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By age and wisdom
Architect
The "ESOP" apparently has more than one long name. I work with them as employee stock ownership plans" and I suspect this is what your company has. Stock is put away in a trust and gradually released to employees each year like a profit sharing plan. But it has special rules and benefits. And the trustee can vote the shares so it sometimes can be used to support management.
For this discussion we are talking about an employee stock option plan. Completely different animals. No one owns anything (votes, dividneds) until they are excercised and the stock is actually owned. The option is the right but not the requirement to purchase it at a certain price. The authorized shares supporting the option cannot be voted - they just exist in reserve.
I think these are being confused in some of the discussions.
Mymoney
I would be more thsan astonished if Len, Brian and Lark didn't have a significant amount of options. They are just listed explicitly in the proxy disclosure because they are not officers.
And by the way why should the option pool be like it was way back when. This is not an IPO or perhaps it is in the minds of a few people.
Scorpio
We've said it dozens of times. The proposal authorizes way too many options and raises the annual limits too high and based on the written compesnation policy doesn't indicate how they will be dipersed. All this against a backdrop of lots of dilution over the years and a philosophy that says the incentive compensation is not set against any performance targets.
So I see the likelihood of too many options being dispersed reducing the value of my ownership.
And that doesn't get into the timing, the absurd explanations that have beem made by management and in my opinion the counter arguements being raised. I do not believe wave's success will be harmed by saying no and establishing lower limits and a critieria for option (and comp) distribution but I do expect to have my ownership diluted more than it should by management. This is not a scam - just their core beliefs.
Clear enough.
Barge
Is it more important to you that Wave succeed or you succeed financially by being invested in Wave?
IF TVTONIC REALLY IS THE "ANSWER" AS EXPLICITLY STATED IN THE BELOW RECENT ARTICE, THEN NO SHAREHOLDERS ARE GOING TO GIVE A HOOT ABOUT THE OPTIONS ISSUE WHEN IT COMES TO A VOTE NEXT MONTH!
And if it is not true, should they cancel the plan entirely?
Kev
You know I disagree with this proposal. However seeing all your questions, I think you need to better understand how stock option programs operate. There are many things in Wave's plan that are standard (or at least were standard in the past) and it seems like you are first discovering them by reading the actual plan.
KEV
The new strike price would be at the current market value when the new options are granted - not at the original strike price. It looks like you think the latter. There are a few questions I have for my colleagues concerning current practices for stock options since a lot has changed in the past few years. For example the current use of reload options. I will let you know if I learn anything of interest.
ZZT
I am not even suggesting they will be excercised. Perhaps you don't understand how they work. If they are given out now, with a current market strike price, then even if Wave does a fraction of what has been promised for years, recipients may get a windfall. They are in essence giving away the company on the cheap. I am not even thinking on concerned when they are actually excercised.Excercise means they are converted into actual stock that may or may not be held.
Ramsey
They can excercise their options whenever and I suspect sell them in a cashless excercise as well. if I recall they may have been expiring (but I can't recall all the specifics).
I wouldn't call it a controversy. Just a note that they excercised options with a sizable profit. However If I also recall, SKS didn't sell the stock, incuurred a large tax bite and then needed to sell stock to pay it off. That created another soap opera years back. A number of folks in many companies got caught with this AML trap when they didn't sell and the stock crashed so there was nothing to recoup.
Jay
I have seen several discussions about this question. Given your research can you determine and perhaps show me the certifications for the TPM itself. I ask this because it is my understanding that it is being mandated by the government despite not being certified.
scorpio
30% of the firm authorized for options or annual grants of 1% + of the firm is excessive.
Tim
A well managed firm with independent directors would consider these matters and might very well address the deep under water options of some employees. However they have given out options in the past years so I am not sure of the profile of each key employee. I do object though to simply enriching those there now since I have suffered as much as them and they have been paid a reasonably competitive salary along the way.
If Wave were to offer performance oriented options where the strike price was a multiple of today's price, I could be more inclined to believe they are thinking about shareholders and developing well thought compensation plans. But options at market today, multipleid by 3 and as a consdiered replacement of existing options is not in my mind shareholder friendly.
Finally I can't forget that the key officers collected millions in 2000. Now maybe they all , like Steven, didn't understand tax planning and got caught with a big tax bite but still they did collect money.
P.S. Reading Unclever's comments about the Feeney information makes me believe that they simply forgave it implicitly and explicitly without regard to what they said about future bonuses. I'd be generous in stating that management or the Board has ever really considered this a company owned by outside shareholders. I sincerely hope that those attitiudes don't adversely impact their chances of commercial success.
ZZZT
Save your message for your archives and review later. I do not know about your investment experience or your understanding of what an option is but there is absolutely no reason to believe the proposal to expand the option pool and limits is because good things are going to be announced. In fact if that were true you should be upset since the initial options might be given out before the share price goes up coveying a windfall to recipients.
Jules
lets be reasonable here. There is no rational reason to excercise under water options since you could do better and buy the stock on the open market. I think that a lot of people here could use a lesson on the construction and economics of qualified and non qualified options as it seems there is an unven understanding of just what they are.
Going back to another post, just becuase they are authorized doesn't mean they can be voted by anyone and it has no immediate bearing on maintaining control of the company.
One reason I was thrown off earlier is that I have more often seen the term "ESOP" to mean employee stock ownership plan - an approach where shares are actually set aside in antrust and gradually given to employees threw annual company payments - like a profit sharing plan. Here esop refers to the option plan. In the former case, the trustee of the esop could indeed vote with management since the shares would be issued and owned by the trust.
Finally one positive (if you could it that) aspect of the underwater options is that if they expire then they do not become dilutive (they disappear) so at least some fraction of the new authorization would replace older owns albeit at likely a much lower strike price.
Ramsey
The company could have given employees restricted stock and they would be in the same boat as us. Many are doing that today since options need to be expensed now. Many tech companies needed to address options well out of the money and it is a legitimate issue. However one must realize that the options would have paid off if the company had succeeded. So I would not be in a rush to replace all those options with new ones (at a market strike price). Sort of defeats the intent. A number of companies who did reprice or egrant options did it thoughtfully such as converting into a smaller number or offering a strike price above the current market price. That would be a legitimate desing for current employees who may be getting relacements.
Finally take a look at the excercises in 2000. Whenn I realized that the big three got millions of dollars from excercising options, I lost a lot of sympathy as well.
Ramsey
it is self evident there is more headroom than needed. And so tough - let them ask for a reasonable amount that makes sense. I don't want to hear of a potential need if the compnmay triples in size and we need to hire a presidnet for the European division. The request shows that the board is not connected with the market and smanagement thinks they can get anything they want. And so far they have been quite right on that.
If I believed for the moment that lessor amounts would harm the company, I wouldn't argue. But I think that is not the case and that a much smaller request to increase the options pool would be okay. But even then, I dispute any comments SKS makes that the option pool size is small compared to other hi tech firms. !0% overhang used to be considered too large and that edged higher when it was treated like free candy. But 22 million with 40 million outstanding is a ration in the stratosphere.
Remeber how Peter said he wanted to recreate an IPO feeling. Well this is it but at the expense of the current shareholders.
Blue Fin
why would good news impact your decision. This is one problem I see. The authorizations need to be considered separate from whether they finally produce a modicum of revenue after many years. Don't you think the other 7 million options plus compensation was designed to incent those efforts. The question here is whether they need to pay new hires up to 1% of our billion dollar company each year and whether they need authorization now for 7 years more of options. Maybe they don't want to ask later if they continue along the revenue path they are on.
Mundo
Management probably doesn't have the voting power because they refuse to buy and hold the stock in any meaningful amounts. The issue is that if abstaining votes are yeses then thats it. If only actual votes counted and 25% said no, it might not pass. Unfortunately I think it is the former.
Micro
I find that when we start thinking of current pay as excessive it dilutes the arguements against this absurd proposal. We can have all sorts of views of what appropriate compensation is (personally I don't find senior management's current pay excessive but I appreciate the eprformance cirteria issue). But regardless the current amounts are simply at the 99.9% and there is no coherent explanations for the request - and whatever we heard was shown to be factually inaccurate by Unclever. Maybe they told the Board the same thing and they nodded yes but never asked to see the information.
ZZT
No one said this is a scam. We are being asked to approve a proposal submitted by the company with the support of the Board.
By now I would have hoped it is obvious that the number of shares allocated to the options pool and the amount of shares set at a maximum per year are completley unreasonable, unnecessary and completely outside the norms under "normal circumstances". Further they appear set at a level that completely ignores the fact that we underwent a recent reverse split.
The information provided back by management is either wrong or sounds like nonsense. Collins refers to past patterns which upon actual review completely make the current proposal inappropriate. He simply misstated all the facts. SKS makes some very broad generalizations about the future (know the definition of insanity if you take those projections as fact)as support for an accelerated request for something that is not needed right now. Or did I read that they wouldn't want to have to bother the shareholders again with another request.
I've heard that we need to reward IT professionals. Couldn't agree more. But are we thinking millions or tens of millions of dollars. How much do you think an option is worth?
Do you think Board's can over compesnate people? Do you think shareholder's should ever say this proposal is not appropriate - come back with another. Do you feel that we need to rush through new limits that we're told really are being set to position us for the next 7 years. Who should get 1% of the company as an incentive (per year). For that matter, who should get 1% of the company that has been public for this long? Why do they need to triple the maximum level after the RS?
I really find this poroposal disgusting. The Board either really didn't think about this or know anything about compensation (which by the way is quite plausible given the rush and their apparent knowledge) and/or some think they care owed the world and can suggest anything becuase shareholders wouldn't want to say no.
Snackman
I'd like to see the analysis supoporting anything he said. Besides the obvious kick that few companies have no sales, I still don't get it. The option level seemed to work when it was a 166,000, then the shares were cut by 2/3 seemingly make the 166,000 three times more powerful and then he wants to increase it by 3 again. Huh
And if there ius a 40 million float, I'd like to see the number of IT companies offer 22 million in an option pool. 10% used to be considered a high max - I wonder if this number is in the 99%+ percentile.
And this doesn't even address the way this is being presented.
Dory
I don t not fully agree. Under your premise, there need not be limits becuase the comp committee will always do the right thing. It is possible for a company to systematically over pay everybody, especially with incentive stock, since the adverse impact falls on other shareholders.And quite frankly the stock price itself suffers under bad fiscal management. Wave's committees have not shown themsleves to be an A team here.
Look at all the other better managed and profitable companies repurchasing shares because they have too much overhang.
The stock option is going to have a multiple dollar value and times 500,000 or a million,its a lot of money. There are limits on what is reasonable compensation and there are economic impacts to shareholders which don't feel so immediate because this is all in stock.
I'd like to see the market data even suggesting that TPM engineers or sales people require 100,000's of options to be attracted or retained. This is not a question of the concept but the magnitude.
wash
No one is disputing th eneed to attract talent and that options may play a role as part of the total reward. However the question is how much is needed. The trouble with this is that people don't feel like this is taking money outr of your pocket. it's like it is fake money or better yet since wave will be so successful, a bigger denominator will only impact the rounding. I would by now it is clear that a doubling in shares can result can halve the EPS and in turn the price. Stock should be spent carefully and it is not clear in the absence of a big financing action the need for the increase and further the need to increase the annual option limit.
To those who may have played with this, what is the value of wave options under some model (it may be easy to see from the 10Q at least as they model it). Multiply by 166,000 - okay incentive. SDo it again - getting better. Do you need to get to 1 miilion and price it at these low levels potentially providng a windfall?
How many millions does the IT professional need?
John
The rational for doing this so quickly and now seems to be getting more irrational by the minute. Given that readers of this and other boards own a meaningful percentage of the stock, I would hope that a NO would actually impact the result.It feels that the only YES will come from people who expect to get the candy (excepting Barge).
Alea
reading what you said, I inferred there was an error in not reducing the number of authorized shares lower. i recall we raised this when the RS was proposed. So to address this, they want to increase the option level to make it as incorrect as the authorized shares. BS
Alea
I don't understand your comment about the restoring the relationship. Once upon a time we had 100 million hares or so outstanding and how much for stock options (?). Now we have 1/3 of the amount outstanding after the RS. So why would you need to triple the potential for options and triple the amount to be offered. I keep thinking I am confusing the math but all I see is reducing shares in a RS and tripling the number to give out (and I get 9 times the impact instead of 1 times the impact). Just show me where the math is upside down and I will feel better.
Orda
I was thinking that a large block of authorized shares could be given out in some manner in the event of XXX. Not that they wanted to give a few 500,000 shares a year in options.
Ramsey
Assuming it is paid out over the next seven years, why ask for so much now. There is an immediacy to this that in the absence of information is unsettling.
Snackman
Sure but this is not an ESOP. This is available shares for the stock purchase plan and I don't think it gets voted by anyone. Also it still represents incredible dilution potential.
Snackman
The concept of being able to provide stock based compesnation to important contributors is fine. But you would say the same thing if they wanted to increase the amount from 6 million to 10 million shares. 22 million shares is a large percentage of the total float after the RS. Other than a poison pill or other capital transactions, I can't imagine why they want so much so quickly.
warbil
Underwater options have been an ongoing issue for many companies. Some chose to reprice or regrant for reasons like employee retention (note shareholders don't have that same option). But depending on the repricing/regranting formulaes some were equitable. If they explained this was the pup[rpose and what they planned, you could vote with good information. But since there are no indications of a plan - just a quick vote- we are left in the dark and need to vote based on what we know.
wavxmaster
I assume you are joking and not serious. The RS reduced shares and then athey sk for three times the amount in an accelerated move without any information or positioning. It is absurd to think they will split and are planning in advance. If this is all we get as info, then anything but a vote no makes no sense to me.
Zen
So he can announce breakeven at it. Seriously it doesn't appear that they think communication to shareholders of key information is necessary. And so far they have successfully operated in that mode. While I always understand that there need to be corproate secrets, they still must find a way to communicate. It is a public company afterall and for now I want it to remain that way.
Jazz
The sentiment is to understand more but not just assume it must be the right decision. The RS had pros and cons but ultimately information came out that we needed to do this to remain listed and we could debate the benefits of being listed. Also in general it wasn't the RS that created the rpoblem but most of the companies going in were in trouble before.
In this instance all we know is that the number of shares allowed would go up pretty significantly and that they are being made avaialble to a stock purchase plan (which is not depleted) and an options plan which has been used a lot. And this in the absence of most other news awaiting a Seagate launch.
OKNPV
IMO I would not assume every management proposal is good just because you think they would never do something that wasn't smart. You should have some clearer understanding of the rational. And if no one can come up with one other than an assumption there must be something, then I think the decision is obvious.
Cygnuscap
personally I appreciate additional information on the financials but not if you take too many diversions with it. In terms of significant hire, although I have forgotten his name, there was an incredibly significant hire recently to become CTO. So do your research or don't throw out stuff you don't know as it taints other potential facts.
At this point, I'm not in favor of the stock expansion both in terms of amount or timing unless there are well explained reasons that make sense to me.
Warbil
I can almost guarantee that they won't issue the options with a strike price below FMV. But so what. The proposal is to very substantially increase the number of shares available for different employee compensation plans (especially relative to the reduction from the reverse split) and to substantially increase the amount of options that can be granted at one time to an employee.
It may be becuase they are looking to hire some very senior people and they need the enticement (and they also lack the cash so this is in lieu) or it allows them to structure a poison pill to discourage any takeover or it is pure greed.
While the first tow possibilities are bullish in some sense, it comes out of our pockets and no one has repaid me for the share losses.
Also the presumed run up in the summer seems like a complete red herring to me. So what. Those options will not be priced until they are offered. If you assume they are not going to just distribute them to everybody as a reward in June, they will not benefit in the run up. If they did because they are waiting on some very positive news via Seagate sales, why would you want to give away most of that gain (and a recoupment of many losses) to everybody but outside shareholders.
RWK
The big decision is whether to keep the shares for a year before selling and get long term capital gains treatment or sell immediatley and recieve short term treatment. While there is a big difference in tax rates, back in 2000/01 many people wound up losing everything while holding the stock. Some went on margin and really lost everything
Warbil
I think you will find that most (not all) employee options have a strike price set at the value at issue and vest over a period of years. And they also have an expiration date.
There are some companies (not many) that set strike prices higher than the issue value for obvious reasons (performance based) but that is not the norm.
There are are variety of rules that dictate the tax treatment for the company and the employee upon issuance, upon conversion into stock and upon the actual sale of stock. Same goes with how the options are accounted for.
Historically they have been given out like candy becuase they were not expensed and shareholders did not pay attention when they voted in allowances. With the cahnge in accounting for stock options (and the change in the upward spiral of prices in the market), options have lost their luster at amny compnaies and a variety of other stock based approaches like restricted stock have become more popular.
Normally I would like to give Management and the Board the benefit of the doubt on most matters. But wave has not been shy about diluting the share base and I need more than some hope or fantasy to just say sure give away a lot more without a better explanation.
Ramsey
Absolutely. All we are doing is authorizing a certain amount of shares which can be used for options - nothing more. They are priced when they are issued to employees, almost always at market value at time of issue. The back dating scandal involved issuing options and then lying and saying they were issued on another date that happened to be coincidnet with a very low price. That way a gain is baked in.
The actual selection of a lower price is not illegal as long as this si the way they have been set out in documents. The downside is the difference is taxable and the option loses certain tax advantages and must be expensed by the company (this is before the recent change in expense rules. So company's are being caught for lying, misstating earnings, and unpaid taxes. One thing that I was very concerned about is that Wave would have been ensnared in this but so far so good. The bashers never noted all of th eother companies in the trust and security space caught in the fraud.