Here are the relevant parts of the 8-K, enclosed in [].
<< Steve: I thought there was no shorting if the stock was below 10.78 >>
[The Investors also have agreed that, prior to October 6, 1998, neither they nor their affiliates will take a "short" position in the Company's Common Stock, unless at the time the position is taken the price per share of the Common Stock as reported on the Nasdaq National Market is greater than $10.87.]
As I said, they are free to short all they want after October 5. I don't think it is illegal to short your own company's stock, but the required SEC filing would raise quite a few eyebrows. I don't know of any case where this has been done openly.
[If such Debentures have not previously been redeemed by the Company, the Debentures issued to the Institutional Investors are convertible into shares of Common Stock of the Company, at the option of the holder, in whole or in part, at any time on or after October 6, 1998.]
So the holders can convert any time they wish after the 5th. Note that they are allowed to short at this time also.
[If such Debentures have not previously been redeemed by the Company, the Debentures issued to the Additional Investors are convertible into shares of Common Stock of the Company, in whole or in part, at the option of the holder any time after January 5, 1999. ]
The insiders have to wait three more months. Of course, their deal is floorless too, so the additional risk isn't great...to them.
[The conversion rate at which the Debentures are convertible into shares of Common Stock is the lesser of a fixed or floating conversion rate, determined by dividing the principal amount of the Debentures plus any accrued and unpaid interest by a conversion price equal to the lesser of $10.87 OR (emphasis added) the average of the three lowest closing prices of the Common Stock on its principal exchange during the 12 trading days immediately preceding the date upon which the Company is notified of such conversion (the "Conversion Rate").]
There is no lower price limit mentioned here or anywhere else I can find. Therefore it fits the definition of a "floorless convertible" unless someone else can find wording to the contrary.
[The Debentures held by the Institutional Investors may be redeemed by the Company, at its option, at any time on or before October 5, 1998. The Debentures held by the Additional Investors are subject to mandatory redemption by the Company on January 5, 1999, provided that the Company has previously redeemed the Debentures held by the Institutional Investors. The Debentures are redeemable at a redemption price per Debenture equal to 110% of the principal amount of the Debenture, plus any accrued and unpaid interest thereon.]
10% interest for a three-month loan...that's 40% per year. And they have to pay it on or before October 5, or the floorless convertible kicks in.
[Upon such redemption, if any, the Company also is obligated to issue to the Institutional Investors warrants to purchase an aggregate of up to 125,000 shares of common stock of the Company, par value $.01 per share (the "Common Stock"), and to the Additional Investors warrants to purchase an aggregate of up to 50,000 shares of Common Stock, all at an exercise price of $11.00 per share (subject to adjustment as provided therein).]
So if OCOM makes their payment, avoiding the floorless convertible, they've got to give the loan sharks even *more* money -- but it would show up as dilution to the shareholders, not as an additional payment from the company.
I don't like this sort of deal as a shareholder, which is one reason I am short.
Disclaimer: No one should buy or sell a stock based on what a stranger writes on Silicon Investor (or, G-d forbid, Yahoo).
Steve |
