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Cloudtag: if management can't cash in on share options just move the goalposts

By Tom Winnifrith | Monday 12 December 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

The share options which were in force when Cloudtag (CTAG) was admitted to AIM in March 2013 contained certain vesting conditions. These included a product launch date of 20 March 2014 plus other specified criteria including turnover exceeding £750,000 in a month! and a specified share price being exceeded for a five day period starting at 40 pence and increasing to 60 pence.

On 18 January 2015, Cloudtag announced that the majority of the options had lapsed or been surrendered no doubt for failure to meet the performance criteria due to absence of any turnover and failure to hit the relevant share price criteria.

It appears that the new management decided that living by targets set prior to the IPO in 2013 almost 2 years earlier was simply too tough and that the strike price was far too high.

Accordingly the Cloudtag Board simply issued another 7.7 million options, exercisable in four equal tranches. These vested immediately and were exercisable at exercise prices of 6, 8, 10 and 12 pence per share respectively with no other specified vesting criteria.

If targets are too tough just move the goalposts so that one way bets for management, and dilution for shareholders, become a given.

Naturally Nomad Cairn saw nothing wrong in this at all. It never does.

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