Larry you have to forgive this English challenged turnip farmer, but I read: "warrant to purchase the of shares of its common stock at the same exercise price ", to me that means that if the stock is let say at $5 (for rounding) they can convert their existing $7.5 MM to 1.5 MM shares and have a warrant to buy an additional 1.5 MM at the same price. If the price is halved to $2.5/share their paper would cover 6 MM shares. Right now, for instance, if they so wanted, they can short at $7.5/share a total of 2.5 MM shares (if they can find these) since they can always cover these by conversion at $6.03 (the ceiling for both the preferred and warrant). All that is not so bad if the stock holds above $6 (the company does get another $7.5 MM after all). But, if they indeed engage in hedging (and why the hell not, the receipt from hedging will cover their obligation under the preferred the warrant and then some), the price may start and deteriorate, and once it goes under the ceiling, the number of underlying shares will increase. Furthermore, the floorless feature cannot be removed by VLNC (the July 1999 date) because the floorlessness is no longer dependent on VLNC achieving or not specific milestones. I am not saying it will go into a spiral, bu IMHO, the chance of such an occurrence are better then 50% in view of the uncertain markets ahead and the fact that it appears that we will not have a material order by January 1999. I think that a breach of the current, still bullish, pattern would be quite dangerous.
Zeev
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