Conversion rate is fixed at a 20% premium to the current market price for the first 6 months. After the initial 6
months the conversion price is at market prices, but is fixed at the 14th and 20th month.
More specifically, this is the floorless conversion rule:
-------
After 180 days the debenture is convertible at the ''variable conversion price'' calculated at 100% of the average low trading price of fully paid ordinary shares over any three consecutive trading days within a thirty trading day period preceding the conversion date.
-------
Even without the customary discount, this rule is pretty favorable to the convertible holders.
I don't understand the purpose of the "fixed at the 14th and 20th month" part. It seems that would incentivize the holders to complete the conversion before the "fixing" takes place.
If this calculation
shows that the conversion of the total debenture at that stock price, including conversions already made, would result
in an increase of more than 15% in issued share capital, then a shareholder meeting must be called to approve this
possibility. If not approved then the balance of the debenture representing the amount above 15% must be repaid
with a small premium. The maximum dilution that can therefore happen without shareholder approval is 15%.
The 15% limit is an exchange rule, not something negotiated by the company. If the 15% is exceeded and the shareholders don't authorize further dilution, the company will presumably go bankrupt. This is no protection.
conversions of up to
100% of the debenture can be made in the first 6 months whilst the conversion price is fixed, but only up to 15% of
the debenture per month can be converted after the first 6 months. Once converted, the investor is restricted as to
the volume of shares that he can sell on a daily basis, based on normal levels of trading in the company's stock.
So, the convertible selling won't happen all at once. This is good, but the real impact of the convertible depends on where the stock price is after the 6 month hiatus. The HAYZ convertible deal had similar volume restrictions and it didn't stop the convertible selling from destroying the stock - because the deal as a % of market cap was too high.
The placement is with a single investor and is therefore less likely to be the subject of short term decisions based on
temporary fluctuations in the company's stock price.
Well...I guess it's a plus. How much of a plus I don't know. Depends on how aggressive the "single investor" is.
The contract states that the investor will not at any time hold more than 4.9% of the company's stock. Therefore, in
the event of a significant fall in the stock price and being allowed to convert by shareholders, it is still impossible for
the investor to build up a significant stake in the company.
This is completely irrelevent.
In the unlikely situation that the company suspects stock manipulation, or decides that the continued conversion of
the debenture is not in the best interests of shareholders, then the company has the right to redeem the balance of
the debenture in full at any time by paying a small premium.
How much is the "small premium"? 10% or more probably. It's pretty rare that a company redeems a convertible. Obviously, if they can afford to redeem it, they didn't need the cash in the first place (or the company suddenly started making money, as unlikely as that may be).
The contract contains clauses that the investor will not manipulate stock prices. The rules of the New York Stock
Exchange and the Australian Stock Exchange contain rules that prohibit stock manipulation.
This is just happy nonsense. This important question is whether the convertible holder is allowed to sell short. Since the company fails to mention it, it's reasonable to assume the answer is "yes".
The sole investor for this placement is RGC International Investors,LDC (RGC).
I've seen this name before, which is a bad sign. |
