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Strategies & Market Trends : ICCSA -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (15)	3/5/1999 12:57:00 PM
From: RockyBalboa	Read Replies (2) \| Respond to of 361

iccsa Convertible debt update by Fred Puppet. messages.yahoo.com@m2.yahoo.com >>>>>>>>>>>>> On 4 March 1999 the company filed a form DEF 14A that provides more details on the upcoming preferred floorless convertible “death spiral” financing. You should read the filing in its entirety before making an investment decision. Here's my opinion on the highlights: 1. The company explains why it was delisted from the NASDAQ SmallCap market even when the planned floorless convertible sales would have raised the net tangible assets enough to meet the listing requirements. Over the years, NASD officials have reviewed the finances of thousands of small companies, and from this experience they have learned to judge which companies will make it and which will fail. NASD reviewed ICCSA's terrible history of losses and figured that even if ICCSA can raise all the cash as planned, the company would lose all the money and once again fall below the minimum listing requirements. This opinion from NASD carries a lot of weight. If the pros don't think the company can make it, they probably won't. 2. ICCSA has increased the size of the proposed sale of preferred floorless convertible shares. Earlier, they had proposed to repay bridge loans with $2,595,000 in preferred shares, and then sell an additional $3,000,000 worth of preferred shares. The resulting massive dilution caused by conversion from preferred to common shares was the reason they had to call a special shareholder meeting before approving the deal. Now, the company hopes to sell up to $7,405,000 in preferred shares. This raises the total proposed floorless convertible placement to $10,000,000. 3. They have finally given some detailed definition to the conversion price. The price is 75% of the average closing bid price over 10 or 15 days (they are not consistent on this) prior to the conversion date. 4. The company is aware that this deal will destroy the share price. They have added a clause that if the conversion price is below $2.50, then a preferred shareholder can only convert 1/3 of their total preferred per 30 day period. If the conversion price is below $1.875, then the company has the option to buy back preferred shares at $1,250 each instead of doing the conversion. Since the preferred shares will be sold at $1,000 each, I don't think the company will really want to buy many of them back at $1,250 each. This threshold does give some indication of how low the company feels the stock will drop due to this deal. At a conversion price of $2, the $10 million in preferred becomes 5 million common shares. Given that the float is now only about 1.3 million shares, I don't see how the market can absorb 5 million new shares without falling far below $2. Then, the company will be forced to decide between buying back the preferred at a 25% loss, or allowing terribly massive share dilution. Allowing the dilution could push the share price well below $1, but it would also leave management with enough cash to pay their own salaries for quite some time. Which do you think they will choose? 5. The filing provides a good summary of the myriad of warrants outstanding. Note the many warrants that are exercisable at $2.50 per share. These warrants are now in the money, and holders can cash in by exercising the warrant to buy a common share at $2.50, and then quickly selling that share on the open market. Once the preferred deal is closed and hedging short sales start driving down the price, the $2.50 warrants will probably be worthless. Thus, the warrant holders will very likely start dumping shares onto the market just prior to the selling related to the preferred deal. <<<<<<<<<<<<<<<<<< C.