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To: Don Miller who wrote (2519)	4/22/1999 10:32:00 PM
From: quidditch	Respond to of 10280

Don, If LEAPS mean nothing more than distant-in-time, out of the money options, then I would think that a buy-out price that put the LEAPS in the money would entitle you to the difference between the buy-out price and the LEAP strike price. Regards. Liacos_samui

To: Don Miller who wrote (2519)	4/22/1999 10:37:00 PM
From: IRWIN JAMES FRANKEL	Read Replies (1) \| Respond to of 10280

Leaps are options -- just longer. The issue if there is one is in the event of a merger will the leap continue as an option on the surviving company. I think it will. And this is easy to do if the merger is for stock. But if it is for cash -- the leap would either be a winner or loser at that point and the time value would be worthless. Who wants an option to buy cash? If I am wrong -- I welcome correction. ij

To: Don Miller who wrote (2519)	4/23/1999 6:19:00 AM
From: B. A. Marlow	Respond to of 10280

LEAPS are identical to shorter options, Don. Pursuant to a takeover, whether for cash or stock, a "risk discount" is generally built in to the acquiree's trading price relative to the "takeout" price. This discount often ranges between 5-7 percent and tends to decline to zero as the deal's closing date approaches. Two recent examples of this phenomenon have been AOL/NSCP (now closed) and YHOO/BCST, scheduled to close in the third quarter. If you look at the price of BCST and apply the share conversion formula (0.7722 shares of YHOO for each share of BCST), you'll see that by buying BCST now, you're receiving a discount of nearly 7 percent on YHOO shares. You merely accept the risk that the deal will fall apart before it closes. The same benefit is built into all BCST options, although LEAPS aren't available for this security. Risk discounts tend to decline somewhat progressively from the time that deals are announced until they close. If the implied risk discount is 6.5 percent initially and the closing is scheduled for 6 months hence, the discount might drop by 0.5 percentage point in the first month, 1 percentage point in the second and third months and 2 percent in each of the final two months. An exception to the risk discount applies in a case where it appears likely a higher offer for the target company will shortly emerge. In effect, a "bidding war" can produce a "risk premium." In this case, the target company's shares may be initially bid up above the nominal deal price and the target company considered to be "in play." Once again, the options will track the stock. So, along with the common stock, a risk discount or risk premium will be reflected in all options, including LEAPS, until more information is known or the deal closes. It's important to be clear that, once a definitive stock-for-stock deal agreement is signed, the acquiree's stock, less the "risk discount," will tend to track the acquirer's stock very closely. In effect, the two firms become one and the same firm. Now, if a cash takeover is proposed, the risk discount or risk premium will still apply, but the acquired company will not be participating in the acquirer's stock appreciation, if any, beyond the cash offered. In such a case, the options' upside will likely be limited to the progressive decline of the risk discount (and appreciation of the acquiree's shares to the stated cash takeout value). As with all call options, the holder of a LEAP option may exercise (or sell) it at any time prior to expiration and take delivery of the underlying stock (or that of the acquirer, if applicable, and according to the conversion formula) at the appropriate strike price. This is a complex and elusive subject. Hope this clarifies the issue. If not, just post any follow-up questions. BAM