IARC as a company may be undervalued, but the S-3 is loaded with incentives for influential people to keep the price of IARC down.
For example, as regards DSYS:
...under the terms of the merger agreement with Data Systems, the total number of shares of our common stock issued in the merger is subject to adjustment based on the average ten day closing price per share for the 10 trading days before the merger... If the average ten-day closing price is below $6.00 per share, we will issue a greater number of shares equal to 9,666,282 divided by the average closing price.
Here's more:
On July 30, 1999, we entered into an agreement with the selling stockholder pursuant to which it invested $5 million in our company. Pursuant to such agreement, we issued the selling stockholder $5,000,000 in principal amount of Debentures and Warrants to purchase 287,843 shares of our common stock... The conversion price can be periodically adjusted downward when eighty five percent of the trading price of our common stock for any five trading days in a twenty trading day period is less than the initial conversion price. In addition, if the debenture holder converts our debentures and sells the common stock, this could result in an imbalance of supply and demand for our common stock and a decrease in the market price of our common stock. The further our stock price declines, the further the periodic adjustment of the conversion price will fall and the greater the number of shares we will have to issue upon conversion...
...However, the number of shares issuable upon exercise of the Warrants and conversion of the Debentures is initially limited to 19.99% of the outstanding shares of common stock on the date of issuance of the Debentures, or 3,876,822 shares, unless we obtain shareholder approval of the issuance of additional shares of common stock upon exercise of the Warrants and conversion of the Debentures.
In other words, the lower the price, the more shares these parties get. The common strategy is to pump the stock up, get some buying interest, then, once the buying subsides, short against the shares you will receive in order to get the price as low as possible at the time right before conversion. The only wrinkle here is the part about seeking shareholder approval to issue more shares if more than 3.8M shares need to be issued. This would happen if the price dips below $1.29 ($5M/3,876,822). IMO, that's probably the theoretical low.
I notice the rise to $3 right after the 7/30 contract date, followed by a steep decline. Since there is no time limit for conversion, I see no reason why the debenture holder wouldn't seek to push the stock down as far as possible. Considering he'll have millions of shares with which to cover, and considering the low trading volume, sending IARC slowly down should be easy-- if that's indeed what the holder has in mind to do.
If you are in a stock when a C/D is issued, nine times out of ten your best strategy is to get out. If you believe in the company, wait until right before the anticipated conversion period and buy back in. If IARC gets below $2 as I, sadly, think it will, I'll buy as much as I can.
siliconinvestor.com
- Jeff |
