Dear Jeff,
I agree with you on the importance of clarity in income statements. I have a question on the GNET income in the second and third quarter of this year. In both quarters a preferred stock dividend appears, generating a loss for common shareholders. I did read the explanation in the SEC filings, but could you please refrase this in plain English for a common long. My second question: can preferred shareholders decide to pay out preferred dividend at the cost of common shareholders?
SEC filings second quarter 5/4/99:
Preferred stock dividend 52,930,286
Net loss applicable to common shareholders (51,788,974)
SEC filings third quarter 8/13/99:
Preferred stock dividend 107,000,447
Net loss applicable to common shareholders $(107,567,393)
Explanation in second quarter filings:
4. PREFERRED STOCK
The Company entered into a Stock Purchase Agreement under which the
Company agreed to issue and sell to Vulcan Ventures Incorporated ("Vulcan")
300,000 shares of the Company's Series A Convertible Preferred Stock, par
value $.01 per share for a purchase price of $1,000 per share, in two
separate issuances of 167,507 (the "First Issuance") and 132,493 shares (the
"Second Issuance"). The Series A Preferred Stock is initially convertible at
a conversion price of $66.11 per share into 4,537,891 shares of Common Stock.
The First Issuance was consummated concurrently with the execution of the
Stock Purchase Agreement on March 15, 1999. Simultaneously with the closing
of the First Issuance of preferred stock, the Company and Vulcan entered into
a Registration Rights Agreement, and Vulcan entered into a Management
Agreement with each director of the Company pursuant to which Vulcan will
purchase 1,403,312 shares of Common Stock from the directors of the Company,
three of whom are executive officers of the Company, at a price of $90.00 per
share. The Second Issuance is subject to shareholder approval. On March 19,
1999, pursuant to the Stock Purchase Agreement, Vulcan commenced a tender
offer to purchase 3,596,688 shares of Common Stock for a purchase price of
$90.00 per share. The tender offer expired on April 15, 1999 with no shares
being tendered.
On the date of the First Issuance, the price of the Series A Convertible
Preferred Stock was at a discount to the price of the common stock into which
the preferred stock was then convertible. The discount was recognized as a
return to the preferred shareholder and reflected as a dividend.
Regards,
#8 Pareto |
