Floorless Preferred Stock/Debenture Message Board

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Strategies & Market Trends : Floorless Preferred Stock/Debenture

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To: Jonathan Babb who wrote (132)	10/11/1998 6:01:00 PM
From: N. Dixon	Read Replies (1) of 1438

Barbara, Roger and Jon, I guess the reason that we haven't cleared up the question "REFR Financing -- Good or Bad" is that you are still missing some critical information that might affect your hypothesis regarding this matter. Would it make a difference to know that Ailouros can't sell ahead of a conversion to drive down the price? Their agreement clearly prohibits this and any short selling. Also, Roger says that these deals are typically done with foreign offshore investors. True, Ailouros is based in London, but what Roger doesn't know is that REFR also had domestic funds offer them equity credit line financing. REFR chose Ailouros over them because (A) Ailouros gave REFR complete control (most funds require the ability to force the company to sell them stock every quarter, whereas Ailouros didn't require this), (B)Ailouros gave REFR better terms, and (C) REFR had a great prior track record with Ailouros: They bought in the private placement, and also (more importantly) bought in the open market. REFR also expects them to increase REFR's exposure and perhaps generate formal research reports on us. REFR being able to set the floor price is important because there is no way Ailouros can drive down the price. It would make no sense for REFR to be aggressively buying back their stock at these prices only to put it to Ailouros at a lower price. As for the reasons to do this equity financing at this time, I would think anyone with business acumen would see the advantage immediately. Ever try to get credit when you NEED the money? The terms and all the leverage then goes to the lender. That is obviously not the case here. This equity line of credit tells new licensees with whom they are negotiating (they have already announced that they intend to sign with a top-tier automotive supplier in 1998) that they have (if they EVER need it ) access to capital that combined with their current cash would total $23 MILLION dollars!!! This is a company with a 2-3 MILLION dollar a year burn rate AND with 3 licensees bringing products to market within months, both Hankuk Glass and MSC have had their CEO's announced this to the press touting SPD and saying how they are excited about bringing out this new technology. Can you now understand why as shareholders we feel that this protects our long term future given the current global credit crunch as well as gives us leverage to make better deals? I don't see why it has been so difficult for you to see that there could be another scenario involved other than the initial one you've presented. ND

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