SunWorks Inc (SUNWQ)

[SandridgeEnergy]

It was a $2.7M deal to buy a company with net assets of ~$400K doing <10M in business.

Using the Lehmen Formula:

The following is the Lehman Formula as originally described:
5% of the first million dollars involved in the transaction
4% of the second million involved in the transaction
3% of the third million involved in the transaction
2% of the fourth million involved in the transaction
1% of everything above 4 million dollars.

If they had hired an outside IB to do the deal it would have cost around $120,000 give or take for SUNworks.

The other two deal were smaller, but just to be nice I will give them the same value as the SUNWorks deal and then round up $40K to $400,000 for all three deals if they had outsourced it.

Nelsons salary is around $250K not including his stock options, so thats $750,000 since then in salary give or take.

But it doesn't stop there. For instance the compensation committee, which was comprised at the time of his lawyer and a guy he worked for, gave him another $250,000 for "service".

On May 15, 2015 the Board of Directors approved a recommendation from the Compensation Committee to authorize a $250,000 cash bonus to James B. Nelson in consideration for his valuable service to the Company.

And those same people, one day before one retired gave him another bonus just a few weeks ago:

In March 2015, the Company’s shares of common stock were listed and commenced trading on the NASDAQ Capital Market and simultaneously therewith the Company consummated an underwritten public offering for gross proceeds of approximately $12 million. In recognition of the efforts of James Nelson, the Company’s Chief Executive Officer, in leading the Company through the uplisting and financing transaction consummated by the Company in 2015, on August 31, 2016, the Company’s Compensation Committee deemed it advisable and in the best interest of the Company to grant Mr. Nelson a restricted stock grant of 250,000 shares of the Company’s common stock pursuant to the terms of the Company’s 2016 Equity Incentive Plan (the “2016 Plan”).

This one is worth about $750,000.

And let's not forget the shares get got for his "performance metrics" which were added shortly before he bought SUNW. If you read them closely you will see that they are automatically triggered simply by buying a company the size of SUNW.

During the year ended December 31, 2013, the Company entered into a restricted stock grant agreement or RSGA with its Chief Executive Officer, James B. Nelson, intended to provide and incentivize Mr. Nelson to improve the economic performance of the Company and to increase its value and stock price. All shares issuable under the RSGA are performance-based shares. The RSGA provides for the issuance of up to 769,230 shares of the Company’s common stock to Mr. Nelson provided certain milestones are met in certain stages. As of September 30, 2014, two of the milestones were met, when the Company’s market capitalization exceeded $10,000,000 and the consolidated gross revenue, calculated in accordance with GAAP, equaled or exceeded $10,000,000 for the trailing twelve-month period.

Value of these (rounded down) is around $2.25M

So let's add all of these up:

Normal Salary - $750,000
2015 Bonus - $250,000
2016 Bonus - $750,000
Bonus given for buying SUNW - $2.25M (remember the purchase price of the company was $2.7M, that's an egregiously high fee, boards of directors have been sued for much less)

====================================

Total compensation: $4,000,000


Remember that if they had outsourced M&A advisory the fee's should have been around $400,000.


Pretty much Nelson's only role at the company is M&A advisory + pumping the stock with PR, and as you can see it's not coming cheap for you guys. Fortunately he is kind of predictable about pumping the stock and I have been able to ride the coattails of that a few times, but otherwise it's a sad example of the dishonestly you too often see on Wall Street.