I think we have some time before any decisions need to be made. The key will be the cash flow off the prisons and the business, all the rest of this stuff will work it's way out if that's is what is meant to be.
The $150mm (roughly $1.20/shr.)paid out in a PIK pref. will be "real" money as Frankwatermelonwine mentions. BUt of course the question is what will be it be worth when you want to sell it. The important thing to keep in mind when your given each of of these decisions is what is the comparable worth? In other words, if the pref A is yielding 17% then 12% new pref. won't be worth as much. I feel conversion to common will be our only option.
The rights offering and the conversion period for the PIK pref. will have a reasonable amount of time to decide. IMO, if you choose NOT to add more money to PZN considering selling the rights early.
Of course all of these crazy options PZN is taking are forced. PZN has no cash so they must give us "paper" instead. The IRS does not allow PZN to pay in common stock because it has minimal par value or redemption value. Pref. Stock does. Conversion to common stock windows like PZN has set up are ways PZN can quickly get get the pref. off it's balance sheet. As I explained earlier why, everyone knows a 12% yield on it is not a "fair value" and opting out quick is probably the better route.
If you are a really long term investor that does not wish to commit more money this is what I'd do. Sell your rights in the first few days, convert your PIK to common when given the window and forget about your shares for 5 years. The rights offering and the conversion of the PIK, IMO, will leave this stock dead for awhile. The sheer amount of new shares coming out will be very large and be a big over hang through a lot of this year. The stock certainly could go into the $2 area, maybe lower, who knows. If the right offering came tomorrow the price would be $2.19 and that would be 91mm shares. Add the expected conversion of $150mm from the PIK pref. at say $3 and that's another 50mm new shares into the market place. PZN has 120mm shares or so now. SO that's 141mm new potential shares coming into the market place this year. PL also gets warrants on 10% of the company too. It's going to be hard to keep up with the amount of shares coming out.
One option if you own a good slug of stock already and want to buy more, think about the pref. A instead. Sure the upside is limited, but if you look at it as a part of your whole PZN investment you'll be earning(hopefully)some income off of your investment in the next few years. If you have 2/3's in common and 1/3 in the pref.A your average return will be 6%( the pref. is about 17-18% yield) on all the invested money. Also the pref. A is not effected by future dilution.
I know some think I'm too bearish but I'm just trying to be ojective. A rights offering has a ex-date just like a cash dividend. The rights will trade when-issue for a few days prior to going ex. If everyone gets two rights per every three shares owned and the common is at $3.375, a excerise price will be $2.19. So what's the right worth to go ex.? If the stock remains unchanged then the intrinsic value of your rights is $3.375-$2.19=$1.19/2 or $.59 a peice. If it took one right to buy one share then the stock would go ex. $.59 to roughly $2.75. The rights trade on their own and relative to the common. If the stock moves to $3, the right would be worth $.81 ($3-$2.19) If the common moves to $2 1/8 the rights will trade for almost nothing. Plan on it going to $2 1/4 to $2 1/8(or the exercise price what ever that is) IMO...I'd tell you in more detail why it will but I don't want to give my trading strategy away on these things...don't need the competition.
I'll keep trying to explain this stuff as best I can, it's not easy keeping up with it. I'm following it because I think there is a good buying opportunity coming up.