I was just going over some numbers with one of my

I was just going over some numbers with one of my colleagues regarding the economics of selling shares out of an existing position in order to fund warrant conversions under the tender offer. When we thought about it for a bit, our conclusion surprised me and made me feel much better about the offer overall, although I think that there should be some discussion about it so anyone who doesn't think through the math quite as much isn't so encouraged to immediately sell into the open market to "self-fund" their conversion. I've typed out my example below:

Math on the economics of selling shares on the market to fund conversion of warrants through the tender offer. Assume a current position of 200k shares and 100k warrants.

- The total exposure (by share count) is currently 300k.
- 100k warrants would cost $40k to convert, and would result in new exposure of 150k shares.
- If you intend to sell shares on the open market to self-fund the conversion from your current position, you would have to sell enough shares to generate $40k (ignoring transaction costs).
- In order to not reduce your total share exposure, you could sell no more than 50k shares from you current position. The new position in that case would be (200-50) = 150k shares from your existing position, plus (100 x 1.5) 150k shares from warrants converted. If you sell more than 50k shares, you reduce your total share count.
- To generate $40k without reducing share count exposure, you would have to sell existing shares on the open market at ($40k)/(50k) = $0.80 per share.

This analysis is clearly generalized because it doesn’t include the economic benefit of executing your warrants at a discount. However, if you assume that the most expensive warrants out there are at $1.50/share, you’re getting about a $1.23 economic benefit per warrant converted, ex the .5 bonus shares. The benefit is clearly less for cheaper warrants. However, you have to keep in mind that the economic benefit accrues up to, and then caps out at, your original warrant exercise price. If the share price exceeds your original warrant exercise price, then a loss in overall exposure (by share count) starts to work against that accrued economic benefit. If you think that this is going to $2 tops, then you may be better off, in the long run, to self-fund those warrants. But it doesn’t take much upside in the share price for the loss in share count exposure to quickly overwhelm your economic benefit from the cheaper warrants, even with bonus shares. The math and accounting gets more complicated than I feel like typing out, but if you’re expecting a “big” payday – let’s say $5+ per share – then the loss of overall exposure will be a net negative very quickly.

Short story… to any warrant holders out there short on liquidity, think very hard and do some diligent math on selling into the market right now to fund a conversion out of your current shares. It’s not as simple as “I have to sell two shares at $0.40 to buy three shares (two warrants plus a bonus) for $0.80.”