Math error equals close call for Oklahoma City energy company
A simple math mistake has led GMX Resources to court and could have cost the Oklahoma City energy company millions of dollars.
Remember sitting in high school math class wondering when you would ever need to know the difference between a numerator and a denominator?
GMX Resources Inc. last month received a sharp reminder about why such lessons are important.
A simple math error has led the Oklahoma City energy company to court and could have cost it millions of dollars.
In this case, the mistake apparently is pretty obvious. No shareholders have pressed the issue, and the cost to GMX is minimal.
“It is clear that this is just a scrivener's error,” said Alan Van Horn, GMX's manager of investor relations. “Everyone involved recognizes this for what it is. In our minds and in the minds of everyone who's looked at this, it's really just a formality.”
But as written, shareholders would be due for a massive payout.
At issue is a 2009 issuance of $75 million in preferred convertible senior notes scheduled to convert into common stock in 2015 under certain conditions.
When copying from a previous template, a company GMX hired to write the contract transposed the numerator and denominator (the top and bottom lines in a division problem) in a key conversion formula.
As a result, the document states that each preferred share would convert into more than 693 shares instead of about 4.1 shares under the correct formula.
At that rate, the senior notes would exchange for nearly 52 million shares of common stock, more than eight times the company's 6.1 million total shares outstanding today.
“The result of the erroneous formula is a clearly unintended and unreasonable windfall,” GMX said in a court filing.
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