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Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: dougjn who wrote (1991)	2/11/1998 4:46:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 6021

Doug, in theory, whenever a convertible is issued, it is issued with the idea that it will always be converted, so the conversion terms are usually pretty liberal. In other words, this is a kind of "deferred" equity offering. I'm guessing (and the math is pure guesswork -- I have nothing to back up these suppositions) that the bonds will carry a nominal interest rate of 2.5% and be convertible after five years. If so, NETA will receive about 86.77% of the face value of the bonds, or about $260MM. Now, to make this attractive to the bondholders they need to be able to convert to shares of NETA at a substantial discount. I'm guessing that the bonds will be converted at about $120. That would give them a minimum total annual return of about 17.4% if the bonds are convertible after five years. If so, we're talking about a potential dilution of 2.5 MM shares. The real potential for dilution, however, will depend on what NETA does with the cash. If it's part of a purchase that includes NETA equity who knows what will happen. I am heartened by the fact that at least we are talking about using cash for potential purchases. Regards, Paul