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Strategies & Market Trends : Floorless Preferred Stock/Debenture
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To: Zeev Hed who wrote (705)7/12/1999 3:09:00 AM
From: Larry Brubaker  Read Replies (1) of 1438
 
Zeev, you might want to check out WAVC's most recent S-3A just out of curiosity. This one has an interesting twist to the mechanics.

Shares of common stock were sold, ostensibly at a fixed price of $2.57, which was the average closing bid price at the time of the deal. However, the amount of shares to be delivered is subject to "reset" for 90 days after the effective date. The reset formula is as follows:

((# of shares subject to repricing as set forth above) x (Purchase Price of shares subject to repricing x 117.5% - Reset Price))/ Reset Price (copied from the S-3A)

The interesting thing about this formula is that as the price of the common falls below the $2.57 initial sales price, the percentage increase in the number of shares to be issued is greater than the percentage decrease in the price of the stock. However, the difference in the two percentages is greatest if the stock only falls a little bit. The lower the price of the stock goes, the closer the percentage increase in the number of shares to be issued is to the percentage decrease in the stock.

This deal was done in December, and sure enough, the stock price declined from $2.57 to about $2 during the "reset period." This decline of about 22% in the stock price probably resulted in the "bandits" getting about 50% more shares than the initial amount.

So, maybe this is another attempt at a "kindler and gentler" floorless? It allows for a pretty hefty premium to the bandits in return for not completely destroying the stock price.

Two more tranches of the same type of financing are still to be sold. From a look at WAVC's balance sheet, they will need to use it again.
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