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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: wpckr who wrote (10816)	5/17/1998 9:17:00 PM
From: puborectalis	Read Replies (1) \| Respond to of 14631

You will not see 6 again ....trust me....this one has seen its low for the year.

To: wpckr who wrote (10816)	5/17/1998 9:54:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 14631

Thank you for your feedback. I am just wondering if everyone here is just complacent or very confident on the short term turnaround of this company. Or is this a collective "holding of breath"? I have been reviewing the prospectus that was filed with the SEC a week ago regarding the approx. 20M secondary offering associated with the preferred stockholders who convert and sell. Very interesting stuff. I will post tidbits when I have the time. First off, the only line of credit, called the Credit Facility, the company was able to acquire from a collective of commercial interests was essentially a refinancing of A/R up to a pre-agreed to limit of 70M dollars, which comes with a schedule of significant financial requirements that the company needs to meet over this year and with a list of restrictions of what will be considered A/R available for financing. This includes the requirement of operational profitability by the end of the second quarter. Also I found the provisions related to the class B preferred and associated penalties of the company for not meeting the provisions setup with a substantial bias to protect the preferred shareholder which comes with essentially a built in short term profit. Informix was desperate to issue such a contract for their preferred stock. But then I am not surprised the company in their current financial position had to resort to this type of financing for a private placement. For instance, if the stock price remains below 12.5, the preferred shareholders will automatically be allocated additional warrants for common stock. The discount on the purchase price of the stock along with the leverage effect built into the preferred where one share of preferred can be exchanged for a much greater amount of common, which lowers the cost basis of this transaction down to a comparatively small dollar value, gives the preferred shareholder a considerable advantage. If I was offered this contract for my money, I would of not hesitated in taking Informix up on it. Why wasn't this preferred stock offered to the common shareholder first? I guess it is due to time constraints. Do not forget the class A-1 preferred holder which was reclassed from their original class A designation to have terms equivalent to the class B preferred stock. So in other words, there may be more conversions and sale of common on the way beyond that of what we will be seeing with the class B preferred holder exersizing their options. Also there are additional warrants on shares of class B preferred that have not been exersized which I do not think has been accounted for in the 20M figure of common stock. So there is the class A-1 convertible preferred holder, the class B convertible preferred stock holder, warrants for class B preferred, and warrants for additional common that make up this rather interesting example of creative financing. For those that do not understand convertible preferred, perhaps it is best to look at this as an interest bearing financial contract that has a CALL option attached to it where both the cost of the option and its strike price is well below the current price of the stock. While this CALL option is what makes convertible preferred different than the "regular" preferred stock, it is the financial contract attached to this issue of stock that makes it different from common stock. The contract specifies items like voting rights (there are none for prefered holders), their claim on assets in event of bankruptcy (the preferred holder is ahead of the common stock shareholder and behind other commercial lenders), the dividend that this preferred holder will receive (and stipulations under what circumstances the dividend can be suspended and what are the "payback" terms for dividends accumulated during the period dividend payment was suspended), and other interesting clauses like the option of a company to buyback the preferred at a set price under specified terms, and the popular "sinking fund" clause that allows the company to remove the float of the preferred in parts at specified buyback prices which may not be to the advantage of the preferred holder, and so forth. Corporate bonds apparently have a similar contract attached to them, but I defer to someone who is more knowledgeable in this area. Now since the class A-1 and B preferred issues are privately placed and not designed to be openly traded in order to meet the special requirements of the company's financing needs, there are additional clauses attached to this type of preferred stock contract that both limits the preferred holder in both the trading and exersize of this stock, but also protects the preferred holder from both the financial status of the company and the price of the common stock. For example, under certain circumstances the preferred holder will be allowed to elect to the board of directors their own people which is limited by the percentage of stock they hold in relation to the total outstanding common stock of the company. Since combined we are talking at least 10%, this means they will be able to add a proportional amount of people to the board of directors if the company fails to meet certain qualifications including financial requirements as outlined on the contract of the preferred shares. I will try to provide more details in the near future about what I come across in my reading of the prospectus. Fun stuff, isn't it? Bob Graham