"The MFO would not be "hedging", because the Preferred Shares don't have downside exposure. Keep in mind that they are convertible at market, as are any warrants they buy."
Calling it hedging was technically incorrect, but neither the Preferred nor the warrants are convertible at market. I can't imagine what makes you say that.
"What they could be doing is selling(1), if they converted any to common. We don't know if they've converted anything yet(2)."
1. How do you respond to the argument that there is a Lock-up Agreement (albeit unsigned and undated) in place that says "from the date hereof until ninety (90) days following the first closing date"....."the undersigned will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of" any shares or create any options position that will have the same effect?
I have just noticed a term of the Lock-up Agreement Form that suggests that it may be intended to be used to Lock up shares held by someone other that the MFO itself and would like your opinion on that interpretation. It says:
"The undersigned acknowledges that the execution, delivery and performance of this letter agreement is a material inducement to the Purchasers to enter into the Purchase Agreement and the Company shall be entitled to specific performance of the undersigned’s obligations hereunder. The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this letter agreement, that the undersigned has received adequate consideration therefor and that the undersigned will indirectly benefit from the closing of the transactions contemplated by the Offering."
The only logical reason that I can come up with for a Lockup to be a "material inducement to the Purchasers to enter into the Purchase Agreement" is to prevent the sale of shares held by someone else from putting downward pressure on the price...essentially competing with any selling that the Purchaser wants to do.
Here's the way the Lockup Form begins:
"Pursuant to the Purchase Agreement, the undersigned irrevocably agrees with the Company that, from the date hereof until ninety (90) days following the first closing date of the Company’s offering...."
The only reference to a 90 day limitation on the sale of shares "pursuant to the Purchase Agreement" is on p.34 of the Agreement and it locks up the Company (IPIX) itself!
"(a) From the date hereof until ninety (90) days after the Second Closing Date, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents."
THERE IS NO Lockup term preventing the sale of shares by the MFO for 90 days in (Pursuant to) the Purchase Agreement.
2. We certainly know that they hadn't converted any preferred into common as of November 2 based on the face page of the 10-Q:
"The number of shares outstanding of each of the issuer’s classes of common equity, as of November 2, 2018 is as follows:....Common Stock Class A, $0.0001 par value 163,676,190".
The only difference between that number and the number reported as of August 27, 2018 was a half million restricted compensation shares that had vested during the period. Any Preferred shares converted into common from the time of their initial issuance in early October until November should have been reflected in the latest 10-Q and NONE were. We know that much if the filing was correct.
Summing up...
1. Was a Lockup Agreement actually executed and if so with whom? WHO has been constrained from selling shares as "a material inducement to the Purchasers to enter into the Purchase Agreement", if anyone?
2. We know that no conversions occurred as of a week ago Friday, so obviously no common could have been sold by the MFO at that point. The only open market activity in converted preferred that could have occurred could only have occurred in the last 5 days so it wasn't any MFO selling that was responsible for the increased volume in the shares that evidenced itself since the Initial Preferred Closing.
(I see that you discussed the possibility of short selling in your subsequent post so I haven't addressed it here.)
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