Lifton on Great Western and on ‘Lawyer-Speak’
Press releases by public companies are reviewed by lawyers to make sure that any and all disclosures are in compliance with the securities laws as they govern public disclosures of information that could impact the market value of the company.
But lawyers are not trying to inform anyone other than themselves and the judges who may enter or allow the entry of the press releases into evidence, for example, at the trial of an action brought by shareholders against the company for misrepresentation or fraud in enticing the shareholders to invest in the company’s stock.
Using lawyer-speak insures lawyers of clients. The only way to be certain that a company’s public statements, such as press releases, have misrepresented the company’s true position or financial state is to ask a lawyer what the press releases and public utterances mean legally. It’s a great system for lawyers.
I’m not a lawyer, but I did study law for three years at the University of Detroit School of Law. Full disclosure: I did not finish due to my father’s death making it necessary for me to assume control of his business.
I am going to therefore give you my non-lawyerly opinion of the Great Western announcement yesterday (click here to access).
The company last raised a lot of money to go forward in its development by issuing bonds, secured (collateralized), I think by some primary then unencumbered assets of the company-perhaps the property, plant, and equipment of a subsidiary, such as LCM in the UK. The bond holders were surely given a first right of access to some assets of the company. This means that the bond holders can seize and sell those assets to recover the principal and interest owed to them in the event of a default.
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This means that the ordinary shareholders can only get what’s left over after the holders of the senior debt get theirs. This means that the equity holders are, technically, SOL (“s*** out of luck”). This is why GWMG shares are now selling for $0.00-$0.01. They are or will shortly be worthless unless the bond holders give the company a reprieve. Note carefully that the market-capitalization of GWMG is now less than the amount due, and defaulted upon, for the first interest payment on the bonds.
GWMG has failed to meet an interest payment and failed to satisfy the payment during the two week grace period.
The company has some $3.5 million in cash, but since it did not meet the terms of the bond interest payments all of the bonds are due and owing immediately, so no matter how the lawyers couch it in their arcane mealy-mouthed BS GWMG is insolvent. This means B-R-O-K-E.
Note that I think that the company probably should not even pay its employees with what it has in the bank, because that money is now technically no longer theirs.
It is always possible that some new lender will come to their aid, but that lender will have to satisfy the defaulted bonds before any cash it might wish to lend or “invest’ can be used to continue the company’s operations.
Also, as with another major player in this sector, which is rapidly advancing towards the same end, even if a new lender comes along it is very unlikely that the current management, which got the companies into this dilemma, will be asked to stay on and try again.
In this situation suppliers seek cash on delivery and customers seek alternate vendors.
Lawyer-speak is usually at that point replaced by the language of gastroenterology and the standard phrase “He/She left to pursue other opportunities.”
If anyone wants to buy LCM I would suggest making an approach to the senior bond holders of the respective owners right now.
Its a real shame. GWMG was I thought a pretty good idea.
Jack Lifton is the Sr. Editor for InvestorIntel Corp. and is the CEO for Jack Lifton, LLC. He is also a consultant, author, and lecturer ... <Read more about Jack Lifton>