Avid Bioservices Inc (CDMO)

[jakedogman1]

continuation of DS hearing transcripts

first part of VC Laster comments

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=133887645

continuing on:

In 2014, the outside directors awarded
themselves between $194,000 and $254,000 in cash each,
plus option compensation worth about, again, $295,000
to $300,000, roughly 245 percent of peer company compensation.
Similar numbers in 2015, between
$292,000 and $354,000 in cash to the outside directors
plus $385,000 worth of option compensation.
I don't know what really happened
here, because my job at this hearing is not to decide
facts. I don't have a full record. Presumably there
are some explanations. But as I said at the outset,
these are claims that are very strong. This is a
board that, at least as alleged, is benefiting itself
in a manner, both procedurally and substantively,
completely divorced from how it is treating others.
My personal view is that when you see somebody who
thinks that it's fair to treat someone else in a
particular way and then decides that, when they're
dealing with themselves, they should get a lot more,
that's usually someone who has a cognitive blind spot.
This was also not information that was
adequately disclosed to the Peregrine stockholders.
In August 2013, the board solicited approval for the
board's reelection, as well as an amendment to the
stock incentive plan. The proxy described the
December 2012 issuance, but it represented that the
exercise price was equal to the fair market value of
Peregrine's common stock on the date of grant.
That was technically true, in that it
was priced at the stock market price on the day of
grant, but the stock market price was not reflective
of the fair market value on the date of grant because
the results of the internal review were nonpublic and
had not been announced. So that disclosure was simply
not accurate. Again, perhaps the plaintiffs failed to
tell me about some other way that that information
went into the market. But to the extent that that was
the state of play, that disclosure was false.
On October 10, 2013, the plaintiffs
filed their initial complaint. They alleged a breach
of fiduciary duty against the defendants, unjust
enrichment, and also, claims for breach of the duty of
disclosure. There was relatively little activity in
the case. There was document production. At that
point, after document production -- which is what the
amended complaint is based on -- the parties went into
mediation. They accepted the mediator's
recommendation and reached a settlement.
The settlement is as follows: The
individual directors have agreed to pay $1.5 million
in cash to Peregrine. The defendants agreed to
reprice 1,600,000 of the December 27th options from
$1.18 per share to $2.43 per share, which was the
closing price after Peregrine announced the results of
its internal investigation. Peregrine canceled the
250,000 options that exceeded the limit in the 2011
plan.
Going forward, the defendants agreed
to cap the outside directors' compensation at the 75th
percentile -- not the 50th percentile, but the 75th
percentile -- which is $400,000 each a year for two
years. And then there are also corporate governance
enhancements. These include the appointment of an
additional independent director -- not immediately,
but on approval of the company's major product -- the
retention of a compensation consultant to review
option grants and the outside directors' pay, the
establishment of a specific time per year for annual
equity grants, so that you don't have the opportunity
for this type of convenient spring-loading, the
appointment of a chief compliance officer, a
prohibition against granting options by written
consent -- which, in my experience, when options get
granted by written consent, it usually results in
people not actually paying much attention to what's
going on -- as well as additional disclosures in the
proxy statement.
I've gone through this in some detail
because, again, this is an account that should be a
learning experience for the people involved. The fact
that there was this case and that it got settled is
some evidence of the continuing efficacy of the
stockholder litigation mechanism.