There is another alternative here Jeff:
A. Fluctuating
For $1000 of the common to always equal $2000 worth of the preferred, the price of the preferred would have to exactly track the common, i.e. always have a value of 1/2 the common to assure you get twice as many of them. For example, at .002 per share, you'd be trading in $1000 / .002 = 500K shares. This would then convert to 500K x 2 = 1M preferred shares.
Now let's say the price sinks to .001 (half what you paid) and I buy $1000 worth. Lucky me because my $1000 now gets me 1M shares of common-- and thus 2M of preferred! That's twice as many as you got for the same $1000 investment! I think you agree this would be unfair.
I do believe Howe misspoke when he said "...the company will then issue that shareholder a certificate of preferred stock worth two thousand shares, convertible in one year. " In the preceding qualifier he specifically stated that we should think in terms of dollars and not shares. The 2000 share comment makes little financial sense, but if he intended to say "... two thousand dollars worth of preferred shares at the current price, convertible in one year." then the financial aspect of "...getting less shares back,..." if the stock price rises makes financial sense. A 100% ROI is considered by many as a windfall profit. Lets do the numbers.
The hypothetical situation goes like this...
1) The tender appears to be geared toward the shareholder whose Cost Basis (CB) is near or below the current PPS at the time of tender. Those who bought in at a higher cost basis than the tender price will need to examine the numbers very carefully before committing.
2) On the day of tender the price is .003 PPS
3) $1000 dollars worth of .003 CB shares equals 333,333 shares
4) At tender PLNI issues you a certificate for $2000 dollars of equivalent preferred shares AT CONVERSION.
5) As a result the O/S is reduced by 333,333 shares and exchanged for the equivalent of 666,666 shares on that day.
6) One year later the price has risen to .01 per share.
7) You convert your $2000 worth of preferred shares to cash.
8) The unrestricted OS and float are increased by 250,000 shares
9) You made 100% return on your investment and the company reduced the OS and float by 25%.
The result is a risk trade off. You are reducing risk significantly for 100% return. Preferred gets priority conversion and sale over common if the company fails. That will appeal to some. The immediate reduction in float/OS should appreciate the PPS, until the conversion date approaches. By then a second alternative for the "cashholders" could be offerred.
The above hypothesis is a bit "out of the box" but is consistent with a delayed buyback scenario using a tender offer. It would also explain the need for an A/S twice the size of the current OS. BWTFDIK
Rick |
