Is this what's ailing the goats?
The 'institutional investors' holding the Series A Convertible Preferred Stock from the private placement in March may benefit from GZTC's slide:
For reference here are the terms, from the Form 10-Q filed 5/13/98:
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| PART II: ITEM 2. Changes in Securities |
. In March 1998, the Company completed a private placement of 20,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"), and of warrants initially exercisable for 400,000 shares of Common Stock (the "Investor Warrants") with three institutional investors at an aggregate purchase price of $20,000,000. Also, a warrant initially exercisable for 50,000 shares of Common Stock was issued to the placement agent used in connection with such sale (the "Agent Warrant" and, together with the Investor Warrants, the "Warrants"). Because the issuance of the Preferred Stock and the Warrants did not involve a public offering, the Company relied upon the exemption from registration with the Securities and Exchange Commission (the "Commission") under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act").
. A registration statement filed with the Commission registering the shares of Common Stock underlying the Preferred Stock and the Warrants was declared effective on April 16, 1998. From such date, and up until December 20, 1998, each share of Preferred Stock will be convertible into that number of shares of Common Stock equal to the per share face value of the Preferred Stock ($1,000) divided by a conversion price of $14.55 per share, subject to certain anti-dilution price adjustment protection. At such conversion price, the 20,000 shares of Preferred Stock would be convertible into 1,374,569 shares of Common Stock. On and after December 21, 1998, the conversion price per share of Preferred Stock will become the lower of (i) $14.55 and (ii) the average closing price of the Company's Common Stock as quoted by the Nasdaq National Market for any five trading days during the twenty trading days immediately preceding the date of conversion. As a result, the number of shares of Common Stock issuable upon conversion of the Preferred Stock may increase above, but will not decrease below, 1,374,569 shares. The Warrants are exercisable at any time up until March 20, 2002 at a per share exercise price equal to $15.1563, subject to certain anti-dilution price adjustment protection.
. Pursuant to the terms of the Preferred Stock and Investor Warrants, at any given time, the shares of Preferred Stock will be convertible and the Investor Warrants will be exercisable by the holder only to the extent that the number of shares of Common Stock thereby issuable, together with the number of shares of Common Stock owned by such holder and its affiliates, does not exceed 4.9% of the then outstanding Common Stock as determined in accordance with Section 13(d) of the Exchange Act.
. No dividend may be declared or paid upon the Company's Common Stock, nor shall any outstanding Common Stock be repurchased or redeemed, without the consent of a majority of the holders of the then outstanding Preferred Stock. Also, upon a liquidation, dissolution or winding up of the Company, the Preferred Stock will rank prior to the Company's Common Stock.
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Barring a rally above $14.55, after December 20, 1998 the number of shares received on conversion of each share will be calculated by method (ii) above:
$1000 / X, where
X = (average closing price for any 5 days during the 20 preceding conversion)
This was a bad deal for existing shareholders - the provision for downside protection is too generous. The Series A shares were issued with an above-market initial conversion price when GZTC was >$12 and trending up, but the new investors can wait to convert at any low point after 12/20/98. As an example, if there is no recovery from yesterday's close by December, the 20M investment in March would equate to ~ 4.32M new shares at $4.63 each. That would represent a potential dilution of about 24% to current shareholders, with 12% going to one Series A investor and 6% each to the other two. The 4.9% ownership limitation would therefore be in effect.
GZTC registered 3,599,138 shares in the Form S-3 filed 4/6/98. That was based on an estimated minimum conversion price of $7.275 and includes 2,749,138 for conversion of Series A, 800,000 for exercise of warrants, and the 50,000 "Agent Warrant".
The investors are also listed in the S-3:
Name of Stockholder # Series A
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RGC International Investors, LDC 10,000
Shepherd Investments Int'l, Ltd. 5,000
Stark International 5,000
Is it a coincidence that the stock topped out in March, the same month this 'deal' was completed?
Will
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