News about secured financing literally sent the stock of Elite Pharmaceuticals, Inc. (OTC:ELTP) through the roof in the opening session for 2012, marking ELTP’s best market performance for the last three months.
Closing trade at a four-week high of $0.091 per share, ELTP gained an impressive 30% in value. Thus, ELTP closed the gap it had opened in early-December and is now on the way to a new positive trend should management succeed in keeping investors’ interest alive.
What has actually caught their attention appears to be the full-blown press release dated Jan. 3. In a nutshell, the latter dwellt upon a securities purchase agreement between Elite Pharmaceuticals, Inc., on the one hand, and Socius CG II, Ltd., on the other. In accordance therewith, ELTP acquires the right to sell redeemable, non-convertible preferred stock worth up to $5 million throughout the next 24 months.
So far, so good. However, Socius also has certain rights which do not merely get down to buying preferred stock in portions determined by ELTP. What has so far been disclosed is that each portion of preferred stock entitles Socius to automatically exercise a warrant to buy common ELTP stock at an excercise price of $0.07, equal to 35% of the dollar value of the preferred stock. What is more, Socius also gets an additional investment right to purchase common shares worth 100% of the dollar amount of the preferred stock, again at an exercise price of $0.07.
Although the full details of the transaction have yet to surface on a comprehensive 8-K form, what is crystal clear is that:
- Socius will provide financing by byuing non-convertible preferred stock which bears no voting rights;
- each non-convertible preferred share bought by Socius will give them the right to buy common stock which actually does have voting rights.
What is more important, however, is how the company will use the funding it will be acquiring in the next two years. If managers strike it lucky, all stockholders will be satisfied, including those who will inevitably suffer dilution.
