Proxy Analysis: Not BEARISH, but GREEDY!!!
A quick summary of my take on the proxy details (reverse split and share authorization): *Both* of these proposals (yes, even the reverse split--see below) are formulated to give CCEE mgmt. authority to print and disperse stock as they see fit.
I do not see this as a short-term bearish sign for the company. Why? Because they are basically looking for permission to print money. But the money is limited to a certain number of notes, as it were. When/if these proposals pass, they are then free to print these certificates and sell them or give them away to whomever they wish (including themselves). Because it is stock and not cash, though, they can make themselves and their buddies even *richer* if the stock price of the company goes up. Thus, each share (limited by the amount authorized) is worth that much more.
It's like being able to print a fixed number of billnotes, but the share price will determine whether the bills printed are singles or 10's or 100's. So, the proxy does not negate the possibility of lucrative deals being finalized in the near future. But it does indicate that the company intends to profit from them in a big way, at the expense of shareholders. They are justifying this by the usual rationale that mgmt. needs shares to provide operating cash and incentives, and a reverse split to give the company some street credibility and a higher share price.
What is IMPORTANT to notice about the reverse split proposals is that THEY ALSO INCREASE THE AUTHORIZATION FOR ISSUANCE OF NEW SHARES!!!!! This is the piece that has me flabbergasted.
For those reading along at home, check out pages 43 and 44 of the meeting notice. What the company has done is structured the reverse split based on the current 150M authorized shares, so that the same 150M shares remain authorized ***POST-SPLIT**!!!!
Right now (OK, as of Dec. 1996) there were 150M shares authorized, 101.3M outstanding, 22.8M reserved, and 25.9M shares available for issuance. Using the worst-case scenario of a 1-10 split, and with *NO* authorization to issue more shares, the company (using their scenario) will reverse-split the issued shares to 10.1M and the reserved to 2.3M.
But, they are still using a basis of 150M shares currently authorized, which would give them ***137 MILLION *** shares of POST-REVERSE-SPLIT stock authorized for future issuance!!!
At current values (let's say CCEE at $1 now for simplicity), the post-split shares would be worth $10 each. Thus, by voting YES to a reverse split, and NOT authorizing further shares for issuance, the company will have the right to issue ***1.37 B*I*L*L*I*O*N DOLLARS*** worth of additional stock!!!!
Yes folks, the company has structured their reverse split proposal to keep the currently authorized shares unaffected by the reverse split. I didn't think this was legal or possible, but maybe it is if it is spelled out in the proxy proposal as such.
In summary, voting YES on EITHER the increased share authorization OR any of the reverse-split options is simply giving CCEE mgmt. permission to print cash at their whim. Short-term, the stock may still appreciate due to new contracts and revenues. That much is unaffected by the proxy. But, if any of these proposals are passed, the current shreholders are giving permission for them (us) to get screwed over in a big way! If I still own CCEE after the proxy vote, and if any of them are passed, I'll be selling IMMEDIATELY.
I didn't think this kind of highway robbery was still legal. I was wrong. And to be honest, I don't think we small shareholders have enough clout to prevent these proposals from passing. Remember, non-votes count against us as well.
I'm holding for the moment, but am ready to sell on a price surge. The long-term prospects for this company are dismal, regardless of the revenues and deals. Why? Because CCEE management is a greedy bunch and the small stockholders will be the losers. |
