Dan,
My understanding of a 504 is that it is a debenture, meaning that someone with money to loan the company will eventually get stock back in exchange. What they start out with, though, is a debenture, something they can exchange for stock when the time is right. If enough restrictions are placed on the debenture agreement, investors do not freak out. They understand that the person with the debenture will have to exert a lot of patience and discipline to finally convert all their debentures into stock.
Another kind of debenture agreement, however, is called "floorless" and the truth is I have a ways to go before I fully understand it. I do know that the end result can be devastating for a stock. If I understand it correctly, the debenture holder has a motive to short the stock to the highest degree possible, and then when the stock is at a low point, execute the debentures, resulting in massive dilution. I think many investors/traders stay away from a stock with floorless debentures hanging over its head, until all have been executed (and the count on outstanding shares is finally "fixed.")
So whenever someone talks to the company again, perhaps ask what kinds of restrictions are on the debentures.
I liked the summary of the conference call very much. Looks very interesting here.
Chris |
