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Technology Stocks : Quarterdeck: Making a Striking Comeback!
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To: Jesse Livermore who wrote (2218)1/14/1998 10:32:00 PM
From: DS  Read Replies (1) of 3307
 
Don"t think most preferred holders would want the common to go down to $1 just so they could get more shares of a lower price stock (no change in value). Remember, if the common isn't above their conversion price then they haven't made any money on their preferred shares (conversion value will approximate mkt value). Only way for their "investment" in preferred to increase in value is if common shares are above conversion price. The deal was structured that way to allow preferred holders no downside risk (except of course bankruptcy) but lots of upside potential. Remember, they aren't getting paid a dividend (downside protection was given instead).

Also, don't understand why convertible holders would want to be "short". Their downside is already protected and by "hedging" all they are doing is locking in "no gain" - preferred cost $1000 per share and conversion value (assuming stock stays below $5.125) is also
$1000. Why would the want to hedge a "breakeven" position with no downside risk ?

DS
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