Zeev:
I know you are familiar w/ RNTK preferred. I posted this to yahoo thread and would be interested on your take if you have time. Thanks, Eric
FWIW,
Here are terms of preferred A & B from 10Q:
<<During the period the Company issued 200,000 shares of Series A Preferred Stock at $10.00 per share together with warrants to purchase 200,000 shares of Series B Preferred stock and, at the option of the Company, up to an additional 600,000 shares of Series B Preferred Stock at $10.00 per share. Net proceeds from issuance of the Series A Preferred Stock was $1,800,000. The Series A Preferred Stock pays a dividend of 9% per year and is convertible over 18 months into common stock at the lesser of the average closing bid price of the common stock for the five trading days preceding the sale of the preferred shares, or at 82.5% of the average closing bid for the five trading days preceding the conversion of the Series A Preferred Stock into common stock. During the period the Company recorded a deemed dividend of $581,098 with respect to the discount and recorded accrued dividends of $72,074 with respect to the 9% dividend on the Series A Preferred Shares.
During June 1998, 30,000 shares of Series A preferred stock including accrued dividends were converted into 309,789 shares of common stock.
The warrants provide for the purchasers, during the 18 months after purchase of the Series A Preferred Stock, to purchase and the Company to sell, 200,000 shares of the Series B Preferred Stock and provide the Company during the same period the option to sell to the purchasers an additional 600,000 shares of the Series B Preferred Stock at $10.00 per share. The Company has no obligation to sell any of the 600,000 shares of the Series B Preferred Stock to the purchasers. The Company does not have to sell any of the 800,000 shares of the Series B Preferred Stock to the purchasers if certain conditions occur, primarily related to volume and the price of the common stock in the market. The Company has no obligation to sell any of the 800,000 shares of the Series B Preferred Stock if the average daily share price for the common stock for the 10 trading days prior to the sale is less than $1.00 per share. The Series B Preferred Stock pays a dividend of 9% per year and is convertible into common stock until December 31, 1999 at 82.5% of the average closing bid for the five trading days preceding the date of conversion.
On July 20, 1998 the Company issued 100,000 Series B Preferred stock for $1,000,000 in cash before offering costs of $100,000. The Series B Preferred Stock is convertible into common stock at a discount. The Company recorded a deemed dividend of $24,060 with respect to the discount.>>
Now I could see why one would want to keep the price around $1.00. To make sure the company sells the Preferred B to you and to ensure that you would get the lowest possible price for the common upon conversion. What I can't understand is why one would convert from Preferred to common unless one expected the price of the common to take off soon.
It does not make sense, IMO, for a preferred holder to buy at $0.825 and sell into a price dropping below $1.00 when he is already getting a 9% dividend annually. The only thing that makes sense is if folks are converting because they expect the price to take off soon,IMO.
Any other scenarios or clarification of what I am missing would be appreciated.
Eric |
