My summary of and thoughts on Resolution 5. Please read original document for full details and to ensure accuracy.
Resolution 5 – Approval of the Equity Incentive PlanProposalTo issue up to 157 million equity securities*, or up to 5% of the number of issued ordinary shares of the Company (whichever number is the greater), under an Equity Incentive Plan. These equity securities may be in the form of either shares, options or rights, including performance rights. This includes 78 million equity securities which the Company may issue to senior executives who are not directors of the Company.
*157 million shares represents ~10% of the current ~1,577 million shares on issue
Who is Eligible to Receive Equity Securities under the PlanExecutive and non-executive directors, officers, employees and contractors, including those of the Company’s subsidiaries
Justification for EIP provided by the Company- Helps Company to attract and retain directors, executives, employees and contractors.
- Provides incentive to work to improve the performance of the Company.
- Promotes loyalty towards and enhances the relationship with the Company.
- Provides those eligible with the opportunity to acquire shares, options or rights in the Company.
- Aligns interests of those eligible with shareholder interests.
- Allows Company to conserve cash while still enabling it to offer market-competitive remuneration.
Terms and Conditions- The Board decides how many shares/rights are issued and what vesting conditions/performance hurdles apply.
- The Board has the power to change the rules of the Plan and to impose restrictions as well as to waive vesting conditions, forfeiture conditions or disposal restrictions.
- If a third party acquires 50% or more of the Company’s shares, the EIP shares, options or rights automatically vest.
I don’t support this proposed Equity Incentive Plan.
It potentially hands shares representing 10% of the company’s current issued capital to directors and management, at the discretion of the Board. There may be performance hurdles attached, but there may not be. If there are performance hurdles attached, it’s at the Board’s discretion to decide what those hurdles may be. Performance hurdles could be as low-bar as “That the share price is greater than or equal to $0.001 by April 2021” or “That the director attended most Board meetings" or "That the employee came to work most days”.
I understand that payment in shares/options in lieu of salary can help a company to conserve cash and I’m invested in another company in which the Chairman has received shares in lieu of any cash compensation for this precise reason. However, shareholders are not provided with an indication as to who, if anyone, is taking a pay cut, or by how much, as part of this Plan.
I understand that directors and executives having shares in the company provides “skin in the game” which may serve to align interests with those of shareholders. But, as I’ve previously argued, substantial investment in the company, especially on-market, can more powerfully align everyone’s interests. The Chairman of another company in which I’m invested (PNV) keeps buying on-market and now has 18 million shares. And we are not talking cheap shares! But with AVE, the only eligible individual under this Plan who has invested substantial amounts of his own money in the company is director, David Segal.
I don’t understand the need to be provided with free share incentives in order to be loyal to a Company for which you work. This is not the way I have ever worked. I don’t believe that real loyalty is something that can be bought.
I don’t like the fact that, under this proposed Plan, the Board decides who gets or doesn’t get the proposed 157 million shares and for what reasons. This asks shareholders to place absolute trust in the Board. Unfortunately, shareholder trust has been one of the casualties of this company’s history.
I don’t like the fact that, under this proposed plan, the Board can automatically “reward” themselves and management with up to 157 million shares if a third party takes 50% or more of the company. Potentially, the Company could halve in value after the Equity Incentive Plan came in place but management would be rewarded in full if someone then took out half of the Company?
I would much prefer a retrospective incentive plan.
After a nominated period, shareholders would be asked to vote on whether everyone deserved their bonuses, or not. The incentive aspect would still be there, but the shareholders would get to make an informed choice, rather than one based merely on “trust”.
For example (and as happens for employees in many companies), shareholders could conduct an annual performance review. This would be based on the Company’s achievements since the previous AGM, as communicated to the market by the Company.
If one were to consider this past year, the list for the performance review would go like this:
June 2019 Manufacturing rights for Vital ET and TPM in personal care products were sold to Ashland for US$2.5m. Ashland had been a purchaser of these products for more than a decade. Effectively, this sale brought forward 4 years of income from Ashland. The sale came at a time when the Company’s cash reserves were down to a bit over $500,000.
October 2019 After three and a half years, Terumo returned rights to TPM propofol, the last remaining TPM product it was developing.
December 2019 The Executive Chairman provided a slide presentation to the market.
January 2020 The Board added another Director.
March 2020 The Company issued an Annual Report. The Executive Chairman said that he anticipated that a range of licensing opportunities for TPM pharma products would be announced in the coming months.
April 2020 The Executive Chairman went back to being just Chairman and two existing senior executives were announced as CEO and COO.
April 2020 The Board announced it had decided to develop TPM cannabinoid products and that it would get its synthetic cannabinoid API from Purisys and its natural cannabinoid API from Tasmanian alkaloids.
Number of General Shareholder Meetings or Conference Calls for Q & A - 0
Rate of (my) success in attempted communications with Executive Chairman – 1 out of 3.
A benefit for shareholders, if a performance review was based on what the Company had achieved over the past year, would be that the review could be completed very swiftly.
My tip is that, if my proposed system were used, no bonus equities would be issued.
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