Zeev, From the S-3A of Feb. 10, 1999, they still had beneficial ownership of 1,375,919 shares of common, PRIOR to inclusion of the series B. Hence the 1,375,919 are what remains of the series A and related warrant exercises. I don't have the numbers at hand for the original offering, but I note that the second offering, which was a carbon copy of the first, lists 1,702,583 new shares. So if the first offering had this many, then they might have sold 300,000 or so from the first set, explaining the $1.6M converted. But they CHOSE to NOT sell or short-sell the remaining 1,375,919 from the first tranche, at least as of Feb. 10.
You're right, that from here forward, if they keep the number beneficially held below 5%, they need not report any additional hedging transactions. But this Feb. 10 filing had to quote the numbers, and gives us a peek at where they stood on that date.
You may also note that this document states:
"If CC Investments were to exercise all of the warrants it holds and convert all of the shares of preferred stock it owns, as of February 10, 1999 it would have acquired approximately 3,434,608 shares of our common stock. The number of shares into which the preferred stock converts increases at 6% per year. "
Since this filing is for 1,702,583 new shares from the series B and related warrants, that implies slightly over 1,732,000 shares came from the first tranche, which corroborates the reverse-engineering of the number of shares sold/sold-short from the first tranche as about 356,000 shares (note that the price on many of the warrants from that series were less than the $6 conversion rate for the series A preferreds).
Bottom line:
Yes, they hedged a bit at some point (356,000 shares worth), but as of Feb. 10 still held 1,375,919 shares they (or others) hadn't shorted against in any form, from the first tranche.
Have they shorted against anything since then? Well, if they DIDN'T short the remaining 1.376M shares at the higher prices last fall, it's not likely they shorted at the prices in the $6-8 range since this February filing.
So, there must be some other individuals and/or institutions who shorted over 900,000 shares and have yet to cover (since the total short position is over 1.275M shares as of Feb). I suspect this activity mostly took place in the 8-11 dollar range last fall, as there's been little net change in the number of shorts since December.
Last fall it took less than 1.5M shares being purchased to move the price that far (ballpark number, off hand thinking of three days of around 1M shares, but then taking only half to account for the 'double counting' of the Nasdaq system). With a potential gap up to double digits with the announcements of cash flow due to either purchase orders or licensing revenue or both, this short position will induce a rapid ramp in the price as those who are short rush to cover. |
