Use Cytomedix as an example with Jason's take below.
Cytomedix also entered into a purchase agreement with Lincoln Park Capital Fund, LLC for a total of $15.0 million in committed equity financing facility (CEFF). We note that Cytomedix had a previous CEFF with Lincoln Park active throughout 2012. Lincoln Park also participated in the $5.0 million registered direct offering noted above. The CEFF will remain in place for the next 30 months.
Cytomedix raised cash in 2012 through its CEFF with Lincoln Park. Lincoln Park is now obligated to purchase up to $15.0 million in stock from Cytomedix. Although there are certain conditions. Lincoln Park is not obligated to buy if the stock is below $0.45 per share (Just like ZLCS). As of the writing of this article, the stock is $0.49. That's cutting it close.
The shares are sold in blocks of 150,000 to 200,000. Lincoln Park is not permitted to own over 9.99% of the outstanding shares. That's around 10 million shares based on a basic share count of around 103 million (our best guess after today's raise). To raise $15.0 million, Lincoln Park would need to buy some 30 million shares at today's price of $0.49. However, they cannot own more than 10 million. Plus they participated in the $5.0 million raise above, and received 375,000 shares as a fee in connection with the CEFF. Lincoln Park can earn another free 375,000 shares pro rata.
Before today, the three-month average trading volume was less than 90,000. Thus, Lincoln Park will be a big seller of Cytomedix stock every time the company taps the CEFF. This is essentially an "ATM" now. Lincoln Park is NOT a long-term holder of all these shares, and that will weigh on shares going forward.
UnknownFebruary 20, 2013 at 7:00 PM
A little confusing. Is it better for Lincoln if CMXI trades below .45 or better if it trades higher?
Jason Napodano, CFAFebruary 20, 2013 at 7:06 PM
Well, considering they did participate in the $5M financing at $0.55, they probably do not want to see the stock go below $0.45. LPC MAKES MONEY IF THE STOCK GOES UP. They own some shares and warrants, and if CMXI calls up and says, "Hey buy 150k shares today at $0.51." LPC says yes. They went want to sell those shares at a profit, so they would like to see the stock go up above $0.51 so they can exit, make money, and do it all over again.