Look for a gap-up on Monday morning and if you really want to know "what you're missing," read on...
"The current issue is being offerred at 19.75 (which explains the dive at end of day today) I don't see how any of this will help the share price near term...what am i missing?"
The current issue is not being offered at $19.75, See p.1 of the Prospectus, where it is explained that the $19.75 is an estimate used purely for the "purpose of calculating the registration fee pursuant to...". Indeed, a little further down the page, the S-3 contemplates periodic sales "subject to "prevailing market conditions". <DO NOT CONFUSE this with a lump sum one time secondary offering at a discount to the then market price. Finally, to the extent that the company assumes an estimated price, the estimated price is actually $22.50 See p.10 of the Prospectus. As a side note, I think the "dive" at the end of the day was purely the mkt discounting the unknown factor...as soon as others due their dd digesting the S3 the stock should rebound accordingly.
Okay, say the mgt of Nx Networks doesn't expect the price to be less than $22.50 what else can we learn from the S3?
Some of you have been discussing the issue of "dilution." It is true that this deal is dilutive; however, it is not as dilutive as you might think at first blush. If you assume (as the S-3 does) that the 1MM of stock will be sold at a minimum of $22.5 per share, then a little over one third of the proceeds will be used to redeem the Aetherworks $8MM note, and Nx will get full credit against the Aetherworks purchase price and issue that much less stock to the Aetherworks shareholders at closing. In other words, the dilution is even less than 1.2 million, which is not very much considering we had 27.3 M outstanding prior and will now only have 28.561 M after.
What about the 200,000 shares from the two shareholders. First, hopefully you all know who Brian Holley is. If you don't, go read the thread on Raging Bull. To cut to the chase, Brian is only using the S3 to "register" his shares, just like his other 522,333! He is not selling, at least not at these bargain basement prices...
Second, Kaufman Brothers is a Market Maker in NTRX. Check KBRO's volume numbers for NTRX: December volume in NTRX for KBRO = 1,166,785 and KBRO's November volume for NTRX = 664,841
Kaufman is listed in the S-3 because they are considered "beneficial owners" according to SEC rules, based on the transaction listed below. This is separate and apart from their Market Maker role. "The shares offered by Kaufman Bros. are issuable to it upon its exercise of warrants we issued to it. We issued the warrants to Kaufman Bros. in connection with an investment banking advisory agreement which we entered into in May 1999. The warrants are exercisable at $3.00 per share,and are exercisable until August 2004." Prior to Kaufman's exercice of the warrants, they were listed as "beneficial owners," which is distinct from their role as MM) of only 5,000 NTRX shares. With the exercise of warrants, Kaufman will now be the beneficial owner of 105,000 shares.
In fact, NX Networks will actually receive $300,000 as a result of the exercise of warrants by Kaufman at $3 a share. (100k warrants x $3) At the exercise of the warrants, Kaufman gets 100,000 shares of common. Kaufman may then sell their shares at ANY TIME.
Other Positives:
*Liquidity concerns have been addressed.
*Upcoming products - 4000 & 6000 product lines.
*The S-3 also includes McNulty's employment agreement. IF YOU READ NOTHING ELSE IN THE S3, READ THIS! It is filled with stock incentives: (i)250,000 options excercisable at $6.00, 50,000 of which has already vested and an additional 50,000 vests every six months, but vesting accelerates if the stock price exceeds specified price targets ranging from $35 to $50; (ii) 200,000 shares upon a change of control; (iii)one option for every $40 of revenue above a specified annual revenue target (interestingly, the target for Y2000 is only 50MM - yet KBRO uses estimates in excess of $85MM); and (iv) a $200,000 annual salary plus discretionary bonus. All in all, not a bad deal - guess they think he's worth it, eh?
whew, hope I've cleared some things up ;) |
