Sure JB, although part of what I was trying to do
Post# of 17862
Posted On: 11/25/2013 7:13:36 AM
Sure JB, although part of what I was trying to do there was to try to guide away from worrying about bashers, but instead focus on what management can do in a realistic and informed way. Since the dialectic is different here parts will seem out of place and I will embellish a little to suit the dialog here.
The C shares are worth $2 each, but the effective value when converted can be much greater depending on the conversion rate the board chooses to apply. The $2 dollar valuation could be called 'the face value' because it determines how the C shares were awarded. HIMR issued 700,000 C shares (face value 1.4m) as settlement of an agreed upon debt of $900,000 when the company restructured its arrangement with the Tiger-Lynk owners. And so, there is a significant interest payment loaded into that arrangement and shareholders should be aware of that. We could also call that $2 amount 'the redemption value' because the company can buy back C shares at its discretion for $2 each.
Whether to convert a C share is at the discretion of the shareholder but is limited by a "C Blocker" (see disclosures) which limits the C share conversions of Lonnie Hayward and his affiliates such that they cannot affect a conversion which results in owning more than 9.9% of the authorized shares. So, the C blocker applies primarily to how many shares they can hold and indirectly affects whether they can convert. They can convert, sell, convert, sell, convert, sell. as long as the number of shares held stays below the 9.9% threshold. And so, a weak bid can be in shareholders interest and so can bearish posts. When the C shares were originally issued there was one shareholder. In the Q3 2012 disclosure it rose to 7 and in the Q4/annual 2012 it rose to 18. Thereafter, they haven't disclosed the number of C holders. Hopefully, all C holders fall under the C Blocker, but that isn't crystal clear. Lonnie Hayward, who is the majority owner of the C shares, has been described as agreeing to "either retire and/or restructuring the conversion rate of the entire lot of C shares." (8/1/13 search news) Various blog comments from HIMR make it clear a resolution on the C share issue is contingent on securing the concession which has already been announced.
How many common shares a C share can convert to is ultimately up to HIMR's board as there is a conversion rate which is at the board's discretion. A conversion is calculated in two steps:
1) Divide the face value of the C share by the par value of the common shares. So, 2/.000001=2000000 shares.
2) Next, apply the discretionary conversion rate. HIMR has almost always used a conversion rate of .5 and so, almost all conversions involved 1000000 common shares being awarded for each converted C share. I think there was one conversion in which a lower conversion rate was used, but I am not going to bother to find that. In no instance, have they never used a conversion rate of 1 and converted a C share for 2000000 common shares.
Assuming a conversion rate of .5, the C holder gets 1000000 shares (which is worth $100 at .0001) to settle a $2 obligation (It would make a mobster gasp). If we assume that HIMR has secured a concession with a $40m resource, then the book value of HIMR goes well above .0001 and the disconnect between the $2 face value and the value of what it converts to becomes more obscene. (When I made that point in a earlier post there was some pushback that we don't really know they have a concession. I agree, but notice the dialectical context. If you are arguing with someone who asserts P and you have a responding argument that uses P as an assumption, the fact that they asserted P gives you license to use it even though is isn't independently established. HIMR asserts in a PR they have secured a concession which in an earlier PR they characterized as conservatively worth $40m. And so, HIMR management, you have told us we have secured a concession conservatively worth $40m - great. That would mean the stock is severely undervalued right now and the already ridiculous conversions become exponentially worse. In this context, the conversions must end. You have told us you are in negotiations to retire and/or restructure the conversion rate on the C shares. Retiring them is the preferred option and that would require the acquiescence of Lonnie Hayward - I hope that happens. If it doesn't, the conversion rate is clearly in your hands and there would be no excuse for not severely lowering the conversion rate to render conversions unappealing.)
In my opinion, shareholders should complain to management about the unfairness to shareholders manifest in the conversion rate they have used and demand the conversion rate be adjusted to render conversions punitive relative to the redemption value. HIMR should honor the redemption value in some form.
Or so it seems to me.
The C shares are worth $2 each, but the effective value when converted can be much greater depending on the conversion rate the board chooses to apply. The $2 dollar valuation could be called 'the face value' because it determines how the C shares were awarded. HIMR issued 700,000 C shares (face value 1.4m) as settlement of an agreed upon debt of $900,000 when the company restructured its arrangement with the Tiger-Lynk owners. And so, there is a significant interest payment loaded into that arrangement and shareholders should be aware of that. We could also call that $2 amount 'the redemption value' because the company can buy back C shares at its discretion for $2 each.
Whether to convert a C share is at the discretion of the shareholder but is limited by a "C Blocker" (see disclosures) which limits the C share conversions of Lonnie Hayward and his affiliates such that they cannot affect a conversion which results in owning more than 9.9% of the authorized shares. So, the C blocker applies primarily to how many shares they can hold and indirectly affects whether they can convert. They can convert, sell, convert, sell, convert, sell. as long as the number of shares held stays below the 9.9% threshold. And so, a weak bid can be in shareholders interest and so can bearish posts. When the C shares were originally issued there was one shareholder. In the Q3 2012 disclosure it rose to 7 and in the Q4/annual 2012 it rose to 18. Thereafter, they haven't disclosed the number of C holders. Hopefully, all C holders fall under the C Blocker, but that isn't crystal clear. Lonnie Hayward, who is the majority owner of the C shares, has been described as agreeing to "either retire and/or restructuring the conversion rate of the entire lot of C shares." (8/1/13 search news) Various blog comments from HIMR make it clear a resolution on the C share issue is contingent on securing the concession which has already been announced.
How many common shares a C share can convert to is ultimately up to HIMR's board as there is a conversion rate which is at the board's discretion. A conversion is calculated in two steps:
1) Divide the face value of the C share by the par value of the common shares. So, 2/.000001=2000000 shares.
2) Next, apply the discretionary conversion rate. HIMR has almost always used a conversion rate of .5 and so, almost all conversions involved 1000000 common shares being awarded for each converted C share. I think there was one conversion in which a lower conversion rate was used, but I am not going to bother to find that. In no instance, have they never used a conversion rate of 1 and converted a C share for 2000000 common shares.
Assuming a conversion rate of .5, the C holder gets 1000000 shares (which is worth $100 at .0001) to settle a $2 obligation (It would make a mobster gasp). If we assume that HIMR has secured a concession with a $40m resource, then the book value of HIMR goes well above .0001 and the disconnect between the $2 face value and the value of what it converts to becomes more obscene. (When I made that point in a earlier post there was some pushback that we don't really know they have a concession. I agree, but notice the dialectical context. If you are arguing with someone who asserts P and you have a responding argument that uses P as an assumption, the fact that they asserted P gives you license to use it even though is isn't independently established. HIMR asserts in a PR they have secured a concession which in an earlier PR they characterized as conservatively worth $40m. And so, HIMR management, you have told us we have secured a concession conservatively worth $40m - great. That would mean the stock is severely undervalued right now and the already ridiculous conversions become exponentially worse. In this context, the conversions must end. You have told us you are in negotiations to retire and/or restructure the conversion rate on the C shares. Retiring them is the preferred option and that would require the acquiescence of Lonnie Hayward - I hope that happens. If it doesn't, the conversion rate is clearly in your hands and there would be no excuse for not severely lowering the conversion rate to render conversions unappealing.)
In my opinion, shareholders should complain to management about the unfairness to shareholders manifest in the conversion rate they have used and demand the conversion rate be adjusted to render conversions punitive relative to the redemption value. HIMR should honor the redemption value in some form.
Or so it seems to me.
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