Lengthy message regarding authorized-but-unissued shares ... includes apology.
Gary, I have been among those who have pooh-pooh'ed your concerns about the authorized-but-unissued TSIS shares ... a number which you believe to be dangerously excessive.
I apologize because I have found something in a Proxy for another stock I hold long-term, FTUS, which bears on this and makes sense.
Here is a lengthy quote from that Proxy ... the quote is worth reading in its entirety. Discussion follows:
quote
PROPOSAL 2
PROPOSAL TO REDUCE AUTHORIZED COMMON STOCK
We believe the number of shares of Common Stock we are authorized to issue
is unusually high compared with the number of shares which are outstanding or
which we are committed to issue. Therefore, on March 23, 1999, our Board of
Directors approved an amendment to our Certificate of Incorporation which would
reduce the number of shares of Common Stock we are authorized to issue to
35,000,000 shares. Our Board of Directors recommends that our stockholders vote
to approve that amendment to our Certificate of Incorporation.
Currently, our Certificate of Incorporation authorizes us to issue up to
80,000,000 shares of Common Stock. However, we have only 12,114,501 shares
outstanding and 1,878,462 shares reserved for issuance on exercise of
outstanding stock options or warrants. We believe it is unusual for a company
with publicly traded shares to be authorized to issue that high a multiple of
the number of shares which are outstanding or which the company is committed to
issue. The high number of authorized shares compared to outstanding or committed
shares reduces one element of stockholder control of issuances of additional
shares (however NASDAQ rules give stockholders control over significant share
issuances so long as we are subject to those rules). Also, because the annual
Delaware Franchise Tax we must pay is based on the number of shares we are
AUTHORIZEd to issue, not the number of shares which are OUTSTANDING, the large
number of shares we are authorized to issue significantly increases our Delaware
Franchise Tax. At the current price of our shares, reducing the number of shares
we are authorized to issue to 35,000,000 shares would lower our Delaware
Franchise Tax payments by approximately $80,000 per year.
Until November 1998, there was a reason for us to be authorized to issue a
large number of shares of Common Stock. As recently as September 30, 1998, we
had 5,004,122 outstanding shares of Common Stock and 3,638,690 outstanding
shares of Series A Preferred Stock and 35,360 outstanding shares of Series B
Preferred Stock (which were convertible into a total of 27,921,352 shares of
Common Stock) and outstanding options and warrants entitling the holders to
purchase as many as 5,083,440 shares of Common Stock and warrants to purchase as
many as 320,000 shares of Series A Preferred Stock (which were convertible into
819,520 shares of Common Stock). Therefore, if all our outstanding Series A and
Series B Preferred Stock had been converted, and all the outstanding options and
warrants had been exercised, we would have had 38,828,434 shares of Common Stock
outstanding. That would have been approximately half the number of shares we
were authorized to issue.
In November 1998, however, we carried out a Recapitalization under which our
outstanding Common Stock became a smaller number of shares, all our Series A and
Series B Preferred Stock was converted into a reduced number of shares of Common
Stock and the number of shares subject to options and warrants was reduced.
Following the Recapitalization, we had 11,275,381 outstanding shares of Common
Stock, we had no outstanding convertible securities and our outstanding options
and warrants entitled the holders to acquire 1,811,081 shares. We then sold
800,000 shares to people who exercised stock purchase rights we distributed to
our stockholders. We currently have 12,114,501 outstanding shares of Common
Stock and options and warrants entitling the holders to purchase an additional
1,878,462 shares.
Our Board of Directors believes it is appropriate for us to be authorized to
issue, without further stockholder action (other than as required by NASDAQ
rules or rules of a stock exchange or other market on which our shares may in
the future be traded) between two and three times the number of shares which are
outstanding or subject to outstanding options or warrants. Our Board believes
that our being authorized to issue more shares than that (a) unduly reduces the
control our stockholders have over when we can issue additional Common Stock and
(b) unnecessarily increases the Delaware Franchise Tax we are required to pay.
If the number of shares we are authorized to issue is reduced, as proposed, to
35,000,000 shares, we will still be authorized to issue more than twice the
number of shares which currently are outstanding or are subject to outstanding
options or warrants. Our Board believes that is sufficient. If, in
the future, it appears we may need authorization to issue more than 35,000,000
million shares, we can seek stockholder approval to increase the number of
shares we are authorized to issue.
end quote
This makes *some* sense to me. I particularly like the part about reducing Delaware corporate taxes by $80,000 a year, just by reducing the number of authorized shares. Remember that TSIS also is a Delaware corporation. I wonder how much Delaware corporate tax money they would save if they likewise trimmed the number.
I also am interested in the vague reference to NASDAQ rules which apparently govern the creation of additional shares. Since TSIS is not yet a NASDAQ listed corporation, and probably won't be for many moons, this would not yet apply to TSIS. ( wonder what Delaware Corporate Law says on that subject? Anyone know?
And lastly I am pleased to see that the BoD of FTUS, which I respect very highly, has voluntarily opted to make this change, noting that if they ever need additional shares, they can always go back to the shareholders for permission to increase it again.
JSb
P.S. I commend FTUS to you as a long-term investment. I have a large position in it since long before the reverse split, and have been handsomely rewarded. |
