"The $3 million is not a convertible" Where was it stated that it was? It's a cash-for-common shares deal w/ a share price "conversion" formula and share discount, basically structured similar to a convertible "note" deal- not much difference IMO. Other than not being secured by a note/debt instrument w/ interest, and that BHRT determines/asks when they want to make a "draw" on the line for the cash, as opposed to one chunk of cash like a note deal.
Further, it involves a floating share price formula, the hallmark of a convertible, toxic note deal (again, very similar to a convertible note deal), meaning the share price for Magna is not even fixed or pre-dedefined- it's based on some complex, floating formula involving a discount to Magna plus all sorts of stuff about True-up date, additional shares added on the true-up-settlement date, etc read the 8-K.
Thus it's one of the worst kind of shares-for-cash deals in that the security price isn't even fixed and floats around to a "conversion" formula- the type of deals notorious as share price crushers IMO, and from seeing these types of deals in the past (think ASHER and others)
The deal is also costing BHRT huge up front fees and dilution, minimum about 9 MILLION shares dilution just to get started.
"The Company paid to the Investor a commitment fee for entering into the Purchase Agreement equal to $150,000 (or 5.0% of the Total Commitment under the Purchase Agreement) in the form of 9,109,128 restricted shares of the Company’s common stock, calculated using a per share price of $0.016467, representing the arithmetic average of the three lowest daily VWAPs during the 10-consecutive-trading day period immediately preceding the Closing Date (the “Initial Commitment Shares”). In addition, promptly following the effective date of the initial Registration Statement (defined below), the Company is required to issue to the Investor additional shares of common stock (the “Additional Commitment Shares” and, collectively with the Initial Commitment Shares, the “Commitment Shares”) equal to the greater of (i) zero and (ii) the difference of (a) the quotient of (x) $150,000 divided by (y) the greater of (1) the arithmetic average of the three lowest daily VWAPs during the 10-consecutive-trading day period ending on and including the effective date of the initial Registration Statement and (2) $0.006, less (ii) 9,109,128, provided that in no event will the Company issue more than an aggregate of 15,890,872 shares of common stock, subject to adjustment, as Additional Commitment Shares. The Commitment Shares will be registered for resale in the Registration Statement, as discussed below.
It' interesting too IMO, that Magna is making BHRT file and thus get SEC approval for a "registration statement". Magna is a "qualified investor", they say so right in the document, meaning these deals are typically done under the "exemption" provision (non public offering) part of the securities act. But on both the note and now the credit line, Magna has specifically written and is demanding BHRT file and get SEC approval on share "registration statements"- just "interesting" IMO. So the money is not in the bank yet on either of these deals as far as I can tell- as BHRT has to specifically complete a bunch of steps, including the registration filing and SEC approvals, the way the detials read to me.
Here is just part of the pages and pages of the explanation of the credit line floating pricing. Notice the language about X days before, then price is based on the ABC formula of the lowest of the previous Y number of trading days, blah, blah, blah.
THAT is the "pricing formula".
From revised 8-K, page 1 (read all the exhibits too, pages and pages)
"Once presented with a Draw Down Notice, the Investor is required to purchase the applicable Draw Down Amount at the applicable “Purchase Price,” which is defined as the lesser of (i) the Initial Purchase Price and (ii) the True-Up Purchase Price (as defined below).
The applicable settlement date with respect to a Draw Down Notice will occur within one trading day following the Draw Down Exercise Date (the “Settlement Date”). On the applicable Settlement Date, the Company will issue to the Investor a number of Shares, rounded to the nearest whole Share, equal to the quotient of (i) the Draw Down Amount requested by the Company divided by (ii) the applicable Initial Purchase Price (as defined below), against simultaneous payment therefor in an amount equal to the product of (A) the number of Shares issued to the Investor on such Settlement Date and
(B) the applicable Initial Purchase Price. The “Initial Purchase Price” is defined as a price equal to 93% of the lowest of (i) the arithmetic average of the three lowest daily volume weighted average prices for the Company’s common stock (the “VWAP”) during the 10 consecutive trading days ending on the trading day immediately preceding the applicable Draw Down Exercise Date, (ii) the arithmetic average of the three lowest closing sale prices for the Company’s common stock during the 10 consecutive trading days ending on the trading day immediately preceding the applicable Draw Down Exercise Date and (iii) the closing sale price for the Company’s common stock on the trading day immediately preceding the applicable Draw Down Exercise Date (in each case, to be appropriately adjusted for any stock splits, stock combinations, stock dividends, recapitalizations and other similar transactions).
With respect to a Draw Down Notice, on the trading day (the “True-Up Date”) immediately following the eight-consecutive trading day period commencing on the trading day immediately following the applicable Settlement Date for such Draw Down Notice (the “True-Up Pricing Period”), a calculation of the True-Up Purchase Price (as defined below) and the Purchase Price will occur. The “True-Up Purchase Price” is defined as a price equal to 93% of the arithmetic average of the three lowest daily VWAPs during the applicable True-Up Pricing Period (to be appropriately adjusted for any stock splits, stock combinations, stock dividends, recapitalizations and other similar transactions), provided that in no event will the True-Up Purchase Price be less than $0.001.
On the Trading Day immediately following the True-Up Date (the “True-Up Settlement Date”), the Company will issue to the Investor the Additional Shares (as defined below), if any, in respect of the applicable Draw Down Notice. “Additional Shares” is defined as a number of Shares (to be appropriately adjusted for any stock splits, stock combinations, stock dividends, recapitalizations and other similar transactions), rounded to the nearest whole Share, equal to the greater of (I) zero and (II) the difference of (i) the quotient of (x) the total aggregate purchase price for Shares received by the Company on the Settlement Date with respect to the applicable Draw Down Notice divided by (y) the True-Up Purchase Price, less (ii) the number of Shares issued to the Investor on the applicable Settlement Date with respect to the applicable Draw Down Notice. The Investor is not required to return any Shares to the Company in the event the True-Up Purchase Price is greater than the Initial Purchase Price."
Here's the part saying where BHRT must complete a SEC "registration process" for all these shares (and if not all being covered, then complete more registrations in the future) and have them SEC approved and not subject to "review" or similar- again, I think all these past deals were done as "exempt" and thus "unregistered"- so why is Magna now insistent on this provision? Beats me? (see notes on the 8-K, the "commission" is defined as the SEC)
"Registration Rights Agreement
In connection with the execution of the Purchase Agreement, on the Closing Date, the Company and the Investor also entered into a registration rights agreement dated as of the Closing Date (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company has agreed to file an initial registration statement (“Registration Statement”) with the Commission to register an agreed upon number of Shares, which shall not exceed 1/3 of the number of shares of the Company's common stock held by non-affiliates of the Company, on or prior to December 8, 2014 (the “Filing Deadline”) and have it declared effective at the earlier of (A) the 90th calendar day after the earlier of (1) the Filing Deadline and (2) the date on which the initial Registration Statement is filed with the Commission and (B) the fifth business day after the date the Company is notified by the Commission that such Registration Statement will not be reviewed or will not be subject to further review (the “Effectiveness Deadline”).
If at any time all of the Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided in the Registration Rights Agreement."
IMO, everything in both these Magna deals is heavily tilted in favor of Magna no matter what happens- it's air tight that they make a bundle of money on these deals, get a bunch of dilution shares and at a discount, etc. The terms are about as stiff as I've read- it's pages and pages of everything being stipulated to protect Magna and make sure they make a lot of money in the end, IMO.
Again, there are entire I-HUB and other web pages dedicated and built by people who saw companies "get in bed with" Magna for "financing" and then what happened to the share price/stock down the road. They're well known in the penny finance world from all I've read- and it's not in glowing terms. They're known IMO as share price crushers. Diluters, etc Just look at the $300K note deal- BHRT can be on the hook for as much as $300K, but Magna is only paying um $200K for the note, and the interest rate is sky high and the share discount is huge- just as an example. There's gonna be dilution coming and lots of it- I don't know how that is disputable?
