he gave himself an excessive amount of RSUs such that diluting the stock by 40% to raise more cash doesn't impact him like it would if his incentive comp were appropriated aligned with shareholders in the form of options rather than RSUs.
Kwallis, thanks for the update on your conversation. That's good she agreed with the point on prospective investors. The fact Dan put it forth in the first place though raises serious questions about his judgment. They have the opportunity to set it straight. It's encouraging you believe they are taking it very serious, because if it is just is another watered down version and a bunch of lip service, that will not be enough.
I'm wondering if the best way to align management and shareholder interests is for Dan to step down. The fact his judgment has been so off base on this issue (not to mention that he blatantly lied to shareholders) makes me question judgment in general.
I agree Donjay, Kwallis, did she say anything about nullifying the RSUs and changing back to options, which are much better aligned with shareholder interests. Capitalism is about taking risk in order to potentially reap significant rewards. What ADXS is doing is attempting to prematurely get that reward without taking on the risk by demanding a shareholder subsidy, so if success is not reached management is protected while shareholders lose. That is not capitalism. Options based management comp on the other hand align management interests with the owners of the company, with management only getting paid excessive incentive comp if they add value which also benefits shareholders - that is how capitalism is designed. Frankly, I along with other would like to see ADXS get paid huge incentive comp but in the form of options, because if their options result in huge incentive pay it will mean we all benefit as well and management has delivered true value. The way Dan changed/rigged the cards at the expense of shareholders during his year-end RSU stunt, if he does not raise the stock a dime over the next three years, thereby leaving many of us down way more than 50%, his RSUs will be worth up toward $1million (I can't the exact numbers of RSUs he gave himself).
It's hard to believe the current valuation of the company is only around $3 million, given the potential market. If we get clearance from the FDA, any thoughts on valuation? I would think a valuation of around $50 million would be realistic if we get FDA clearance, which would put the pps around $0.50.
I think he's also failed in terms of loosing credibility and investors trust ever since the company issuing a public statement last summer saying they cancelled the OIP because they were committed to aligning mngt interests with shareholders before turning around and doing the exact opposite (year-end unauthorized RSUs and huge increase in company, putting the OIP back on the table). I really this this aspect - lying to shareholders - has been a meaningful reason the market didn't respond favorably to the vet deal. When you have a leader who's untrustworthy, and it a huge red flag for prospective investors. We're not past the point of no return though, Dan has the opportunity to right his mis-steps and gain back investors confidence, because at the end of the day the pipeline looks very promising. Shareholders just need management to work on their behalf instead of at their expense.
Until the proxy mis-alignment issue is resolved, I hate to say it but you might as well make your check out to Daniel J. O'Connor because that is where your money is going. Until alignment happens, the return on your investment may end up in the form of real estate appreciation of the O'Connor home in Princeton.
Dan has said he's not here because he thinks ADXS is a $3 to $4 dollar stock, and he has every intention to make it a $30 to $40. Yet here lies the hypocrisy - even though he says he intends to get the stock up to $30 to $40, he is doing everything he can to award management additional RSUs as the stock trends down which in reality what has happened, thereby insulating management from the value erosion shareholders have experienced. He is in effect coming to the company bolding stating his long-term plans for success of the company, yet demanding an upfront $1 million incentive bonus now for that success before it's happened - this is the smoking gun of the whole RSU strategy. On the other hand, options (the former management compensation strategy) would align his interests with shareholders by awarding him large excess compensation only when he actually generates value for which shareholders also benefit.
Longs are not bashers. When virtually every long is of a similar opinion, it is reflective that what management has attempted to do is wrong. Many of us shareholders have been involved with ADXS much longer than Dan and have a vested interest in the company's future, unlike the current policies put forward by Dan that are more focused on prematurely paying management at the expense of long-term value creation.
It's not too late to get things back on track and align ADXS management policies with the company's shareholders. It's good that the mis-guided policies by management are being called out now and addressed before it's too late. If not, I'm afraid Dan, given his reckless disregard and use of precious shareholder funds in his first year as CEO, if left unchecked would eventually make folks like Dennis Kozlowski look timid.
Whoever was responsible for concocting the offensive, unwarranted, pre-mature RSU awards to management at year-end following the public statement that the company pulled the OIP because it was committed to aligning management interests with shareholders, should step down. I suspect it may have been Dan in concert with Aegis. Although where was the Chairman of the Compensation Committee and was there no external compensation consultant to weight in? You would think that would have been prudent especially given the extreme change in insider compensation policy they attempting (both from switching from options to RSUs and the sheer magnitude of the overall compensation increase). In hindsight, all the talk about the transformation year ADXS was setting up for last year was all about attempting to line the pockets of insiders so that they would recoup their losses and end up way ahead at the expense of the company's shareholders that funded the company to that transformational point.
At this point my anger has turned to disbelief. With the stock at literally at all time low (2 cents pre-reverse split) even after three licensing deals, I don't know what more it will take to convince management they need to align their interests with shareholders.
James, you mentioned in your conversation with Dan last week, he made a comment about having to make tough decisions now like they did when the ImClone stock was low, which ended up making investors very happy eventually. I think Dan is using ImClone's past success to skew the real issue at stake here - the OIP. Putting forward the type of offensive, premature, unmerited OIP that Dan put on the table was not a tough decision, it was the EASY one. It's much easier to attempt to put together a proposal that if on the slim chance it passes will benefit insiders unfairly, lessening the incentive to get the stock up, at the expense of the company's owner. Tough decisions that are made to benefit shareholders are different than the decisions Dan made to put forward an OIP, mind you after saying otherwise last year and turning around and separating management interests from shareholders (changing from management options to free RSUs, and giving themselves larges amounts of them, which benefit management even if they continue to dilute and drive the stock down). That is not a tough decision, it is the decision that makes his job easier and stacks the financial cards in his favor at the expense of shareholders.
I would add that this whole mess around the OIP, potential lawsuits, shareholders frustration is about one thing - management's sole priority on me, me, me, which has shifted focus from its primary job as shareholder fiduciaries to add value. Dan's actions send the message his is only concerned about his or insider's premature enrichment, essentially ignoring their mandate to create shareholder value, so it's no surprise the stock is where it is and investors are not jumping it. The last I checked, people invest in a company with the intention of earning a return on their investment, but every signal ADXS is sending at this juncture is about paying management large sums ahead of value creation at the expense of shareholders. Instead of wearing blinders only zeroing in on how he can pay insiders, Dan should feel fortunate to have have the responsibilities he does and needs to first perform his fiduciary obligations to run the company in a way that adds shareholders value before he has any reasonable case to increase the OIP. If he doesn't set the record straight and start performing in alignment with his shareholders, he's going to go down as either a failed CEO because he was too selfish to perform his fiduciary responsibilities or worse find himself in trouble with SEC and potentially jeopardize the ongoing viability of the entire company.