Lighting Science Group (LSCG) Risk Analysis
Risk Overview Q1, 2017
Source: the company's latest filing for the period ended Mar 31, 2017, filed May 15, 2017
Risk Change Over Time
No filing history is available.
Risk Highlights Q1, 2017
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 30
- Share Price & Shareholder Rights - Risk 1If our preferred stockholders exercise their redemption rights, it would have a material adverse effect on our financial condition and may result in a change of control.
Certain holders of our Convertible Preferred Stock have the right to cause us to redeem such shares at any time on or after March 27, 2017. If any such stockholder elects to cause us to redeem its shares of Convertible Preferred Stock, all other holders of the applicable series will have the right to redeem their shares of Convertible Preferred Stock. We would also be required to redeem the outstanding shares of our Series J Preferred Stock (a) subject to certain limited exceptions, immediately prior to the redemption of the Series H Preferred Stock, Series I Preferred Stock or any other security which ranks junior to, or pari passu with, the Series J Preferred Stock and (b) on November 14, 2019, at the election of the holders of Series J Preferred Stock (the "Special Redemption"). Holders of our Convertible Preferred Stock would also have the right to require us to redeem such shares upon the uncured material breach of our outstanding obligations under our indebtedness or our uncured breach of the terms of the certificates of designation governing the Convertible Preferred Stock. Further, depending on the ultimate disposition of an appeal bond relating to pending litigation, the certificate of designation governing our newly designated Series K Preferred Stock (the "Series K Preferred Stock" and, collectively with the Convertible Preferred Stock, the "Preferred Stock") requires us to redeem the outstanding shares of Series K Preferred Stock in the event of a liquidation, dissolution or winding up of the Company or an earlier change of control or "junior security redemption," which includes events triggering a redemption of the outstanding shares of Convertible Preferred Stock. As of December 31, 2016, in the event we were required to redeem all of our outstanding shares of Preferred Stock, our payment obligation would have been $544.0 million. We would also be required to repay our outstanding obligations under the Medley Term Loan and the Ares ABL prior to any redemption of the Preferred Stock. As of December 31, 2016, the aggregate borrowings outstanding under these loan facilities that we would be required to pay was $36.7 million. Any redemption of shares of Preferred Stock would be limited to funds legally available under Delaware law. The certificates of designation governing our Preferred Stock provide that if there is not a sufficient amount of cash or surplus available to redeem the shares of Preferred Stock, then the redemption must be paid out of the remaining assets of the Company. In addition, the certificates of designation governing our Preferred Stock provide that we are not permitted or required to redeem any shares of Preferred Stock for so long as such redemption would result in an event of default under our credit facilities. Based solely on a review of our balance sheet, we do not have legally available funds under Delaware law to satisfy a redemption of our Preferred Stock. The certificate of designation governing the Series J Preferred Stock provides that if we do not have sufficient capital available to redeem the Series J Preferred Stock in connection with a Special Redemption of the Series J Preferred Stock, we will be required to issue a non-interest bearing note or notes (payable 180 days after issuance) in the principal amount of the liquidation amount of any shares of Series J Preferred Stock not redeemed by us in connection with such Special Redemption, subject to certain limitations imposed by Delaware law governing distributions to stockholders. We have a limited amount of revenue and a history of losses, and we may not have sufficient cash to allow us to comply with our redemption obligations. Our ability to redeem the Preferred Stock depends upon our future operating performance, which is subject to general economic and competitive conditions and to financial, business and other factors, many of which we cannot control. If the cash flow from our operating activities is insufficient, we may take certain actions aimed to enable us to redeem the Preferred Stock, such as delaying or reducing capital expenditures, attempting to obtain financing, selling assets or operations or seeking additional equity capital. Any or all of these actions may not be sufficient to allow us to redeem the Preferred Stock. Further, we may be unable to take any of these actions on satisfactory terms, in a timely manner or at all.
- Share Price & Shareholder Rights - Risk 2Our issuances of shares of Preferred Stock may limit our ability to raise additional capital and/or take certain corporate action.
As of December 31, 2016, we had 282,047 shares of Preferred Stock outstanding, consisting of 111,513.52 shares of Series H Preferred Stock, 57,365 shares of Series I Preferred Stock, 93,062 shares of Series J Preferred Stock and 20,106 shares of Series K Preferred Stock. The certificates of designation governing the Preferred Stock limit our ability to take certain actions without the consent of our primary investors, including, among other things: - redeem, reacquire, pay dividends or make other distributions on our securities;- engage in any recapitalization, merger, consolidation, reorganization or similar transaction;- incur any indebtedness (A) in excess of that contained in the Ares ABL or Medley Term Loan; or (B) that includes any provision that would limit our ability to redeem any shares of Preferred Stock;- issue any equity securities, subject to limited exceptions;- enter into any new agreements or transactions with any affiliates or amend or modify the terms of any such agreements; and - acquire, license, transfer or sell any property, rights or assets or enter into any joint venture where (A) the aggregate consideration to be paid or received, or (B) the fair market value of the relevant property, rights or assets, exceeds $5.0 million. A breach of the terms of the Preferred Stock could entitle each holder to redeem their shares of Preferred Stock, which could have a material adverse effect on our liquidity and financial condition.
- Share Price & Shareholder Rights - Risk 3Our Common Stock has been thinly traded and an active trading market may not develop.
The trading volume of our Common Stock has historically been low, partially because we are not listed on an exchange and our Common Stock is only traded on the over-the-counter bulletin board (the "OTC Bulletin Board"). In addition, our public float has been further limited due to the fact that the vast majority of our outstanding Common Stock has historically been beneficially owned by affiliates of Pegasus. Unless we initiate a public offering of our Common Stock or are approved for listing on a national exchange, a more active trading market for our Common Stock may not develop, or if developed, may not continue, and a holder of any of our securities may find it difficult to dispose of, or to obtain accurate quotations as to the market value of, our Common Stock.
- Share Price & Shareholder Rights - Risk 4We are controlled by Pegasus, whose interests in our business may be different from yours.
Affiliates of Pegasus beneficially owned approximately 91% of our Common Stock as of December 31, 2016 (on a fully diluted basis). As a result of this ownership, Pegasus has a controlling influence on our affairs and its voting power constitutes a quorum of our stockholders voting on any matter requiring the approval of our stockholders. Such matters include the nomination and election of directors, the issuance of additional shares of our capital stock or payment of dividends, the adoption of amendments to our certificate of incorporation and bylaws and approval of mergers or sales of substantially all of our assets. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. Pegasus may cause corporate actions to be taken even if the interests of Pegasus conflict with the interests of our other stockholders. If we applied and our shares were approved for listing on a national stock exchange, we would likely elect to be considered a "controlled company" which would exempt us from certain corporate governance requirements, including the requirement that a majority of our board of directors meet the specified standards of independence and the exemption from the requirement that we have a compensation and governance committee made up entirely of directors who meet such independence standards. Such independence standards are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors. It is possible that the interests of Pegasus may in some circumstances conflict with our interests and the interests of our other stockholders, including you.
- Share Price & Shareholder Rights - Risk 5Because our stock price is volatile, it can be difficult for stockholders to predict the value of our shares at any given time.
The price of our Common Stock has been and may continue to be highly volatile, which makes it difficult for stockholders to assess or predict the value of their shares. A number of factors may affect the market price of our Common Stock, including, but not limited to: - changes in expectations as to our future financial performance;- announcements of technological innovations or new products by us or our competitors;- announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;- changes in laws and government regulations;- developments concerning our proprietary rights;- public perception relating to the commercial value or reliability of any of our lighting products;- future sales of our Common Stock or issues of other equity securities convertible into or exercisable for the purchase of Common Stock;- our involvement in litigation;- the acquisition or divestiture by Pegasus or its affiliates of part or all of its holdings; and - general stock market conditions.
- Share Price & Shareholder Rights - Risk 6Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain provisions that could discourage a takeover.
Anti-takeover provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law may have the effect of deterring or delaying attempts by our stockholders to remove or replace management, engage in proxy contests and effect changes in control. The provisions of our charter documents include: - procedures for advance notification of stockholder nominations and proposals;- the inability of less than a majority of our stockholders to call a special meeting of the stockholders;- the ability of our board of directors to create new directorships and to fill any vacancies on the board of directors;- the ability of our board of directors to amend our bylaws without stockholder approval; and - the ability of our board of directors to issue shares of preferred stock without stockholder approval upon the terms and conditions and with the rights, privileges and preferences as our board of directors may determine. In addition, as a Delaware corporation, we are subject to Delaware law, including Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless certain specific requirements are met as set forth in Section 203. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.
- Share Price & Shareholder Rights - Risk 7Future sales or the possibility of future sales of a substantial amount of our Common Stock may depress the price of shares of our Common Stock.
Future sales or the availability for sale of substantial amounts of our Common Stock in the public market could adversely affect the prevailing market price of our Common Stock and could impair our ability to raise capital through future sales of equity securities. We may issue shares of our Common Stock or other securities from time to time to raise capital to fund our operating expenses pursuant to the exercise of outstanding stock options or warrants or as consideration for future acquisitions and investments. If any such issuance, acquisition or investment is significant, the number of shares of our Common Stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our Common Stock or other securities in connection with any such acquisitions and investments. We cannot predict the size of future issuances of our Common Stock or the effect, if any, that future issuances and sales of our Common Stock will have on the market price of our Common Stock. Sales of substantial amounts of our Common Stock (including shares of our Common Stock issued in connection with an acquisition or by Pegasus or its affiliates), or the perception that such sales could occur, may adversely affect prevailing market prices for our Common Stock.
- Share Price & Shareholder Rights - Risk 8Securities analysts may not provide coverage of our Common Stock or may issue negative reports, which may have a negative impact on the market price of our Common Stock.
Securities analysts have not historically provided research coverage of our Common Stock and may elect not to do so in the future. If securities analysts do not cover our Common Stock, the lack of research coverage may cause the market price of our Common Stock to decline. The trading market for our Common Stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline substantially. If one or more of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, it may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our Common Stock. This could have a negative effect on the market price of our stock.
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