Share count, unconverted preferreds, and 'mea culpa!'
To All: I'm with Paul.
I erred in going down the wrong path Friday night, when I tried to back out the number of converted shares from the quote of the number of beneficially owned shares. In trying to see if the numbers made sense, if one assumed they had to convert some of the preferreds in order to get beneficial ownership (which seemed a justifiable assumption, due to some of the wording), I forgot that that was just one of the 'hypotheticals' I was checking out.
What convinced me of my mistake, apart from realizing the wording that they still owned all the series A and B preferreds, was when I reverse-engineered the share count and deduced that they haven't converted anything yet, as follows:
In the last two S-3/A documents, and in the 424B3 document, they quote 26,704,073 shares of common stock outstanding as of Feb. 5, 1999. This number is NOT footnoted as in all the prior documents relating to Castle Creek financings, where they quoted a number of shares, but additionally stated that this total was "adjusted as required by rules promulgated by the Commission." This footnote bothered me, so I went back through ALL the documents, and found that this footnote appeared in the 8-K, the S-3, S-3/A's, and 424B3 for the first tranche; as well as the first S-3 for the second tranche, from December 1998; but it then disappeared after that. Since this footnote has now disappeared, I take as my starting point that the quoted number of outstanding shares in the later documents (without the footnote) is a FIRM number of shares outstanding, that had already been issued as of that date (2/5/99).
Then, consider that in the last two S-3/A's and the recent 424B3, they list the total number of shares issuable to Castle Creek, upon conversion of all the series A and B preferreds, and all the warrants, as 3,434,608 shares of common stock (as of Feb. 10, which includes some 'inflation' for interest on unconverted preferreds, but also must assume a fixed conversion for the series B).
The filing then CLEARLY states that 3,434,608 shares would constitute 11.4% of the shares that would be outstanding as of Feb. 10, if all these 3,434,608 shares were issued. Now, 3,434,608 is 11.4% of 30,128,140, so that must be the total number of shares outstanding if all the preferreds are converted, and warrants exercised. If you subtract the 3,434,608 from this total, you get 26,693,532 shares outstanding as of Feb. 10. This is within roundoff error of the number quoted in the document, given as 26,704,073 shares of common stock outstanding as of Feb. 5 (the roundoff being due to numbers being quoted as percentages of the outstanding, given to tenths of a percent).
Also, if you take the number 1,375,919 (of 'beneficially owned shares'), stated as 4.9% of the outstanding common, then the total number of outstanding common is only 28,079,979 (including these). Assuming that these are not yet converted, you then subtract the 1,375,919 and you're left with 26,704,060 shares outstanding. This is consistent with the above result, and also within roundoff.
Either way, it looks like the current number of shares outstanding does NOT include the preferreds or the warrants, so in fact they have NOT converted ANY!!!
This is a different way to arrive at Paul's (and now Larry and Zeev's) conclusion that NONE of these shares have been converted yet.
VERY BULLISH, as Paul has noted!
Castle Creek has CHOSEN to be VERY LONG the stock, and has passed up ample opportunity to leave the game with healthy profits exceeding 50%. Clearly they anticipate much higher returns by staying long. |
