NeoMedia Technologies, Inc (NEOM)

[ASTOCKCOLLAPSE N0W]

Well, according the Section 4, item L of the Securities Purchase Agreement dated August 24th, 2006:

Neither the Buyer(s) nor any of its affiliates have an open short position in the Common Stock of the Company, and the Buyer(s) agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock as long as any Convertible Debentures shall remain outstanding.


What is interesting, however, is of all the items under Section 4, only item L is not preceded by an underlined title. Attaching material meaning to underlined versus non-underlined items is a stretch, obviously. However, it is both peculiar and curious.

See page 13 here:

http://www.sec.gov/Archives/edgar/data/1022701/000114420406036417/v051592_ex10-1.htm

There are previous financing arrangements with Cornell however that do not contain language restricting short sales and hedging actives but in fact the language is consistent with allowing for hedging activities - i.e. shorting against the box.

With that said, the covenants define affiliate as follows:

“Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly,

(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or
(iv) shares common control with that person or entity.

“Control” or “controls” for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.


This blurs the line on short sales. While neither Cornell nor Cornell's affiliates are permitted to short or have open shorts in NEOM, it is certainly possible for Cornell to dump the paper to other, non-affiliate parties who indeed do short-sell NEOM to hedge against the risk of holding the convertible paper.

In fact, given that Cornell continually includes language restricting itself from owning more than 4.99% of NEOM's outstanding shares - and thus falls outside the boundaries of a majority stake holder and therefore does not need to report transactions with the SEC - it is likely that Cornell is indeed off-loading a great deal of its NEOM paper to unaffiliated parties in private transactions who are in turn shorting against the box to lock in returns or hedge risk.

It is likely that Cornell acts as a intermediary - or broker/dealer - in many of these instances. They provide the initial capital and then offload the paper for a quick profit to the many, many firms specializing in convertible arbitrage.