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Biotech / Medical : VD's Model Portfolio & Discussion Thread

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To: Vector1 who wrote (4612)	4/15/1998 8:48:00 AM
From: Biomaven	Read Replies (1) of 9719

V1, <<I have taken a look at the financing and frankly its not as bad as people have made out. First it must be converted within 3 years. Second, until December 20 of this year the conversion price is not less than $14.55 a share. GZTC is obviouly betting on a sucessfull phase III before the end of the year which will drive the stock price in excess of $14. >> I agree that this is not as bad as the "convert at 75% of the then price" financings, and that you do have protection until Dec 20. The issue is that any time after Dec 20, the holders have every incentive to deliberately drive down the price on 5 days of their choosing, so as to get good terms for their conversion, even if the price is then above $14.55. (Unless you take the view that this would be an illegal manipulation of the stock price). In other words, they would sell (short) say 1/3 of their holding at below the market price so as to get the same price for their entire conversion. The net effect is that the financing would be more dilutive than it appears to be. Peter

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