Peter,
Unusual Convertible Preferred Raises Needed Cash--and Risks:
article on page C1 of today's Wall Street Journal applies to GZTC.
These securities are also referred to as "toxic convertibles" or "death spirals", and are sometimes used by companies that need money fast and feel they have nowhere else to turn.
[excerpt]......
Critics of the convertible-preferred transactions say the dilution in the stock's value results from the way the deals are structured. In these private-placement financings, companies receive a set amount of money, usually from new investors. In return, the new investors get preferred shares that eventually can be converted into an unspecified number of newly issued common shares. The number of new common shares varies with the stock price...
...To short sellers, "toxic convertibles are a red flag" that a company might have problems and is using a financing tool of last resort, says Morton Cohen, a hedge-fund manager with Clarion Partners in Cleveland.
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David Irwin, head of NASD listing qualifications says they may institute more stringent risk-disclosure requirements for this type of financing, including "restrictions on the securities' structure intended to protect shareholders by limiting possible dilution."
The article notes that the preferred investors are often banned from selling the stock short, though I couldn't details wrt that for the GZTC deal.
Shepherd and Stark are categorized as 'market-neutral' hedge funds by the Managed Account Reports rating service: marhedge.com
Will
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