their faith in Gearhart and only had Gearhart's past record on which to base their investment decision.  The warrants help to combat the uncertainty surrounding the fate of their investment and Gearhart.  The valuation of the warrants was reasonable as well due to the inherent uncertainty of the situation.  Their "springing" nature allows the investors some flexibility and also allows Gearhart to convert debt into equity.  (5) Drexel Burnham's representative testified that in arriving at the exercise price of the warrants, his firm sought to eliminate the effects the recent Smith buying and possible tender offer had had on the market price of Gearhart stock.  The evidence shows that through most of March, prior to the Smith buying blitz, Gearhart stock traded belowgiving Aetna 38.5% of the outstanding Gearhart common stock.  An important feature of the deal commits Aetna to voting its acquired Gearhart shares in the next Gearhart directors election in accordance with the recommendation of a majority of the ten-member Gearhart board, not including the four directors to be designated by Aetna.  On all other corporate matters, Aetna must vote its shares according to the wishes of a majority of the ten-member Gearhart board, including the Aetna designees.  This means that the shares controlled by the current Gearhart management, plus the shares held by Aetna which, in effect, will be voted by the Gearhart directors, will lock up 42.6% of the vote in the next election of directors.


68
Smith learned of the pending Gearhart-Geosource deal on