Robert, you wrote <<From their most recent 10Q :
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ITEM 9. SALE OF EQUITY SECURITIES PURSUANT TO REGULATION S
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On April 14, 1998, the Company entered into an Offshore Securities Subscription Agreement for Convertible Preferred Shares. The securities offered have not been and will not be registered under the U.S. Securities Act of 1933 and were not offered or sold within the United States nor to the account or benefit of U.S. persons, as defined in Regulation S of the 1933 Act.>> in the following: Message 5383153
But you did not explain what is so bad about Regulation S!!!
Today, I found this:
"Regulation S is a section of the federal law that permits publicly-traded companies to sell unregistered securities to overseas investors. These "overseas" investors, in some cases, are actually U.S. investors operating through offshore shell companies, often hedging their investments by using options or short sales. That's particularly true when the issuers are risky small-cap companies, which sometimes turn to Reg S offerings out to sheer desperation for cash.
In the past, these Reg S securities could be issued to the "overseas" investors and then sold back into the US market before the existing shareholders even found out it. But the SEC realized that this was a problem and recently changed the rules. A company that issues Reg S securities now must file a Form 8-K within 15 days of its occurrence. Because Reg S securities are currently restricted for 40-days after they are issued, existing shareholders will be warned about Reg S deals before the shares can be sold. However, purchasers of Reg S securities can still short the stock before the 40 days are up, and later use the Reg S shares to cover their short position. Therefore, existing shareholders can get hurt by Reg S offerings even under the new rules.
The most dangerous kind of Reg S offerings for existing shareholders are convertible securities which can be converted into common stock at a fraction of the stock price at the time of conversion. For example, the securities might convert into common stock at 75% of the average bid price over the previous five trading days. No matter how low the stock price falls, the Reg S investors can still convert into common stock at a price lower than the current stock price. And the lower the stock price falls, the more shares they get. Therefore, they benefit from the stock price dropping and will often even short the stock to help it fall further (and lock in higher sale prices of the stock as well.),and then cover their short position with the shares they get from conversion. They almost can't lose! It's the existing shareholders who are the losers. This type of Reg S offering will frequently cause a massive increase in shares outstanding, which means that existing shareholders now own a smaller piece of the company and hold shares that are worth much less than they were before. Watch out
for all Reg S offerings, but especially watch out for this type of Reg S!" stockdetective.com
This is from the latest 10QSB: www4.edgar-online.com
"During 1998, the Company entered into an Offshore Securities Subscription Agreement for convertible Preferred Shares pursuant to regulation S of the U.S. Securities Act of 1933. Under the terms of the agreement, the Company is to issue 2,175 shares of 1998 Series A Convertible Preferred Stock ("Series A Shares") at a price of $1,000 per share with a 5% cumulative dividend payable in common stock at conversion. For the quarter ended August 29, 1998, the Company received proceeds of $1,317,000, net of offering costs. The Company received proceeds of $846,500 during the quarter ended May 30, 1998. Proceeds from such agreement were used to fund working capital."
I must still admit that I am confused and would appreciate your assistance. The shares were issued in April and it is October. Are the Reg S offerings still a threat to future shareholders? Please, explain why yes or why no.
Thank you. |
