Comment on Recent Form 4’s
We have received numerous questions about the recent Form 4’s filed to report share sales by three Vertro Directors. The market action since the Form 4’s were filed seems to reflect a negative perception of the Board member’s actions. We feel that is important to make it clear that 1) the director’s who filed form 4’s never actually held the stock reported as being sold and 2) the majority of the directors chose to pay their tax liability in cash out of pocket – which is essentially buying more stock. The net takeaway should actually be positive here – more than half the board chose to invest more out of pocket cash into Vertro.
These sales were related to the vesting of restricted stock units, which is a taxable event for each individual director. In the same way that the IRS requires individuals to withhold a certain percentage of their paychecks to cover their tax liability, an amount must be set aside to pay the tax liability for the vesting of these restricted stock units. Each member of the Board of Directors may choose to either pay the withholding amount in cash out of pocket or they can have the company “withhold” (and sell) part of their stock grant in the amount necessary to cover the tax liability. Thus, these directors were not really selling shares that they own, they are instead giving up the right to receive a percentage of the shares granted to them in an amount sufficient to cover their tax liability.
In taking a look at the situation with the recent Form 4 filings, we also took a broader look at the BOD and their compensation overall. The last proxy indicates very large cash payments and restricted stock issuances to our board members. Obviously these payments were vestiges of a time when this was a much larger (market cap, revenues, operations, geographies,liability exposure, etc.) company. We are confident that steps will be taken to ensure that Vertro’s board compensation scheme is adjusted to be more in line with what would be expected for a company of our current size/profile – $8 million market cap (cash adjusted), substantially less operational complexity and much less overall liability than the old Miva. Additionally, we hope to see a much greater emphasis placed on measures that would better align shareholder’s and director’s interests. In particular, we hope to see the cash payments reduced substantially and a much bigger emphasis placed on restricted stock/options.
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