Gulf Keystone Petroleum’s cash settled scheme to incentivise the directors to sell the company
Gulf Keystone Petroleum announced on 22 March 2012 that various of its executive directors and staff will receive cash-settled awards of an aggregate amount equivalent to up to 10,000,000 shares upon an “Exit Event”.
An Exit Event,for these purposes, is the sale of the company or of over 50% of its assets.
The Gulf Keystone share price is currently around £2.60, meaning that up to £26,000,000 could be awarded to directors and staff upon an Exit Event. The Executive Chairman and CEO, Todd Kozel, would receive 300,000 cash settled shares (i.e. that number of shares would be sold and Mr Kozel would receive the cash) if the company or a majority of its assets is sold.
(As the company announced earlier this year, Mr Kozel has had an expensive divorce.)
Unusual for a public company to have an exit incentive scheme
There are at least three interesting things about these Exit Event awards:
1. It is unusual for a company of this size (or any publicly-traded company) to put in place a scheme expressly to incentivise the directors to sell it - some would make that argument that that is part of the directors’ job in any case.
2. The Exit Event awards are a related party transaction for the purposes of Rule 13 of the AIM Rules, and have been approved by the independent directors following consultation with the company’s Nomad.
3. Two of those independent directors this week each received share awards valued at around £950,000.
Governance and shareholders
The Exit Event awards run contrary to the ABI’s Remuneration Guidelines on special and ex-gratia payments (although the ABI guidelines do not apply to AIM companies).
The Gulf Keystone announcement says the awards have been made “following consultation with a number of the Company’s institutional and other shareholders”, although does not say that those shareholders were necessarily in favour of the awards.
A highly successful company
Gulf Keystone is working towards leaving AIM and gaining a Premium Listing on the Official List. If it was on the Official List, it’s market capitalisation would be large enough to place it in the FTSE 100. The company, which is a favourite of retail investors, has been repeatedly rumoured to be in takeover talks with one of the oil majors. Its share price has gone from £0.05 in March 2009 to its present level of £2.60.
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