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Strategies & Market Trends : Floorless Preferred Stock/Debenture
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To: Dave K who wrote (121)10/10/1998 5:33:00 AM
From: Roger A. Babb  Read Replies (1) of 1438
 
Dave, the CFON equity line deal is described in an 8k SEC filing. The REFR deal in an S3 filing. These deals are just a "backdoor" way to do a secondary public offering of shares. Typically the "fund" buying the shares is just flipping them to the public, taking their cut along the way.

What these deals have in common with floorless convertibles is:

1. Equity lines are done only by companies which are not strong enough to raise money by normal credit lines or by traditional secondary IPO. I have yet to see one by a company with real earnings.

2. The company is trying to raise a fixed amount of money, not sell a fixed number of shares. Thus the number of shares to be sold must increase as the dilutive sales drives down the stock price. The company may use a floor price to mitigate the driving down of the stock price, but usually must lower the floor price in steps or the desired amount of money will not be raised.

3. The equity lines are never placed with respectable domestic funds, almost always placed with offshore funds specializing in floorless convertibles.

4. The stock price declines. I have yet to find an equity line deal where the stock price was higher one year later. If someone knows of a successful deal where the stock price went up, please tell me about it.
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