Castle Creek is limited in its sales according to the 8-K from Dec. 21:
<< 4.14 NO MANIPULATION. Neither Purchaser nor any of its affiliates shall engage in any conduct with the purpose of manipulating the market price of the Common Stock.
4.15 VOLUME LIMITATIONS. Purchaser covenants and agrees that for so long as it or any of its affiliates shall own any shares of Series B Preferred Stock, Purchaser and its affiliates shall not, on any trading day, sell on a public trading market, at a price less than $12.00 per share (adjusted for any stock splits, stock dividends or stock combinations), such number of shares of Common Stock as when aggregated together shall exceed the greatest of (i) 30,000 shares (as adjusted for any stock splits, stock dividends or stock combinations), (ii) 15% of the total number of shares of Common Stock sold on the Nasdaq National Market during such trading day, and (iii) 15% of the average daily trading volume on the Nasdaq National Market for the five consecutive trading days immediately preceding such sale. In the event that Purchaser shall sell, transfer or convey any shares of Series B Preferred Stock to a party not an affiliate, then the above-referenced amounts shall be prorated amongst Purchaser
and the transferee in proportion to the number of shares of Series B Preferred Stock retained and sold, respectively. >>
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The increased short position recently observed is possibly due to Castle Creek selling short some of its unconverted preferred shares (as many here have suggested), subject to the limitations above. The current share price is then "depressed" to this extent, due to the effect of the dilution from the issuance of the preferreds. This was what we all expected to see, in some form or other.
And you're right, the flip side is that there is no need to cover on any uptrends, since they likely shorted using their preferred. So less of a "short squeeze."
But even though Castle Creek could always "short with impunity," to use your words, it makes no sense for them to literally do this (prior to July 27, 1999), unless they are also buying to cover on the open market. They are better off to sell their shares in a more measured fashion, so as NOT to drive the price down too much each day, which would limit their profit.
So why bother to say, "... short with impunity " ? They cannot short as many of the *preferreds* as they wish, on any given day. And they would not likely short in the open market (i.e., not covering with the preferreds) at the same time as they were shorting their preferreds; this would be at cross-purposes, as it would drive the price down and unnecessarily reduce the profits on the conversion of the preferreds.
Finally, the combination of the volume limitations with the explicit language about "no manipulation" does convey intent to protect shareholders. Would this not apply in the case where CC might try to affect the share price at a critical time (after July) in order to acquire more shares? |
