Mixed News
The good part is that they have the money in hand. I don't know what part of the funding requirements this represents, but I hope it is substantially all that is required.
On the other hand, market conditions and the company's prospects combined to place a large cost on the money.
1. An annual interest charge of $2,625,000
2. Conversion pricing in the range of $7 to $25 depending on future market price. A normal convertible, if there is such a thing, has a conversion price set at somewhat above the current market price to reflect the fact that the security is senior to the shares and carries interest. The press release skates around the details of how the conversion price will relate to market price, so one has to assume that the conversion will not be at a premium to market. In short, the owners of the notes are guaranteed a profit upon conversion and the cost of that guarantee is paid by diluting the rest of us.
3. 5,000,000 five year warrants on terms guaranteed to make the investors a profit. If Don Johnstone, dds1 and others are correct in their view of this company, it will be spinning cash like crazy by 2003 - 2005. The exercise price will be peanuts compared to the stock price and the company won't need the money.
4. If, on the other hand the company is only moderately successful or struggling, there is no requirement that the options be exercised and the (unspecified) anti dilution privileges in the option document may well stand in the way of raising critically needed funds. The convertible note does not need to be converted and would be an even more serious deterrent in this scenario.
5. The market value conversion pricing of the note means that present investors do not know how many shares are to be outstanding. Further, if the stock price is not well above the price band ceiling of $25 the note holders can exercise a considerable influence on future financings.
Overall, the deal says to me that either the company is much weaker than this chat board would lead one to believe or the financing is an inside deal on terms more favorable than the free market would provide. In time we will learn of the buyers of the notes. If they are in fact arms length then I hope LUMM has all the cash it needs, since future financing chances have been compromised.
Just my opinion, comments are welcomed.
Fred McCutcheon |
