Exten Industries (fka BB: EXTI)

[Patricia_1]

Final post re Officers' Stocks post #63 explained
by a poster rickj_65 on RB


By: rickj_65
02 Dec 2003, 03:02 AM EST
Msg. 17956 of 17980
(This msg. is a reply to 17778 by mydogbuster.)
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Mydogbuster

It is clear from your post that you simply do not have experience in how SEC forms are filed, the various ways in which officers can be compensated in publicly traded companies, and how insider transactions are executed, filed and interpreted. Nor do you understand the implications of the SEC Form 4 on other SEC filings.

More importantly, you obviously have not contacted the company to straighten out your confusion, rather you continue on a misguided assumption. I've contacted the company already and G. Szabo explained how officers are compensated with regard to the Form 4s. I assure you with 100% conviction that if you contact the company and get this clarified for yourself, it will end this issue once and for all. However, I really don't anticipate that you will contact the company out of either laziness or fear of being found wrong.

In any case, I will try to explain this as simply and clearly as possible because I really am getting tired of explaining this concept.

YOU SAID: "Just who is paying the price that is listed on the Form 4."
The company is. The price on the Form 4 is the determinant of how many authorized shares the company takes off the shelf, grants to the officer, and subsequently puts into the float of outstanding shares based on the amount of money they owe that officer for services rendered.

Example: Let's say G. Newmin works 100 hours in October at a rate of $100 per hour (whatever his compensation is). At that rate he is entitled to $10,000 payment for services from the company. The company, not being in a position to pay him cash, pays him common stock (This is specified in all of the 10Qs). Common stock that is taken from the company's pool of authorized shares...currently 200 million. They are not selling or distributing outstanding shares that are part of the float.

The price of the common shares are determined as an average cost of the month in which the services were performed (company policy per G. Szabo). Let's say the average price of EXTI was $.50 in the month where Newmin's services were performed. In order to pay him his due compensation, the company distributes ("sells") 20,000 shares from the pool of remaining authorized shares to G. Szabo. G. Szabo paid for those shares in services, not in cash. The company "bought" G. Szabo's services and paid him in stock.

YOU SAID: "If it's the company then they are not filling out the forms correctly. THESE ARE STOCK OPTIONS. THE PRICE IS PAID BY THE PERSON LISTED ON THE FORM."

No, it is the company and they are filling out the form correctly...and you clearly do not understand how an SEC Form 4 looks like when it is filed for options conversions versus common stock distributions.

Here is an example of an SEC Form 4 with an options conversion.
http://www.sec.gov/Archives/edgar/data/894743/000123682503000008/xslF345X02/edgar.xml
Note that both the Common Stock and Derivatives section are filled out completely. In order to convert options and file with the SEC properly, the company must indicate the number of options that have been converted (and that are to be subtracted from the company's total number of outstanding options). In addition, in the same filing, the company has to account for the common stock shares that have been taken off the shelf and that are now part of the float of outstanding shares available on the open market.

In this transaction, the company officer converted 3 separate 5,000 share blocks of options to common stock. He then sold the common stock for $17.9 per share. Note in the Derivatives section the option blocks all are marked with a "D" - meaning disposed. In the Common Stock section, there are 3 separate blocks of 5,000 shares acquired = indicated by "A". Then there is another entry for the 15,000 common stock shares being disposed for $17.90 per share. This is what an option conversion on an SEC Form 4 looks like.

YOU SAID: "THESE ARE STOCK OPTIONS. THE PRICE IS PAID BY THE PERSON LISTED ON THE FORM."

Wrong and wrong again. Call or e-mail the company...you'll be quite surprised.

YOU SAID: "I have never seen stock GIVEN to an employee in any other manner. Free stock is illegal because someone is responsible for the cost."

This explains your confusion and underscores your inexperience with executive compensation and insider transactions. The stock was not given to the employee. It was distributed to the employee as payment in return for services rendered. It was not free, it cost the company shares of their stock...a percentage of ownership and subsequent dilution. The only difference between offering these shares in a private placement versus an employee is that the private placement investors pay money for the stock, the employee pays for the shares in services rendered.

YOU SAID: "This conservation is stupid, mostly on your part."
Now here you're absolutely right. I look more and more foolish the more I try to explain this relatively simple concept.

Again, if after all the explanation and documentation I've provided you still don't get it, CALL THE COMPANY and get it clarified yourself.

I'm done with this issue as I'm weary of explaining it.

Good luck,

Rick

http://ragingbull.lycos.com/mboard/boards.cgi?board=EXTI&read=17956