The following is a satirical write-up on recent events of DHB. The purpose is inform investors and to poke a little fun at management. My intention is not offend anyone and I apologize up-front if I have. Anyway, the serious part is at the last paragraph. Become a Complete Fool
Shareholders must be thinking its d�j�vu again as there's a new proxy statement being issued by the management to vote for a new and improved 2005 Omnibus Plan. The new plan calls for a limitation of 2,500,000 shares and with the existing 507,000 shares in the old 1995 Plan makes the total amount available to be granted to management and employees of DHB to 3,007,000 shares in total. With 46,111,096 diluted shares outstanding as at 1Q 2005, this represents a future dilution of just 6.5%. This looks like a much better deal than the previous 12,507,000 share dilution proposal, doesn't it?
Ah, the 4-July weekend. A time to celebrate Independence Day with hot dogs, hanging up the red, white and blue, as well as the all important fireworks. So existing shareholders are probably thinking along the line of: "Hey, this is a great! We're going to have a double celebration of freedom and DHB management finally giving us the long suffering shareholders some relief." As you start to shove that hotdog down your throat with a cheesy grin, finishing it off with a cold one, have a look at the following table.
Name: David Marc Ret. Gen. Manuel IshmonThe table reflects warrants (one warrant equals to one share) recently issued to senior management.
Brooks Dien Larry Ellis Rubio Burks
Price: $1.00 $7.69 $7.66 $7.66 $7.66
No. of No. of No. of No. of No. of
Shares Shares Shares Shares Shares
2005 1,500,000 100,000
2006 750,000 100,000 100,000 10,000
2007 750,000 100,000 100,000 100,000 10,000
2008 750,000 100,000 100,000 10,000
2009 750,000 100,000 100,000 10,000
2010 750,000 100,000 100,000 100,000 10,000
Total 5,250,000 600,000 200,000 500,000 50,000
Notice something odd here? That's an extra 6.6 million potential shares being used to dilute shareholders and oddly wasn't accounted for in the 2005 Omnibus Plan. I'm sure management thinks that shareholders can't add up so I'll do it for all of us. The total number of additional shares comes to 9.1 million!
As at 1Q 2005, the "deluded" share count is 46,112,906 which brings the potential count to 55,211,906 shares for a dilution impact of � gulp 20%! Investors must be wondering how is it that share count has been growing at an exponential rate since 1999 when the outstanding shares was only at 27,175,515? Well that's the heart breaking news for long term shareholders who have seen the value of their ownership diminish at compound rate of 10% per year up to 1Q 2005. Management must be giving themselves a round of high fives and a few pats on the back as they'll be getting over 2.5x what the new and improved 2005 Omnibus Plan sets out. Hey the check is in the mail for these guys as the warrants did not need shareholder approval � fait accompli they say with a smile on their faces. But look a little bit closer, it appears that the majority (or lion's share if you will of nearly 80%) goes to one man � Mr. David Brooks.
Does that seem fair and why is that one may ask?
Well I'm glad you asked because on the 1-July-2005, our Board and the Compensation Committee comprising of Jerome Krantz, Gary Nadelman and Cary Chasin (funny, I thought these guys were working for us shareholders and not for management, but I may be wrong?) has decided that Mr. Brooks is such an important individual, absolutely essential for the survival and growth of our company that the Compensation Committee must be thinking: "We couldn't possible survive without him!". So on top of the extremely generous base salary, bonus and fringe benefits, Mr. David Brooks gets an extra 5,250,000 additional shares via warrants over the next 6 years. You gotta pay for quality right? Just have a listen to the last conference call when Mr. Brooks was asked some tough questions like future insider sales.
Well Mr. Brooks is a very happy individual indeed and definitely in the partying mood as he's just been given a printing machine. Mr. Brooks is getting shares of our company at a deep discount and at a price that no one will ever be able to obtain on the open market, wait for this at $1.00 per share! Greed is good, is it not? All Mr. Brooks have to do now is talk-up the stock and then sell to reap the rewards. Now we're coming up to the pump and dump strategy! I guess none do it better than an insider. Speaking of which, this scenario sounds strangely familiar to what happened at the end of 2004 � d�j�vu again?
Do shareholders see any contradiction of the incentives offered to Mr. Brooks (the warrants in terms of strike price and quantity?) compared to the rest of the management team? While everyone else on the management team will get their warrants at approximately the market price, meaning they'll need to work hard to ensure their warrants are going to be in the money. This apparently doesn't apply to Mr. Brooks who can kick back and take it easy knowing that his warrants will always be in the money - short of the business totally collapsing. Do you hear those glees of laughter and champagne corks popping? That's Mr. Brooks celebrating and doing his victory dance at the Florida mansion - paid of course by shareholders via reduced earnings. The fireworks must look really pretty over there.
So do outside shareholders still feel like doing the double celebration? I'm thinking that hotdog is starting to upset my stomach and the cold one to wash it down is starting to taste a bit stale.
What I do know is that the recent incentive agreement to keep the CEO on board has totally defeated the purpose of keeping a lid on share dilution while giving the CEO a fair a decent compensation package. On a yearly basis since 1999 when DHB really started its growth trajectory in the soft body armor business, shareholders have been diluted by at least 10% a year up to 1Q 2005. The proposed 2005 Omnibus Plan is now a moot issue due to the massive amount of warrants issued to Mr. Brooks. It matters very little on how shareholders vote on the 2005 Omnibus Plan as management is willing to issue more warrants to suit and at arbitrary prices - diluting existing shareholders mercilessly.
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The following is a satirical write-up on recent events of DHB. The purpose is inform investors and to poke a little fun at management. My intention is not offend anyone and I apologize up-front if I have. Anyway, the serious part is at the last paragraph.
Become a Complete Fool