04:13pm EST 28-Mar-00 Insider Research Wire
(SPECIAL DERIVATIVE ALERT! VERT INSIDERS ENTER INTO FORWARD SALE CONTRACTS
VerticalNet is a high flier by anyone's standards. Though under pressure lately,
the issue remains up more than 700% from its opening day close 12 months ago.
With such lofty valuations, it is not surprising to see company insiders taking
profits. What is unusual, however, is the lengths to which insiders have gone to
protect their investments.
In February, company founders, SVP Michael McNulty and SVP & Director Michael
Hagan entered into forward sale contracts for 225,000 shares and 106,500 shares,
respectively. By entering into these contracts, insiders effectively forgo
future appreciation on their stock in exchange for a fixed sale price. In
effect, they are selling a portion of the appreciation on the stock without
having to handover the shares until the contract expires.
Insiders using derivative activity to protect against loss typically involves
insiders selling call options, with the proceeds used to purchase put options
covering a like amount of stock. In such cases, the insider caps any gain at the
call strike price while insuring against any loss below the put strike price.
In the case of the forward sale contract, the shares are effectively sold at the
time of the contract, therefore, no corresponding put was needed to be
purchased. The call options are European style, meaning that the contract will
not expire until '03.
To be fair, the recent forward contracts do not represent an abnormally large
portion of either executives holdings. However, that Hagan and McNulty are
willing to cap their gains in the long-term may not bode well for the stock's
prospects for appreciation.
While Hagan and McNulty have placed their bets, six other insiders have sold
stock. Notable are President, CEO Mark Walsh, CFO Gene Godick and SVP, Sales &
Marketing Barry Wynkoop, selling 194,600 shares, selling 15,000 shares and
14,769 shares, respectively. In themselves, the sales would not raise many
eyebrows, but given the accompanying derivative activity by the company
founders, VerticalNet may bear watching. VerticalNet, Inc. owns and operates 55
industry-specific Web sites designed as online business-to-business communities,
known as vertical trade communities. |
