“To 2nd strike or not to 2nd strike”… that is the question
Hey "Ramdog" you might want to reconsider. – “Due to the high salary’s and no talk of lowering them. I’ll be voting for a 2nd strike. If the board can sacrifice at least 100k each until they start exceeding there overheads this would persuade me to give them another go.
As a modern day Prince Hamlet might ask “To 2nd strike or not 2nd strike… that is the question”.
But first………………….
It’s been an interesting three plus years since gold explorer ERIN Resources morphed into a cannabis play on the global arena via an ASX RTO Page 2 June 2015 QuarterlyDated 20th July – Report
- Some of you may remember the exuberance of our first major deal - $60,000,000, 4 year minimum CBD off-take agreement with Natura Laboratories Ltd (Natura). This deal was announced in the Financial report for the year ending 30th June 2015. What a great deal to get this company up and running!
ERIN RESOURCES LIMITED Financial Report for the year ended 30 June 2015
Importantly MGC signed a $60,000,000, 4 year minimum CBD off-take agreement with Natura Laboratories Ltd (Natura), immediately accelerating the commercialisation timetable of MGC and revenue streams. The agreement is for the supply of a minimum of 300kg of CBD resin per year equating to $15,000,000 revenue per year for at least 4 years to be used as the base product in cosmetic and medical device products. Additional off take agreements are currently being reviewed by MGC executives to cover the majority of its planned production volume when at current full scale operational capacity in H2 2016
On Feb 15th 2016, the company appointed Nativ Segev as Managing Director and Roby Zomer as Executive Director & CTO (note –Roby Zomer is the current MD) (see page 6 – Annual Report 2015)
Page 50 – Annual Report 2106 (Item 24 Commitments)
“On the execution of a Heads of Agreement with Natura Laboratories d.o.o (‘Natura’, the Company entered into an obligation to provide Natura with a minimum 300kg of CBD resin per annum, in accordance with the demands of the end buyers, at an agreed price of €55,000/Kg of 100% purity CBD resin where price is directly dependent on the purity of the product. Where the Company have to purchase CBD from other producers, the selling price is based on ‘cost + 5%’”
Needless to say, this deal and numerous others amounted to $0 money in the bank. Were they all concocted in a bid to generate positive spin and a higher (beneficial) share price at certain times? No, not all, but too many to be simply bad luck or poor management.
By the way, whatever happened with the SipNose deal??
Here we are, three plus years down the track with the share price going backwards, a seemingly easy option strike price missed and talk of a ‘2nd strike’ on the BOD. Not what I would call an overly successful start to this business.
No doubt, Malta will get final Govt planning and approved soon. However, the construction and setup costs coupled with the local employment requirements stipulated by the Maltese Govt will ensure that this venture will NOT be self-funded from MXC near term product /services income. Establishment costs of this facility, prior to generating income, will be ‘huge’.
A credit raise will be required……………. Absolutely no question about it!
Now to the real question - “To 2nd strike or not 2nd strike…”
Although appealing to some, the real (hidden) costs that this will result for the company, are significant.
It appears that our directors have written into their employment contracts (salaries and bonuses), gold lined parachutes in the event they are unceremoniously shunted out of the company. A 2nd strike would open the chutes of those concerned, ensuring a soft and very well-funded landing, courtesy of shareholders! (see page 14 for detail)
With all three pulling the ripcords, the cost to the company could be a possible maximum of €1,952,000 = AUD$3,140,229…….ouch!
As Roby Zomer is Managing Director, he is ‘excused’ from standing for re-election. That leaves Brett Mitchell and Nativ Segev. I am not sure if Ross Walker is involved in the 2nd strike. The rules suggest he will not have to stand for re-election if the shareholders vote to keep him.
“When a ‘second strike’occurs, the shareholders will vote at the same AGM to determine whether all the directors will need to stand for re-election. If this ‘spill’ resolution passes with 50 per cent or more of eligible votes cast, then a ‘spill meeting’ will take place within 90 days. SPILL MEETING
At the spill meeting, those individuals who were directors when the directors’ report was considered at the most recent AGM will be required to stand for re-election (other than the managing director, who is permitted to continue to run the company).”
Regardless of who is sent packing, the financial drain on the company would be devastating IMO.
Note within this 2nd Strike information…………..
“………companies will need to set out the impact on the company of losing most of the directors from its board and the significant interruption this will have on the company's strategy, and potentially value, should the board be removed at the spill meeting.”
“………….the directors who fill the vacant positions on the board after the spill meeting (assuming there is a spill), will need to stand for election at the next AGM along with one of the remaining directors, who will need to stand for re-election. In short, the reforms have the potential to impact not only at the 'second AGM' but at the following AGM.”
These rather attractive parachutes were not voted on by shareholders, who given the chance, I am sure would have rejected them as being insanely excessive, to put it mildly.
Of course, those ‘termination funds’ are not readily available in the company. Add to that, the likelihood that they would endeavour to sell their millions of shares at market. Their vengeful selling could drive the share price to $zero. Following that, if not orchestrated well beforehand, would be the company going into Voluntary Administration. That means shareholders are left holding a very empty bag. The only leftovers would be ample material to postulate about what might have been.
As I have not been closely associated with a 2nd strike process, I am not sure what options or procedures the directors, company and shareholders have and what the timelines are. There may be some answers here-
Suffice to say, MXC is entering a volatile and uncertain period. Those who disagree with me, do so based on their own research and conclusions – that’s fine.
A 2nd strike is all about ‘remuneration’. The salaries and bonuses they have gifted themselves has always been a contentious issue especially in the light of next to no income being generated and a multitude of failed and or problematic deals.
I can find no reference to voting out directors based on incompetence or any other non-remuneration based reason –other than illegal activities which is not mooted here. Such changes can be effected when directorships become vacant when a director needs to step down prior to being voted back in – or out. Re-election of directors is mostly a foregone conclusion when well supported by other board members. This makes the ‘removal’ of any director, quite difficult.
It is my opinion that a successful 2nd strike may well initiate the ultimate demise of the company. If no 2nd strike, I see a very long and hard haul for this company to become profitable. To reach its goals, it will have to raise some serious money AND start generating real income ASAP. It is time for the BOD to make (and bank) some real money, not just talk about it.
MXC Price at posting:
5.1¢ Sentiment: None Disclosure: Not Held
, the Company entered into an obligation to provide Natura with a minimum 300kg of CBD resin per annum, in accordance with the demands of the end buyers, at an agreed price of €55,000/Kg of 100% purity CBD resin where price is directly dependent on the purity of the product. Where the Company have to purchase CBD from other producers, the selling price is based on ‘cost + 5%’”
