No Random Walking!

As part of its plan for Chapter 11 reorganization, US Gypsum (USG) announced on January 30th that it is issuing a $1.8 billion rights offering to the existing shareholders, backstopped by Berkshire Hathaway Inc. (for a $67 million non-refundable fee). The proceeds from this offering, plus USG's cash on hand, tax refunds and new long-term debt, would help the company fund its asbestos personal injury claim settlement and merge from the bankruptcy.

As a shareholder, I am having problem understanding this rights offering and its implication on my shares. After some research, specifically on the Yahoo message board, I've at least got some questions answered.

=> What are the 'rights'?

The right USG is offering is a stock option with a strike price of $40. As an existing shareholder, you have the rights to get an extra share of USG by paying the price of $40 per right. Suppose that USG trades at $85 just before the rights-offering period, if you exercise the rights, you will end up having 2 shares of USG each priced at (85+40)/2, or $62.5.

=> What choices do I have?

You can exercise the option, sell it, or allow it to expire (in the case of this security, letting it expire is entirely illogical unless the share price goes below $40).

=> What is the exercise date?

The exercise data is 11/15/2006???

=> How do I calculate the price for the rights?

Take the post-rights price ($62.5), you subtract the 40 you have to pay to exercise the right to come up the proper value for the rights: 22.5 per right.

=> What if I don't have extra cash to exercise the rights?

"You could sell part of your regular share before the ex-date then exercise the right. The best result will be if there is a runup in USG stock during the exercise period. This will drag the rights trading price up also but the exercise price of $40 remains fixed. The larger the delta between share price and $40 the fewer shares you have to sell to exercise rights."

=> What if I do nothing?

I don't know yet. Will I be credited the value of the option at the time of closing, i.e., $22.5.

=> How about tax consequences for the choices above? For IRA accounts or otherwise?
=> Or more importantly, should I ignore all this rights things and trade the existing shares based on my usual trading rules?