Zeev, Larry, it's a 424B3 for the series B. Just like the one for the series A.
Zeev, when you say you thought they had 'unloaded' it, by looking at the share count (as I show below) it's clear that you can only be referring to a short position that is not accounted for as a reduction in beneficial ownership.
From the 424B3: "CC Investment owns 7,500 shares of the series A... and 7,500 shares of the series B..., plus warrants to purchase up to 895,522 shares... at a price of $6.78 per share." If all were issued, "as of Feb. 10 (they) ... would have 3,434,608 shares" total.
The common stock offered here for the series B and its related warrants is given as 1,702,583 shares. Less the 447,761 warrant shares, that leaves 1,254,822 shares of common from the series B preferred (at the fixed rate, if converted on Feb. 10).
That means that as of Feb. 10, 1999, there were still a maximum of 1,732,025 (= 3,434,608 - 1,702,583) shares beneficially owned by CC, from the series A and its related warrants. Yet the common stock beneficially owned prior to this (B) offering is listed as 1,375,919. If you subtract the 447,761 A-series warrants from the 1,732,025 shares, you get 1,284,264 shares that would have been issuable as of Feb. 10,1999, from the series A preferred.
Now, it's been debated here whether unconverted preferred shares would be considered to be 'beneficial ownership.' If you think not, then most or all the series A have to have been converted already, to account for the 1,375,919 still owned. From p. 15 of the 424, it does imply that the beneficial ownership only arises upon conversion or exercise of the preferreds and warrants, so it looks like you're right on that count. (Whether that is following the intent of the SEC guidelines is another matter.)
By these numbers, since the common stock beneficially owned prior to this offering is 1,375,919, which is larger than the series A alone for this date (1,284,264), this means that the series A have not been sold on the open market. It also means that some part of the warrants have been exercised. (Assuming that the number of shares quoted for this date accounts for the 'expansion' by 6% per year of the number of shares issuable upon conversion; i.e., their effective 'interest rate' for not actually converting yet.)
So there are two scenarios: First, that CC shorted against the entire series A, so the shares will either be covered or delivered. Either way, the dilution effect has been absorbed by our current $7 share price(reflected by the size of the short position). Second, you could believe that CC hasn't shorted, and they haven't sold, either. But that means there's a huge short position offsetting their 'need' to offer that many shares (1,375,919) left from the series A, in order to 'free up' themselves to convert the series B later. Either way, we're 'neutral,' except for those who will need/try to cover below where they shorted.
And regarding the series A warrants, the most likely scenario is that
they were all expended in a cashless exercise. It's also possible that CC exercised and then sold some part of the 447,761 total available. If they exercised them, for the $6.78 offering, then Valence has received additional funds in its coffers. This would also imply that Castle Creek would not be shorting at current prices. In fact, I think this could explain the 'floor' in the price that we've seen lately.
Deductions:
THE SERIES A SHARES HAVE BEEN CONVERTED AND ACCOUNTED FOR IN THE TOTAL SHARE COUNT in the document. (In answer to your question.)
THEY HAVEN'T 'SOLD' THEIR SERIES A SHARES YET (your comment that only $5.9 of $7.5M remained from the 'A' as of 5 months ago might have led some readers here to think they'd been sold).
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Some of you think they have shorted against these shares. Whether they have or not, the short position was essentially unchanged from the end of Jan to the end of Feb. As I showed in a previous post, it would not have changed much from Jan. 31 to Feb. 10, the date the above figures are valid. Neither was the volume large enough to account for a large change in the number of shares bought/sold on the open market, by one buyer alone (CC).
They COULD deliver the converted shares against a short position, thus reducing their beneficial ownership, and allowing for additional conversion of the series B to take place. But if they shorted at all, it was likely at prices above where we are now. They'll be better off to cover that position in the open market, as much as possible. It's incorrect to assume they'll just hand over the converted shares to cover any short position, without a 'fight' in the open. By my mark, Castle Creek is a buyer in the open market right now, at these prices, if they shorted at all. This is a BULLISH indicator.
Or, you could assume they'd just use the series A converted shares, which cost them around $6 apiece, to cover their supposed short position. Which is ALSO BULLISH commentary, because it implies they don't think the chances are very good for them to short below that price.
(Do you hear that Wexler? This shoots down your call for a '$1 stock price.')
Also note: only 700,000 shares were shorted at prices above $6 or so (from October onwards), so what about the other 500,000 shares short? Doesn't look like Castle Creek would own those!! ANOTHER BULLISH INDICATOR.
WE WILL GET A SQUEEZE EFFECT, whether it's CC who's shorted or not. If the price runs up past where they shorted, they admittedly won't cover that portion of their short position in the open market. But they make more money on a runup if they cover as much as possible in the open market. And whoever owns the other 500,000 to 1.25M shares short will DEFINITELY have to cover.
No wonder the shorts are out workin' the threads!! |
