Xcell option plan needs check

SHARE options offered to employees and directors, we are told, act as an incentive. Have we got that clear.

How then do we explain the strange events at Xcell Diagnostics?

Not a high profile business by any measure, Xcell is developing a range of medical products.

It may, however, go down with an unwanted record as the business that awarded the world’s most generous share options – the right to buy shares at less than their ruling price or, in the technical speak, options that were already "in the money".

In simple English this means that the directors who got the options could exercise them immediately and make a tidy profit – which re-defines the word incentive.

This truly bizarre twist took place at a gathering of shareholders in West Perth’s Celtic Club on September 5.

The 20, or so, “owners” of Xcell at the meeting voted through, with just one question being asked, an “incentive package” that delivered instant profits to the board because the strike price on the first block of options was below the share price on the day – and remains below the share price.

Briefcase has always suspected that the average shareholder is a pretty dopey chap but the Xcell mob must be in the running for the dumbest group of investors in the history of the Australian Stock Exchange.

Consider the facts.

Saliba Sassine, Xcell’s chief executive, has been granted a total of 4.5 million share options in three blocks.

The first block of two million is exercisable at 10 cents a share on, or before, November 30 2006.

Gee, that’s a tough call for Saliba as the shares were selling on the day of the meeting at between 13 cents and 13.5 cents.

Conversion on the day would have yielded Saliba a profit of between $60,000 and $70,000.

The share price of Xcell, as at September 12, had dropped back to 12 cents, which still leaves Saliba "in the money" on his first block of options, break-even on the second block of 1.5 million exercisable at 12 cents, on the same date of November 30 2006, and with the incentive of helping to lift Xcell’s shares to 15c for the third block of one million shares.

Xcell’s chairman, Ian Macpherson, who received 1.5 million options in three blocks of 500,000 at the same strike prices, acknowledges the problem but said there wasn’t much the company could do, and that the new share option deal replaced one that was “out of the money”.

“When the board agreed on the options packages the share price was closer to 3 cents,” he said.

Mr Macpherson may well be right, but it is worth looking at the share price trend since Xcell traded at 3 cents and wonder whether the board should have re-priced the deal.

A check of ASX records shows that Xcell, which is changing its name to Visiomed Group, last traded at 3 cents or less around June 12.

From then it has been virtually one way traffic.

By the end of July, Xcell was at 6 cents, and went over the 10 cents first block strike price on August 19, more than two weeks before the Celtic Club meeting, and hit 14 cents on September 2 (40 per cent above the first strike price) three days before the meeting.

Other lucky winners at Xcell include directors Paul Watt, Marcel Yon and Hartmuth von Maltzahn, who have 750,000 options each, in three blocks of 250,000 on the same terms as Sassine and Macpherson.

Briefcase is not in the business of moralising but can pass judgment on how the concept of share option incentives are supposed to work, and this is far (very far) from a good example.


SPEAKING of incentives, will someone please find a way to help Kerry Harmanis, a favourite of Briefcase, and a chap with a problem of rapidly growing proportions.

A few weeks ago Kerry received an honorary mention because the poor chap is wondering what to do with all the loot accumulating at Jubilee Mines and in his personal share portfolio.

When Briefcase ran the numbers on Kerry his 20 per cent of Jubilee was valued at $66 million, down a shade on a few weeks earlier when his swag hit $74 million thanks to a very bullish presentation to the Diggers & Dealers forum in Kalgoorlie.

Well, we are sorry to report that matters have got worse, Kerry’s pile just keeps on growing.

After announcing a very handsome profit of $48.4 million on September 10 the Jubilee share price rocketed to a record $3.80 and Kerry was on target to be WA’s next $100 million man with his 20 per cent in Jubilee worth $93 million.

Jubilee’s share price as Briefcase went to press was back around $3.55, and Kerry was down to “just” $87 million.

For the curious, Briefcase reckons that the day Jubilee hits $4.09 Kerry cracks the $100 million mark – and the champagne will flow for a chap who has worked jolly hard, overcome adversity, answered his critics, learned to live with an inquisitive media, and can still be polite (when pushed) to Briefcase.

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