we are the borg prepare to be assimilated. resistance is futile. we are the lower casers prepare to be assimilated resistance is futile.
:-) Just Kidding. Welcome aboard to our thread, Frank.
I have owned Paracelsian for over three years now myself. Paracelsian wanted to reward its shareholders for their patience three years ago by issuing the shareholders one warrant for each share of common stock they held. A warrant gives you the right, but not the obligation, to buy 1 share of stock from the company for $3.25. This right is good until the warrant expires on Sept 7, 1997. If the stock price goes above $4.75 for 15 consecutive trading days, then PRLN has the right to call back the warrants upon 30 days written notice to the shareholder. Now, there is some disagreement as to what this means since the stock had traded above $4.75 for more than 15 consecutive days around September 1995. I think the company could LEGALLY call the warrant back at any time because of this. Of course, since the stock is trading at less than $3.25 no one would redeem their warrants so the company could not raise any money through a call back. There is no economic incenctive for the company to call in its warrants. Paul (or should I say "paul"), who is this threads biggest PRLN bull and stock guru, has a different interpretation. He thinks that since the price of the stock went back below $4.75 that the price would have to go back above $4.75 for 15 days again before the company could legally recall its warrants.
I think that when it comes right down to it, this legal distinction is academic. I spoke briefly with CFO Art Koch at the last shareholder's meeting and he said that the company is not going to call in its warrants unless it really needs to. The main purpose for issuing the warrants was to give a bonus to their early and faithful shareholders and that they really wanted their shareholders to be rewarded. In fact, the warrants were originally set to expire on Sept 7, 1996, but PRLN's management decided to extend it for another year so that their shareholders would have a better chance of making some money from them. Much as PRLN needs the cash right now, I don't think they will call in the warrants early, but that's just my opinion and I could be wrong. I have no idea if they will extend the warrants expiration date again, but given their need to raise money I wouldn't count on it.
Now, you might be asking yourself why anyone would pay for a warrant that gives you the right to buy a share of stock for $3.25 when you can buy it now for under $2.50? The answer is *LEVERAGE*. If you think the stock will shoot up before the warrants' expiration date then it is better to own warrants than stock. Suppose, for example the stock was selling at $2 and the warrants were selling for 50 cents. You could buy 500 shares for $1000 or you could use your money and by 2000 warrants. Suppose the share price zooms to $9 before September. You could sell each of your warrants for at least
$9 - $3.25 = $5.75. You could sell your 2000 warrants for at least $11,500. If you had bought stock you would only get back $4500 for your investment. The higher the stock price shoots up, the more dramatic the difference. If the stock goes to $20 before the warrant expires or is called back, your investment in warrants would be worth at least $33,500 wheras your investment in stock would only yie;d $10,000.
Though the warrant has the potential for a much greater yield than the stock, it also entails a greater risk. Lets suppose that instead of rising dramatically, the stock rises so slowly that by Septermber it is only worth $3.25. In that case, your $1000 invested in stocks would now be worth $1,625 but your warrants will have expired and become worthless. So is it better to own stock or warrants? Your call. It all depends on the underlying stock price. Though I think this company's stock has a good probability of making a huge move up, I have learned better than to try to predict its short term movements.
I hope this answers your questions. Don't hesitate to ask if my answer was at all confusing.
Robin M. |
