I don't always have time to make full comments on this board as it's not my primary focus. But to add some color I will contribute the following to the conversation:
I want to begin by saying that P10 began the long and complicated process of enhancing shareholder value in early 2016 and their transparent actions thus far have been in the best interest of shareholders. Let's review:
In June 2016, a NOL Rights Plan was adopted to protect the value of all tax attributes held by P10.
In July 2016, the board of directors engaged Vinson & Elkins LLP to explore strategic and financial alternatives including the sale of the company, new investors, and a transition to a profitable business.
In November 2016, P10 sold the operating business to Langley and retained some cash, patents, and several liabilities.
In November 2016, following the sale to Langley, P10 put forward their new business plan with a goal of maximizing long-term shareholder value thru the monetization of non-core intellectual property assets and raising additional capital to acquire a well managed, profitable business.
In March 2017, P10 announced that they had a commitment to raise additional capital from 210 Capital and would be going thru the bankruptcy process to clear all remaining liabilities from the Langley sale and to further preserve the value of all tax attributes held by P10.
In April 2017, P10 announced the confirmation of their bankruptcy plan.
In May 2017, P10 announced the bankruptcy plan effective date, the closing of all items pursuant to their bankruptcy plan, the investment from 210 Capital was completed and that all common shareholders would be issued new shares on a 1:1 basis.
On May 9, 2017, P10 announced that a new trading symbol for P10 (PIOE) had been established and that to their knowledge at least one market maker was engaged in the process of filing the necessary forms with FINRA for a broker dealer to provide a quotation (bid/ask) for the new ticker PIOE. It was further noted by P10 that they have no control over processing time of the FINRA form 211 filing or when trading will commence for PIOE.
Just to recap, P10 has been working towards the complicated process of enhancing long-term shareholder value for well over one year and in my view with a few delays has delivered effectively and transparently on this plan while continually demonstrating a commitment to long-term shareholder value.
DELAYS IN ORDINARY TRADING
The timing of when PIOE ceases to trade in the Grey Market and commences normal trading with a quotation (bid/ask) is inconsequential relative to long-term shareholder value. Every step that P10 has completed up until this point has NOT been focused on creating a short term trade and anyone who invested based on that pretense should probably not be in the stock in the first place.
Sure, do I expect to see a marginally higher trading PIOE once it commences normal trading? Yes, but as I have articulated in several previous board posts, this story requires several steps to be completed for substantial value creation.
Now that P10 has a clean balance sheet with cash, solid protection of their tax attributes and a new investor with further financial commitment, the next step is the announcement of an acquisition to properly utilize their tax attributes and/or some further certainty around the value/opportunities related to the patents.
That said, when PIOE commences normal trading is currently irrelevant and to have diminished confidence in P10 management as a result of the trading delay is simply short sighted. The Form 211 was not something within their control to file and the FINRA processing time is only within the control of FINRA.
Lastly, to insinuate that the extended Grey Market trading was orchestrated to provide Ascolese with a lower options exercise price is a stretch. If Ascolese and the Board were truly concerned about this, his options agreement could easily be amended or supplemented to make him whole as opposed to risking something that would potentially be harmful to shareholders and hence deemed illegal.
NOTE: If I were to speculate on one cause of the delay in processing the Form 211, I think it could be related to the Charter Amendment and issuance of new shares (see more detailed commentary below in “Tax Attributes”
TAX ATTRIBUTES
The P10 tax attributes are clearly the most valuable company asset at this point, so I feel it is important to highlight the actions P10 has taken to protect them for the long-term.
Most if not all of the risks associated with the tax attributes have been eliminated and P10 has managed this asset very well to date, starting with the adoption of the NOL Rights Plan in June 2016.
The IRS rules on the subject of NOLs are VERY COMPLEX and the use of NOLs is limited if there is a deemed “Ownership Change” which would severely impair the value of the NOLs. Simply put, the most common way to trigger an “Ownership Change” is to create more 5% shareholders or for existing 5% shareholders to acquire more stock.
Many notable companies like Ford Motor, Pulte Homes, Krispy Kreme (to name a few) have adopted a Poison Pill or NOL Rights Plan for the sole purpose of to protecting the value of their NOLs. The Poison Pill or NOL Rights Plan distributes one or more preferred share purchase rights to each outstanding share of common share. These preferred share purchase rights are redeemable by the company until someone acquires 4.99% or more of the common stock in the company, at which point they become exercisable by the common shareholder. These rights, when exercised, are substantially dilutive to all outstanding common shares. Any rights held by someone who acquires 4.99% or more of the outstanding common shares become void and are not exercisable. The company hopes that this acts as a deterrent to acquire more than 4.99% or more of their outstanding common shares and in turn mitigates the chances of an “Ownership Change”.
Despite case law supporting the Poison Pill or NOL Rights Plan in Delaware, shareholder approval is always required to adopt and enforceability against shareholders who did not vote for the action is uncertain. Further, the time and difficulty necessary for the company to go thru the mechanics of triggering the plan and diluting out the shareholder can make the actions of the company less legally defensible and in the view of the IRS who would determine that an “Ownership Change” DID OCCUR during the process of executing the plan.
The better way to protect the value of their NOLs is in the form of a Charter Amendment and subsequent issuance of new shares because is mechanically much cleaner. In a Charter Amendment, the company sets a flat ownership limit at 4.99 percent that is tied to the shares and if a shareholder goes over the 4.99 percent ownership limit the company can simply unwind the portion of the transaction over 4.99 percent without incurring the time and difficulty of trigger the plan and subsequently diluting the shareholder out.
Once a Charter Amendment is in place, it means that an activist shareholder attempting to acquire more than 4.99% can not intervene with the actions of the company to unwind any further purchase or amend the company charter, that can only be done with board approval.
Further, in the past the IRS has specifically recognized Charter Amendments of this type and has stated that if an “Ownership Change” were to occur which would limit the status of the NOLs held by the company, any actions taken by the company to invoke the provisions of the Charter and unwind the transaction are respected ARE RESPECTED by the IRS and valid for the purposes of saving the character of the NOLs.
One value that P10 derived from the process of going thru Chapter 11 (which I believe was strategic) was the ability to take the 48% investment from 210 Capital without triggering an Ownership Change.
Sections 382 & 383 of the IRS code provide an exemption which allows one Ownership Change to occur during the process of Bankruptcy, hence 210 Capital was allowed to gain such a large percentage of ownership without limiting the future use of the NOLs.
However, for the Bankruptcy exemption to be effective, P10 MUST NOT undergo another Ownership Change within the next two years or the NOLs will be limited.
Hence the importance and strong value of the Charter Amendment and new shares.
All of that said, P10 has done all within their power to protect the value of the NOLs with a Charter Amendment and the issuance of new shares. Both actions which truly protect the most valuable asset of P10.
I Have some ideas on aquistion targets, and will try to post soon. Where P10 trades in the short term, I have no idea as we have seen 48% dilution since stock was freely traded, but this 'should' have been priced in. On the flip side, the dilution allows past investors who were bumping up to the 4.99% owership limits to now able to add shares. It will be interesting to watch the action, as I will be ready to participate.
-BioHunter
@TheBio_Hunter
