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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: Larry Brubaker who wrote (816)	8/8/1999 1:53:00 AM
From: Larry Brubaker	Read Replies (1) \| Respond to of 1438

Wow! The financial wunderkind worked overtime on the Westell floorless. Here are some provisions I think I picked up on further study of the filing. Disclaimer: this deal is very complicated and I've just barely scratched the surface, and am not even sure that my scratches are correct. But this is the way I read some of the basic provisions: Conversion of the debentures can occur beginning 180 days after April 14, 1999, and is at the lower of the "Variable Conversion Price" or the "Market Conversion Price." The "Variable Conversion Price" is more like a fixed (or ceiling) conversion price, but can be adjusted one year and two years from April 14, 1999. Initially, the "Variable" (fixed) conversion price is $6.37. This price can be adjusted downward to as low as $4.46 (the "Green Floor Price"), but not upward. The "Market Conversion Price" is the average of the 5 consecutive lowest closing bid prices over the 10-day period immediately preceeding the conversion. If the market price on April 14, 2000 exceeds the Variable Conversion Price by 150% or more, the Market Price conversion option goes away unless a vaguely defined "Material Adverse Event" subsequently occurs. Given that the initial ceiling on the conversion is $6.37 (and looking at the market action of the stock since April 16), I'd guess the bandits are trying to establish their hedge at $9 to $9.5. If this stock acts like VLNC over the last year, this price will probably be a pretty firm ceiling on the stock. The bandits may also be providing a floor in the $6.5 to $7 range. One might try to play this by buying at $6.5 to $7, and selling and/or shorting at $9 to $9.5. Note that the bandits will not want the price at or above $9.55 on April 14, 2000, because they would lose their floorless conversion priveleges (if they have not already used it).