Z-Tel Technologies Inc. launched an offer Thursday to exchange its convertible preferred stock for shares of common stock, in a bid to satisfy Nasdaq listing requirements and to secure needed financing.
The troubled Tampa phone company said the offer, which expires Oct. 28, applies to its three classes of preferred stock, each of which is subject to different exchange terms. The company said Boston investment bank Brown Brothers Harriman, the largest holder of its preferred stock, has agreed to exchange its shares if "substantially all" of the preferred shares it does not hold are exchanged.
If the exchange is completed, the company will issue more shares of common stock, which should help the company meet the Nasdaq SmallCap Market's requirement that it maintain a market capitalization of at least $35-million, Z-Tel corporate counsel Andrew Graham said.
On Aug. 31, Z-Tel said it had been informed by Nasdaq that it no longer met this requirement and that its stock was subject to delisting. Company officials attended a Nasdaq hearing Thursday, where they asked for a 60-day extension to bring its stock into compliance.
The issuance of more common stock threatens to dilute the downtrodden value of its existing common shares. But Graham noted that the company is offering an exchange price above the market price. He also said the value of the common stock was being depressed by the pending 2006 and 2008 redemption dates of the preferred shares.
Preferred shares are considered senior to common shares, meaning that if a company is liquidated, holders of preferred shares are paid any obligations due them before holders of common stock.
Because Z-Tel's preferred shares appear as debt on the company's balance sheet, they have made it difficult for the company to finance the purchase of equipment it needs as part of its shift to a provider of Internet phone services, Graham said.
If holders of Z-Tel's preferred shares don't participate in the exchange offer, they face a downward adjustment in the redemption terms of the shares, which is expected in a couple of months, Graham said.
Z-Tel's stock closed Thursday at 46 cents a share, down 3 cents.
