Rambling Thoughts Re RVX AGM Agenda June 21 2022

 

RVX AGM June 10 2022

 

I offer a few rambling thoughts after reviewing the AGM meeting documents. Bolding, underlining and quotes are my additions.

 

The one positive aspect is that compensation has shifted more toward share-based rewards in lieu of limited funds to pay salaries. This is largely a function of the business side of RVX being unable to provide sufficient financing.

 

That being said compensation has been adjusted upwards based on the Mercer Consulting benchmarking study conducted a couple of years ago. Mercer has not been used recently.

 

In terms of the new 5-person BOD, while it may meet the “letter of the law” technically as having enough independent directors I do not believe it meets the “spirit of the law and good corporate governance”. It remains a tight group of club members and will not do justice to the broad base of shareholder at large. This board should have at least 7 members with a very heavy representation of biotech financing expertise.

 

I am not an accountant, lawyer, nor do I have training in corporate governance skills but my impression is that the document is designed to meet the “letter of the law” but when you read the details it does “not meet the spirit of the law and good governance IMHO”.

 

P34/31

Performance Graph

The following graph illustrates the cumulative total Shareholder return of a $100 investment in the Corporation’s Common Shares, compared with the cumulative total return of the S&P/TSX Composite Index. The time frame selected for the following performance graph is the Corporation’s last five fiscal years (beginning on May 1, 2017 through to December 31, 2021).

 

The graph shows that;

• A $100 dollar investment in RVX on May 1 2017 has a value of roughly $30 on Dec 31, 2021.

And

• An investment in the S&P/TSX Composite index of $100 in the same period had a value of roughly $140 on Dec 31, 2021.

 

The trend shown by the above performance graph does not directly correlate to the compensation received by the NEOs. The market price of the Corporation’s Common Shares has been extremely volatile over the last five fiscal years. Over the same period of time, NEOs’ base salaries have been increased modestly annually (and any salary increases have been settled in RSUs). NEOs’ STIP and LTIP awards (whether or not actually received by the NEOs in a particular period, as described further herein) have fluctuated significantly over the last five fiscal years, but the fluctuations have been based on individual and corporate performance, not the market price of the Common Shares.

 

The factors considered by the Corporation’s Compensation and HR Committee and Board in determining compensation matters, such as individual and corporate performance and demand for skilled professionals, do not necessarily correlate to the market price of the Common Shares.

• i.e. compensation is not based on value creation

 

The cumulative Shareholder return realized on the Common Shares is affected by a number of different factors, including company performance, regional and global economic conditions, the performance of the global financial markets generally and other factors, some of which are discussed under the heading “Risk Factors” in the Corporation’s Annual Information Form dated March 31, 2022, which is available on the Corporation’s website and has been filed on and is accessible through SEDAR at www.sedar.com. Many of these factors are outside of the control of the Corporation.

• i.e. We can find any excuse other than business incompetence to explain why we say but don’t execute using Management by Objectives.

 

P16

Restricted Share Units

The LTIP provides that the Committee may, from time to time and in its sole discretion, grant awards of RSUs to any Participant. RSUs are not Common Shares, but rather represent a right to receive at a future date Common Shares of the Corporation. All grants of RSUs are evidenced by an award agreement. The award agreement contains such provisions as are required by the LTIP and any other provisions the Committee may direct.

 

As at December 31 2021, the vesting periods of RSUs range from immediate to three years in duration; no RSUs were subject to performance conditions.

• Comment – So the awarding of RSUs was not conditional on achieving performance goals even though that is the purpose of RSUs?

 

P7/4

Majority Voting

On the recommendation of the Corporation’s Corporate Governance and Nominating Committee, the Board has adopted an individual voting standard for the election of directors. Under such individual voting standard, in the event that any nominee for election receives more “withheld” votes than “for” votes at any meeting at which shareholders vote on the uncontested election of directors, such nominee shall

immediately tender his or her resignation to the Board, to be effective on acceptance by the Board.

• Does this mean that each shareholder through their proxy votes would be counted as one as would Don and other large shareholders? If so our “withhold” votes could have has a significant influence of changing the BOD.

 

P9/6

COMPENSATION DISCUSSION AND ANALYSIS

General

The objectives of the Corporation’s executive compensation program are to support an appropriate relationship between executive pay and the creation of shareholder value. The compensation program is designed:

• To provide compensation comparable to similar companies and thereby enable the Corporation to attract and retain talented executives critical to the Corporation’s long-term success.

• To align the interests of executives with long-term interests of Shareholders through stock option, RSU and restricted stock awards whose value over time depends upon the market value of the Common Shares.

• To motivate and retain key senior officers to achieve strategic business initiatives and reward them for their individual and team achievements.

• Based on my 11 years of holding this stock I have never experienced “shareholder value creation” other than the great science, which has been completely undermined by business incompetence.

 

P10

Key Compensation Decisions

Base Salary

Annually, the Board, at the recommendation of the Compensation and HR Committee, approves the granting of changes to NEO salaries. In March 2021, the Board awarded conditional base salary increases, retroactively effective January 1, 2021, of a flat rate of 2% for the NEOs (taking into consideration applicable cost of living indexes).

 

In November 2021, as a cash conserving measure and upon the recommendation of the Compensation and HR Committee, the Board approved RSU grants for a total of 407,400 RSUs to the NEOs in lieu of the retroactive pay increase for the period January 1 to December 31, 2021.

 

P10

Short-term Incentive

Annually, the Board, at the recommendation of the Compensation and HR Committee, approves the granting of bonuses under the Corporation’s short-term incentive plan (“STIP”). In February 2022, the Board approved grants for a total of 504,900 RSUs to the NEOs in lieu of paying cash for STIP bonuses for the year ended December 31, 2021, based on a fair value per RSU equal to a 5-day volume weighted average share price.

 

P10

Long-term Incentive

Annually, the Board, at the recommendation of the Compensation and HR Committee, approves options or restricted share units/restricted stock (“RSUs”) awards granted under the Corporation’s LTIP. In February 2022, the Board approved LTIP awards for the year ended December 31, 2021, for a total of 762,800 RSUs to NEOs, representing between 22% and 44% (based on their respective target awards and performance scores) of the NEO’s base salary based on a fair value per RSU equal to a 5-day volume weighted average share price, as well as 240,000 stock options to an NEO.

 

P11 – Mercer Benchmarking

Additional Equity Compensation Award to Align with Peer Group

Additional Equity Compensation Award to Align with Peer Group

As a result of the benchmarking review and with the benefit of a report by Mercer providing an analysis of the Corporation’s equity compensation practices, the Compensation and HR Committee determined that the compensation that had been awarded by the Corporation to the NEOs and directors in recent years had been below the average of its peer group. Accordingly, the Compensation and HR Committee recommended (and the Board subsequently approved) effective February 2022, April 2021, July 2020 and September 2019 that it would be appropriate to approve grants of additional equity compensation awards to the NEOs, non-executive directors and certain employees to re-align the Corporation’s compensation program with its peer group. The grants to each individual were based on market analysis, each individual’s respective length of service with the Corporation (applying a sliding scale) and their base salary.

 

In February 2022, the Corporation granted a total of 480,000 RSUs to certain NEOs. These RSUs vest over 12 months – with 1/12 immediately and an additional 1/12 monthly thereafter from February 28 – December 31, 2022.

 

In April 2021, the Corporation granted a total of 340,000 RSUs to certain NEOs. 55% of these RSUs vested immediately and the remaining 45% vested during the 9-month period following.

 

P13

Material Elements of Compensation

The Corporation compensates its executive officers primarily through base salary, annual bonuses and long-term equity-based incentives, including the Option Plan and LTIP (described below).

 

1. Base Salary

See document. It is a standard, boiler plate plan.

Base salary is a material element of executive compensation intended to provide a competitive annual compensation. Base salary for NEOs recognizes: (i) the scope, complexity and responsibility of the role of the NEO; (ii) competitiveness with base salary levels for similar positions at companies included in the peer group; (iii) the NEOs previous experience and performance; and (iv) the NEOs performance ratings.

 

2. Short Term Incentive Plan - Annual Bonuses

Reference the 1st paragraph in the shareholder document. It is a boiler plate, standard plan.

 

Performance targets for the NEOs and other executive officers are established annually in connection with the goals and objectives for the Corporation. For the year ended December 31, 2021, a single corporate achievement score was applied to all NEOs, the key components of which were:

i) raising sufficient capital to fund operations; This has been a constant area of significant failure.

ii) advancing strategic partnerships and licensing;

iii) evaluating chemistry, manufacturing, and controls (“CMC”) data to support registration and optimize product performance;

iv) advancing R&D programs;

v) managing the Corporation’s business; and

vi) inspiring strength in the Corporation’s stock price, as applicable and appropriate.

 

Comments

Points i, ii, v, vi are primarily responsibilities of the business team and to my observations none of these objectives has been achieved.

Points iii, iv seem to have advanced at least as indicated by the scientific publications. However, management has failed to clearly state what has been achieved.

 

3. Long-Term Equity Based Incentives

The Corporation operates an Option Plan, LTIP and a DSU Plan (See further information below) to provide its employees, consultants, officers and directors (as applicable) with a long-term incentive for high performance and commitment to the Corporation. Options granted under the Option Plan and RSUs granted under the LTIP vest over a period of time as designated by the Board.

 

The Corporation believes that participation by the NEOs in the Option Plan and LTIP aligns the interests of the NEOs with those of the Corporation’s Shareholders, as the NEOs are rewarded for positive performance through share price appreciation. As a result of the vesting period for issued options, RSUs and restricted stock, participation by the NEOs in the Option Plan and LTIP focuses the NEOs on the long-term appreciation of the Corporation’s share price.

 

In determining the number of options, RSU’s and/or restricted stock to be granted to an NEO, the number and term previously granted, individual and team responsibilities and functions, position, individual performance and projected contribution are considered. Proposals for grants under the Option Plan and LTIP are reviewed and considered by the Compensation and HR Committee and recommended to the Board for final approval.

 

P14

Options Plan

Standard boiler plate plan.

 

P16

LTIP

Purpose and Eligibility

The purpose of the LTIP is to assist the Corporation in attracting, retaining and motivating key employees, directors, officers and consultants of the Corporation and its subsidiaries and to more closely align the personal interests of such persons with Shareholder value creation over the longer term, thereby advancing the interests of the Corporation and its Shareholders and increasing the long-term value of the Corporation.

 

P20

Performance Goals

Awards of RSUs and Restricted Stock under the LTIP may be made subject to the attainment of certain performance goals as may be set by the Committee at the time of grant. To date, the Corporation has not issued any RSUs or Restricted Stock subject to performance goals.

 

P

DSU Plan

Purpose of the DSU Plan and Eligibility

The purpose of the DSU Plan is to provide directors of the Corporation with the opportunity to acquire DSUs in order to allow them to participate in the long-term success of the Corporation and to promote a greater alignment of their interests with the interests of shareholders. Any individual who is a member of the Board (an “Eligible Director”) is eligible to participate in the DSU Plan.

 

p45

The Board is responsible for:

(A) taking all reasonable steps to satisfy itself of the integrity of the CEO and management and satisfying itself that the CEO and management create a culture of integrity throughout the organization;

This is laughable given the abuse of forward looking statements for the past 3 years!

(B) approving Resverlogix's ethics policy; and

(C) monitoring compliance with Resverlogix's ethics policy and grant and disclose, or decline, any waivers of the ethics policy for officers and directors.

 

p4 – appendix – The following is a bit of a farce to say the least.

(g) Reporting and Communication

The Board is responsible for:

(A) verifying that Resverlogix has in place policies and programs to enable Resverlogix to communicate effectively with its shareholders, other stakeholders and the public generally;

(B) verifying that the financial performance of Resverlogix is adequately reported to shareholders, other security holders and regulators on a timely and regular basis;

(C) verifying that Resverlogix's financial results are reported fairly and in accordance with generally accepted accounting principles;

(D) verifying the timely reporting of any other developments that have a significant and material effect on the value of Resverlogix;

(E) reporting annually to shareholders on the Board's stewardship of the affairs of Resverlogix for the preceding year;

(F) adopting measures for receiving feedback from stakeholders and ensuring appropriate disclosures of the measures are made; and

(G) annually reviewing Resverlogix’s Whistleblower Policy and providing an awareness program to all employees.

(h) Financial Reporting and Management

The Board will:

(A) approve financial statements and review and oversee compliance with applicable audit, accounting and financial reporting requirements;

(B) approve annual operating and capital budgets;

(C) satisfy itself that management has an appropriate system in place to ensure the integrity of internal control and management information systems, and review the effectiveness of internal control procedures annually;

(D) confirm that Resverlogix has a system in place for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

(E) review operating and financial performance results relative to established strategy, budgets and objectives and revise and alter its direction through management in response to changing circumstances; and

(F) approve significant changes in accounting practices or policies.

(i) Monitoring and Acting

 

 

GLTA

Toinv