Let's walk through what I believe would be a VERY FAIR deal for both parties...JP and a potential Strategic Investor:
There are a couple of ways to go here folks, so bare with me:
Option 1) JP sells 25M of his own personal shares for 18 cents and obtains $4.5M to step away and not buy stock for at least 4 years. JP retains 1.3M shares of GIGL as PPS will surely rise. He also gets a "consulting fee" of perhaps $75k/yr for 10 yrs with add-ons such as an add'l 2 yrs if PPS ever hits 50 cents, another 2 yrs if PPS ever hits 75 cents plus a 1-time founders fee payment of $100K if PPS ever breaches $1.25.
Assuming he sells his 1.3M shares at an avrg of $1...he gets 4.5M + 1.3M + 14 yrs consulting pay x $75k = $6.85M total. Note: at 4% per yr return, his $4.5M also earns $180k of interest folks.
Outlay for the Strategic Investor is $183K (7.3M shares at an average of .025 per share) + 4.5M paid to Joey for 25M of his shares + say $1M for buildout costs for 3 new locations = an outlay of $5.683M.
A B/E happens for strategic investor at a PPS of .175. He/She would own 5 locations and have full control. I would say PPS would easily climb to new 52 week highs and investor would profit within 1 month. Rights offering would be canceled to avoid dilution and further ensure a nice PPS rise.
Option 2) JP cannot give up control - just won't do it EXCEPT he needs money to continue to do business so he goes through with rights offering. Now Strategic Investor has already spent the $183k and owns 7.3M shares of GIGL. Strategic investor and all common shareholders but Joey are pi$$ed because he/she/we HATE dilution but the only hope is to amass more shares to VOTE him out and obtain control. So big investor buys 21M shares at 2 cents from the offering and spends another $420K. Good news is the offering only raised 800K total cause people don't really trust that JP will use it for expansion, so it diluted o/s by 40M. Investor has spent 183k+420K = 603k but has VOTING control now ! Problem is he/she can't expand with just $725k from the raise (after commish) so he/she adds another 300K of their own personal money and their outlay stands at $903K but o/s is now 187M instead of 147M. That is a 27% INCREASE to o/s folks
PPS goes up but not nearly as high as scenario #1. JP earns maybe another $25k from his salary until he gets ousted and a new CEO comes onboard. He gets an earful from disgruntled shareholders and sure he keeps his 26.3M personal shares but is without any employment income. PPS does rise as 3 new locations are coming but only gets as high as 27 cents before competition comes in and concept wears off. So JP sells near the high of 27 cents and makes $7.1M less cap gains tax. The strategic investor with his/her 28.3M shares makes money too but gets out of the investment in the mid 20 cent range because of high o/s and added competition.
*** I see it as one of these two options happening BUT would argue that JP has better leverage with option 1 as avoiding a possible 27-30% dilution scenario would ensure a much higher PPS. Who knows how high it could run ??? I love these what-if's and it is only my opinion utilizing my freedom of speech and expression. What makes message boards fun. Hope some negotiating takes place soon
There are a couple of ways to go here folks, so bare with me:
Option 1) JP sells 25M of his own personal shares for 18 cents and obtains $4.5M to step away and not buy stock for at least 4 years. JP retains 1.3M shares of GIGL as PPS will surely rise. He also gets a "consulting fee" of perhaps $75k/yr for 10 yrs with add-ons such as an add'l 2 yrs if PPS ever hits 50 cents, another 2 yrs if PPS ever hits 75 cents plus a 1-time founders fee payment of $100K if PPS ever breaches $1.25.
Assuming he sells his 1.3M shares at an avrg of $1...he gets 4.5M + 1.3M + 14 yrs consulting pay x $75k = $6.85M total. Note: at 4% per yr return, his $4.5M also earns $180k of interest folks.
Outlay for the Strategic Investor is $183K (7.3M shares at an average of .025 per share) + 4.5M paid to Joey for 25M of his shares + say $1M for buildout costs for 3 new locations = an outlay of $5.683M.
A B/E happens for strategic investor at a PPS of .175. He/She would own 5 locations and have full control. I would say PPS would easily climb to new 52 week highs and investor would profit within 1 month. Rights offering would be canceled to avoid dilution and further ensure a nice PPS rise.
Option 2) JP cannot give up control - just won't do it EXCEPT he needs money to continue to do business so he goes through with rights offering. Now Strategic Investor has already spent the $183k and owns 7.3M shares of GIGL. Strategic investor and all common shareholders but Joey are pi$$ed because he/she/we HATE dilution but the only hope is to amass more shares to VOTE him out and obtain control. So big investor buys 21M shares at 2 cents from the offering and spends another $420K. Good news is the offering only raised 800K total cause people don't really trust that JP will use it for expansion, so it diluted o/s by 40M. Investor has spent 183k+420K = 603k but has VOTING control now ! Problem is he/she can't expand with just $725k from the raise (after commish) so he/she adds another 300K of their own personal money and their outlay stands at $903K but o/s is now 187M instead of 147M. That is a 27% INCREASE to o/s folks
PPS goes up but not nearly as high as scenario #1. JP earns maybe another $25k from his salary until he gets ousted and a new CEO comes onboard. He gets an earful from disgruntled shareholders and sure he keeps his 26.3M personal shares but is without any employment income. PPS does rise as 3 new locations are coming but only gets as high as 27 cents before competition comes in and concept wears off. So JP sells near the high of 27 cents and makes $7.1M less cap gains tax. The strategic investor with his/her 28.3M shares makes money too but gets out of the investment in the mid 20 cent range because of high o/s and added competition.
*** I see it as one of these two options happening BUT would argue that JP has better leverage with option 1 as avoiding a possible 27-30% dilution scenario would ensure a much higher PPS. Who knows how high it could run ??? I love these what-if's and it is only my opinion utilizing my freedom of speech and expression. What makes message boards fun. Hope some negotiating takes place soon
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