Bought 50 LNDC at $6.2-Lottery Ticket/SLM/Impact of Any Payment to Dutch State in May

1. Buy of 50 Landec (LNDC) (see disclaimer): At first, when the RB wanted to buy 50 shares of Landec as a Lottery Ticket yesterday, Headknocker put the kibosh on it since a 50 share purchase would exceed the $300 limit for lottery tickets with the stock trading at over $6. LOTTERY TICKET PURCHASES: LINKS IN ONE POST The RB, never good with numbers anyway, said what about the exception where it can claim a profit on a prior Landec LT trade to increase the minimum above $300 by the amount of the profit. LB said that was an exception to the RULE. A check was made of prior tax returns by LB, since RB will not even come with ten feet of any tax return, let alone look at one of those books, and LB confirmed a short term profit of $92 dollars with a trade in 2007. So, the order was placed yesterday, and 50 shares was bought at $6.2. All of this is mentioned since some have said, not entirely without justification, that rules here at HQ seem to be broken with some regularity. The foregoing established none of LB's elaborate trading rules were breached by this purchase.

I did have to reacquaint myself with Landec. It is on my small cap monitor list with about 200 names. I was generally familiar with Landec's businesses described at Reuters.com. Its main product is the Breathway packaging that increases the shelf life of fresh produce without the need for ice in the distribution cycle. Other businesses are described in detail in the quarterly report: Pages 4 to 13 www.sec.gov.

Landec's earned $.29 per diluted share for the fiscal year ending 5/31/2009, down from 50 cents in the year earlier period. A downturn in earnings is one explanation for a fall in price from $16 in October 2007 to around $6 currently. When I owned shares in 2007, both the sell and the buy were at much higher prices. Landec blames the economy for the fall in earnings. When it released its last earnings report on 7/28/09, it predicted that earnings for the first six months of the new 2010 fiscal year will fall below the comparable period in the F/Y 2009, based on this assumption: "Over the next twelve months we expect that the recession will continue, with higher unemployment and weak consumer confidence." LNDC may need to start working on another excuse if its earnings fall below the 2009 levels.

There is recovery potential with some caveats. Part of the problem appears to be that the packaging adds a premium price to the fresh produce. There also is some issues with Monsanto developing seed technology that may be competitive with the license it has with Landec, though LNDC maintains its technology will be compatible. Also the deal with Air Products seems to be moving slowly toward revenue generation: "The progress was slow in the first two years while Air Products was building its personal care team, but momentum is now building as new product applications and formulations are emerging from the laboratory. Landec and Air Products are focused on two areas -- personal care and thermoset catalysts. Air Products has recently accelerated its sales and marketing efforts, particularly in the area of personal care, which should lead to new customers and new product introductions in fiscal year 2010." (emphasis in original quote)

Landec has no debt and about $2.5 per share in cash, with a total of 65.957 million on 5/31/09 up from 59.039 on 5/28/09. The market cap at the $6.2 price is around 163 million. Price to sales is around .71. Price to book is 1.34. The five year PEG is .87 based on figures at YF: LNDC: Key Statistics for Landec Corporation I also reviewed the earnings call transcript for the last quarter. Seeking Alpha I do not have access to any analyst reports on this one. More information about LNDC can be found at its web site: Landec Intelligent Materials

2. Moody's Places SLM Debt Under Review for Possible Downgrade (own SLM exchange trade bonds OSM and ISM maturing in 2017 and 2018 respectively): Sallie is getting no love from the Beanpole. The administration's effort to end federal guarantees for student loans is viewed by many as creating significant uncertainties in SLM's future. Moody's has the senior debt rated higher grade junk at Ba1. The Reuters story noted significant debt maturities in 2010 and 2011. A summary of SLM's last earnings report is available at this Seeking Alpha blog from Zacks. I do not intend to add to my holdings of OSM and ISM, which altogether is around 3 thousand, due to my concerns about credit quality. The potential return to maturity by buying those securities at more than 50% discounts to par value plus the monthly interest payments tied to spreads over CPI is just too large for me to ignore entirely.

3. Agreement between Aegon and its Majority Shareholder/And ING and the Dutch Government re: Payment of First Coupon in May 2009: For anyone interested, this is a link to the agreement between Aegon and its majority shareholder that is the one relevant on the Mandatory Payment Event issues discussed in this blog: Exhibit 4.11 This language reinforces my argument that any payment to the Dutch State in May 2009 is a trigger for four mandatory payments on the hybrid securities:

Coupon Payment Dates

The Securities bear interest at the Coupon Rate during the term thereof starting as of (and including) the Issue Date. Such interest will be payable annually in arrear on each Coupon Payment Date on a non-cumulative basis.

Interest on the Securities shall only become due and payable if and to the extent dividend in respect of the Common Shares is declared over the Issuer’s Financial Year ending in such Coupon Period (for the avoidance of doubt, with the Issuer’s Financial Year 2008 ending in the First Coupon Period, and each consecutive Issuer’s Financial Year ending in the relevant Coupon Period to be construed accordingly) and such interest will only be paid to the Holders after the Issuer having verified with DNB that the Issuer will, after such payment of dividend on the Common Shares and of the relevant Coupon Amount, remain adequately capitalised in accordance with the then current Capital Adequacy Regulations.

The term verified in the previous sentence means that if the Issuer intends to declare a (final or interim) dividend, the Issuer will consult with DNB as to whether after such dividend is declared and paid (and corresponding interest is paid in respect of the Securities hereunder), the Issuer will remain adequately capitalised as aforesaid, and no dividend will be declared or paid unless and until such verification has taken place. In the case any interim dividend is declared on the Common Shares, an advance Coupon Payment per Security shall be payable on the Interim Coupon Payment Date (theAdvance Coupon Payment) in an amount equal to the value of such interim dividend paid per Common Share. Any Advance Coupon Payment paid on an Interim Coupon Payment Date, shall be deducted from the Coupon Payment payable on the Coupon Payment Date immediately following such Interim Coupon Payment Date.

b)	Coupon Rate - Cash

If dividend on the Common Shares is paid in cash, the Issuer will discharge its payment obligation in respect of interest on the Securities on the relevant Coupon Payment Date by cash payments to the Holders. In such case, the Coupon Rate per annum payable from time to time in respect of the Securities will be determined on the basis of the following provisions:

(i)

The Coupon Rate for the Coupon Period starting on the Issue Date shall be 8.50 per cent. per annum (the First Coupon Period); and

Page 409

Coupon Amount means in respect of a Coupon Payment, the amount of interest payable on a Security for the relevant Coupon Period in accordance with Condition 3;

Coupon Payment means, in respect of a Coupon Payment Date, the aggregate Coupon Amounts for the Coupon Period ending on such Coupon Payment Date;

Coupon Payment Date means in each year, the date on which the annual dividend is paid to the holders of Common Shares, starting in 2009;

Coupon Period means the period commencing on (and including) the Issue Date and ending on (but excluding) the first Coupon Payment Date and each successive period commencing on (and including) a Coupon Payment Date and ending on (but excluding) the next succeeding Coupon Payment Date;

Issue Date means 1 December 2008, being the date of initial issue of the Securities; Pages 425-426

I thought that I had the better argument than one of my readers, at least for Aegon. Now, someone needs to confirm that a payment was actually made in May 2009.

After reading this document, I would be interested in reading any commentary on how the preceding language relates to the mandatory payment events of the Aegon hybrid issues, particularly on whether any payment made to the Dutch state triggers 4 Mandatory Payments rather than just 2.

The following link is to the ING agreement, where the language is considerably different. How shall I say this, my argument is not as good for ING as it is for Aegon. ING's first payment is worded more like a semi-annual payment and then an annual payment period. See pages 1 and 2: SEC 

I or some energetic reader needs to check to see whether ING paid an interim dividend between May 12, 2008 and May 12,2009 or a statement by ING that it made the payment in May 2009 to the Dutch government:

"Interest, including for the avoidance of doubt the first interest payment to be made on 12 May 2009, will only be due and payable, subject to Condition 2(b), on a non-cumulative basis, if a dividend is paid on ordinary shares in the capital of the Issuer over the financial year preceding the relevant Interest Payment Date, either on an interim or a final dividend basis"