Is this considered legal by a company? (stock question)

[Fermion]

I have a small position in a really crappy biotech that I have just let ride down. Should have just gotten rid of it months ago but held on.

They just recently closed a redeemable convertable preferred share offering of 50,000 shares of class A stock and 50,000 shares of class B stock for $30 million with the class B shares having 45,000 voting rights per share.

That is 2.25 Billion votes for a company with 90 million shares currently. They are going to vote on a reverse split, after which the preferred shares will be redeemable for 105% of the original cost?

"Each holder of the Preferred Stock shall have the right to cause the Company to redeem all or part of their shares of the Preferred Stock from the earlier of receipt of stockholder approval of the reverse stock split or of 90 days following the original issue date until 120 days following the original issue date, the “Redemption Date,” in cash at a redemption price equal to 105% of the stated value plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) up to, but excluding, the Redemption Date. The proceeds of the Offerings will be held in an escrow account until the expiration of the redemption period for the Series A Preferred Stock or the Series B Preferred Stock, as applicable, subject to the earlier payment to redeeming holders. Upon expiration of the redemption period, any proceeds remaining in escrow will be disbursed to the Company"



This seems so far out there as far as legal. I mean it seems about as legal as shoplifting.

 

[ExFlyBoy5]

Celsion, eh?

I don't want to get political, but most likely it's legal.

 

[Fermion]

Celsion, eh?

I don't want to get political, but most likely it's legal.

Yeah, I wasn't trying to hide the name lol, just forgot to mention it.

I need to become a lawyer though, dang. You can do anything!

 

[ExFlyBoy5]

Yeah, I wasn't trying to hide the name lol, just forgot to mention it.

I need to become a lawyer though, dang. You can do anything!

Nah, just a little Google action.

As far as the lawyering thing...yeah, I don't really do that since it would affect my "professional" status of being retired.

 

[kgtest]

Yeah its legal. I remember working for a bank that had a hostile takeover attempt and one of the ideas floated or attempted and likely actually possibly will succeed was converting some class A preferred to Class B so that the board attempting takeover would be majority holder of the Class A. its currently tied up in the courts so I can't comment on if it was legal, that's for the AG to decide at this point. But it's absolutely a tactic from a playbook that happens sometimes.

 

[pb4uski]

If it is a public offering, it is likely that the issuer's lawyers and investment banker lawyers have been all over the issue and it is legal. I would think the chance that it is illegal would be between slim and none, but there is no way to know until shareholders challenge it in court and it works its way through the courts. Typically, the investment bankers and law firms involved avoid associating themselves with particularly dodgy situations... not to say that it doesn't happen from time to time.

 

[MRG]

If it is a public offering, it is likely that the issuer's lawyers and investment banker lawyers have been all over the issue and it is legal. I would think the chance that it is illegal would be between slim and none, but there is no way to know until shareholders challenge it in court and it works its way through the courts. Typically, the investment bankers and law firms involved avoid associating themselves with particularly dodgy situations... not to say that it doesn't happen from time to time.

+1
There's generally about 18 different people approving these things mostly attorneys.

 

[Fermion]

It is just amazing though.

I am going to have to rethink all of my skepticism now on other corporate conspiracy theories.

 

[pb4uski]

While I'm vaguely familiar of issuers having trnches of securities with different voting rights to enable certain classes of shereholders to retain control, what you described in the OP of 45,000 votes per share is more extreme than anything that I have ever run accross.

 

[Fermion]

Yes it struck me as extreme too....I mean with only 90 million or so shares outstanding they really went overboard with 2.25 billion voting shares.

I calculate it as a way to force the reverse merger for I guess what they feel is a low cost. Assuming the buyers of the preferred cash them back in after the merger, they make 5% of 30 million for a 90 day period. Not bad scratch for them and maybe Celsion figured that paying $1.5m not to go on pinks was worth it.

Unless I am missing something here.


It just feels so wrong. Like, if that is possible, then why wouldn't more companies do this to enrich themselves, bypassing shareholder voting on issues of compensation?