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Technology Stocks : WAVX: Wave Systems Corp.
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From: TREND19/12/2008 10:17:42 AM
   of 604
 
from bbigtim
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For those of you who don't seem to have even a rudimentary understanding of how convertible financing works, a brief summary.

Fixed price convertible preferred shares can be converted into common shares at a fixed price. The purchasers earn interest on their investment and have precedence over common shares in any liquidation. This type of investment is significantly safer than owning common shares, but the holders of the convertible shares still benefit most if the company prospers.

Floorless (or "death spiral") convertibles are a totally different creature. The principal can be converted into common shares at the current market price. This creates the perfect environment for deliberate destruction of a company. The holders of the convertible shares short common shares against their position, driving the price lower and lower in the process. When they have successfully destroyed the company, they cover their shorts by converting their shares.
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