About INCLs preferred:
I concede that, it really looks ugly, this animal.
It has some convertible preferred stocks. Of the 10 Mio financing they obtain with new issues, $2.5M regarded a PP of common stock (400k) which hit the market so, or other. The other 7,5 Mio come from preferreds.
In the meantime a series of S3's and S3/Amendments have been filed with SEC. Also ther are some 8ks.
Reading INCLs S3 Statements is difficult but it reveals that the convertibles are floorless - to some extent. S3 History also shows, that limiting conditions appeared. The core of it is that limitation applies at Market Prices below "4$" and, what my be important, to 4,9% of then total stock without shareholders.
(http://www4.edgar-online.com/brand/yahoo/gdoc/?choice=2-1084185&nad=0)
"the result of the conversion will be:
(1) Until July 20, 1998, each share of Series B Stock is convertible at a fixed price per share of $7.91.
(2) From July 21, 1998 until January 15, 1999, each share of Series B Stock is convertible at a price per share equal to the lesser of (a) 92.5% of the average of the
t w o l o w e s t s a l e p r i c e s of the Common Stock during the 12 trading days immediately prior to the conversion and (b) $7.6275."
(Hyphenation don by me, never seen such ugly S-3).
Thats great for the borrowers, isn't it! Acquiring shares at low spikes with a built-in lookback option! What did you say! And then, it has to stay over 4$ from time to time, the keep the convertibles convertible.
On the other hand there is a call option built in, but with little use as it is far out of the money (strike is $7,625). Especially this option is partly waived by facility for the company to call the preferred for cash when the price is over 7.91. So the embedded call is economically senseless.
But this makes short selling so difficult, because it only needs low spikes. And it is unpredictable when and to what extend that occurs.
But look out: There is another 8k filed with date 26-7-1998, along with a press release. It reads that the company promises not to loot shareholders again.
(http://www4.edgar-online.com/brand/yahoo/gdoc/?choice=2-1071434&nad=0)
"The Board of Directors of InControl, Inc. (NASDAQ:INCL) announced today that the Company will not exercise its rights under a commitment obtained from an investor to purchase $7.5 million of convertible preferred stock on terms substantially equivalent to the convertible preferred stock issued by the Company in April 1988. The Directors believe that additional offerings similar to April's offering of $7.5 million of convertible preferred stock would not be in the Company's best interest. Accordingly, the Company does not intend to enter into any such transactions in the future."
Why not? Because of heavy dilution or price volatility?
Or the company believes that things are great and dont need it to do again?
Or had the company to use much cash for the guys to hype the stock over 4, otherwise the preferreds are not fully convertible or even returned for cash and assets, which the company clearly fails to achieve.
See the following in the last S-3
"OPTIONAL REDEMPTION
Upon the occurrence of any of the events listed below ("Optional Redemption Events"), the holders of the Series B Stock may compel the Company to redeem all or any portion of the Series B Stock at a price equal to the greater of (i) 115% of the purchase price and any accrued but unpaid dividends and (ii) the price that is equal to the number of shares issuable upon conversion of the Series B Stock, multiplied by the average of the closing bid prices of the Common Stock for the previous five trading days. Optional Redemption Events are (i) the
delisting of the Common Stock from any national securities exchange, Nasdaq or the Nasdaq SmallCap Market or the absence for five consecutive trading days of a closing bid price for the Common Stock on any one of such markets,
(ii) the inability for 30 or more days of the Selling Stockholders to sell the shares pursuant to the Registration Statement of which this Prospectus forms a part,(iii) the default by the Company of any material obligation to the holders of Series B Stock under the Subscription Agreements and the documents related thereto or the Certificate of Designations or the taking of any action without
the consent of the holders of Series B Stock that materially and adversely affects their rights, or (iv) certain business combinations entered into by the Company.
The Company may, at its option and at any time, redeem all or a portion of the outstanding shares of Series B Stock at a price per share equal to the greater of: (i) 115% of the purchase price and any accrued but unpaid dividends and (ii) the price that is equal to the number of shares of Common Stock issuable upon conversion of the Series B Stock, multiplied by the average of the closing bid prices of the Common Stock for the previous five trading days. In addition, if at any time prior to April 4, 2001, the price of the Company's Common Stock exceeds $7.91 per share, or at any time later than April 4, 2001, the Company may redeem all (but not less than all) of the outstanding shares of Series B Stock at a price per share equal to
$1,000 plus any accrued but unpaid dividends and interest."
The chart implies a big seller up to the first of July, but I didn't find a notice that the preferred have been converted already (which some companies issue, like ITEX recently). It simply makes no sense. If securities have been sold at the market prices by affiliates of the note holder till the end of June, proceedings might not have been sufficient to cover the preferred note, if you consider the limit of roughly 948.000 shares at $7.91 up to the 20th July. So this implies that the preferreds are alive at least after the 20 of July.
However, the S3 filed just at 20 of July, registering 3.769 mio shares, which applies to the maximum number of shares resulting of a conversion of the preferred in the present period. For INCL it was vital and necessary to hype the stock over 4 at least for 12 days for reasons as indicated above for the holder of the note to register and sell the securities and then to exercise the note.
If it was already done, its more difficult to estimate the number of shares that would hit the market. If it was not done yet, we can expect a decline as the selloff is overdue and then the 2 low spikes are necessary for the noteholders to exercise.
Interestingly, the official numbers of shares short are small numbers (<100k), but this does not tell that much, if you consider that market makers may maintain an unofficial short position for awhile. And that's also obvious, as a $5-and-under stock is hard to sell short officially.
Still thinking.....
Chr |
