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Non-Tech : James Cramer -- Ignore unavailable to you. Want to Upgrade?

To: mr.mark who wrote (701)	7/5/2000 3:57:20 AM
From: EL KABONG!!!	Respond to of 766

thestreet.netscape.com A CFO Primer By James J. Cramer 6/26/00 9:25 AM ET Time for a chief-financial-officer primer. Others might want to follow along. But this is meant for beleauguered CFOs of dot-coms that are running out of money. Pay attention. OK, you are the CFO of NationalGiftWrap.com. Your stock is at 30. Your bankers have told you that the capital markets are closed to you despite the fact that you are backed by idealab!, Benchmark, Sequoia, Amazon (AMZN:Nasdaq) and the guy from Starbucks (SBUX:Nasdaq) -- as well as the Internet Capital Group (ICGE:) . (They bought their stake site/sight-unseen from one of their private jets after reading that NatGift was the category killer in the high-growth seasonal gift-wrap business.) So, you take a call from Sisyphean Asset Management, which has offered to buy a convertible bond from National GiftWrap.com. Hmmm, sounds good. The folks from Sisyphean are offering a good deal. In return for 5% of the company, in the form of a convertible bond, they will give you $100 million. Cool! So you do it. You don't know anything about convertible bonds, but you agree to pay 5% interest on the convert and if your stock goes to 40 a share, you can convert the bonds into equity. What a great trade! How could you lose? It's cheap capital and -- if your stock goes up -- you can wipe out the debt!! Wrong. Your stock ain't going up, you stupid idiot. Here's why. Immediately Sisyphean takes the covert, it starts slamming your stock down. It may use upticks, it may not. But it will short your stock till oblivion. And why not? It is stopped out if the stock rallies by the conversion provision. If it can knock your stock down enough, people will panic and it will go down even further. Meanwhile, you are burning through the cash and you don't understand why there is so much pressure on the stock. You see, the convertible owners and the common stock holders are at war, and you have sold out your common stock holders because you did not put in an anti-short provision for Sisyphean. (They wouldn't have done the offering if you hadn't. Their whole point is to destroy your stock!!) How do they win? Let's count the ways. They get the hefty yield. They get the interest on the proceeds from the short side. (They sell the stock and earn income on those proceeds.) And if they can put you near bankruptcy, they can cover the short, make the profit and live off the yield. If they put you in bankruptcy, they never have to cover! But they do lose the dividend. That's OK; the short-side trade more than makes up from the losses from the bond. How can this happen? Cause many CFOs are as dumb as wood. How do I know this? Because we once owned 8% of a company that did this stupid trade and we lost everything!! James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com . KJC