George, re. ANCR, which has a convertible that converts at a price that floats with the common stock market price:
The convertible holders would normally short the stock before converting, so as to sell higher and buy lower than they would otherwise do. Under normal circumstances, if they are cautious they would do this a matter of days before converting. But the situation I describe below isn't very normal.
Looking at the S-3/a, it appears that the convertible had a principle value of $11 M, which happens to be about the market cap now. A ratio of about 100%. It was 16% back when they did the deal, but the stock price has since fallen a lot.
In the case of ANCR, the conversion price doesn't start to float till next year, so it appears likely that all of this overhang of imminent selling is still waiting.
The average convertible deal is 10% of market cap, and this doesn't kill the stock price. A ratio of 16% is pretty bad. A 100% ratio, though is hugely awful.
Looks like this is a perfect example of a discounted convertible that has gone into a 'death spiral'. The more the stock falls, the more the upcoming dilution, and there are no limits on this.
Here's the excerpt from the S-3/a:
NOTE 3 - EQUITY FINANCING
On February 19, 1998, the Company sold 1,100 shares of $0.01 par value Series C
Preferred Stock through a private placement at $10,000 per share. Total net
proceeds from this private placement were $10,254,747, after reduction for
commissions and issuance costs of $745,253. In conjunction with the transaction,
the placement agent was granted a five year warrant to purchase 90,644 shares of
common stock at $7.281 per share.
The Series C Preferred Stock is convertible into Common Stock of the Company,
subject to certain restrictions, at a variable conversion rate equal to the
lower of (i) the Maximum Conversion Price (as defined below) or (ii) the average
of the three lowest closing bid prices of the Common Stock during the applicable
Pricing Period (as defined below). The Maximum Conversion Price for the first
year is $11.00. After the first year, the Maximum Conversion Price is equal to
the lesser of $11 per share and the average closing bid price of the five
Wednesdays immediately preceding the first anniversary of the date the Series C
Preferred Stock was issued. The applicable Pricing Period is a number of
consecutive trading days immediately preceding the date of conversion of the
Series C Preferred Stock initially equal to twelve and increased by one
additional consecutive trading day for each full calendar month which has
elapsed since February 19, 1998. |
