Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: Brooks Jackson who wrote (4697)	1/17/1999 3:56:00 PM
From: Brooks Jackson	Respond to of 122087

IMON -- more math on dumping incentive for preferred holders. As I figure it, on Friday Shaar Fund theoretically could have converted their $1m worth of preferred stock into just over 1m shares of common, worth over $5.3 million at $5/shr. But, because of Friday's spike in price and the consequent increase in the 5-day average price, Shaar would only get 670k shares of common if it waited until Tuesday to pull the trigger. That translates to leaving $2m on the table, assuming they can't get any better price on Tuesday than they did on Friday. My calculations: Day of 5-day #of shares Value of shares @ $5/shr Coversion avg close common available Friday $1.51 1,069,791.14 $5,348,955.68 Tuesday $2.40 673,076.92 $3,365,384.62 Theoretical penalty for waiting: $1,983,571.06 A footnote: The preferred holders may be unable to convert all their shares on any given day due to a clause that says they cannot covert if it would cause them to "beneficially" hold more than 5% of the outstanding shares of common. Since there were 11,479,727 shares of common outstanding, per the Jan. 11 filing, this means all the preferred holders combined could convert a maximum of a little over 600,000 shares at a time. I assume they could unload those shares and be able to convert another 600,000 as soon as they no longer beneficially own the others, and I supposed they could even convert and dump, convert and dump two or three times all on the same day. Perhaps there are SEC rules that would prevent that, I don't know. But even so, it seems to me there's a huge incentive for the preferred holders to convert and dump as quickly as they can. Which is good for shorts, bad for longs.