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To: Mark Ivan who wrote (35)	8/9/1999 9:37:00 AM
From: Harry J.	Read Replies (2) \| Respond to of 48

Mark & blank - It appears to this "never owned one" that convertible debentures often place the holder in a prisoner's dilemma. If there are several holders with equal holdings of debentures and only one converts and then immediately sells, it's likely the market price would go down (supply and demand, eh?). Thus, if the others want to convert at the same fixed price, any sale would be at the new, lower market price which likely would go down even more. On the other hand, if they convert and hold, they have to hope for a market price recovery to sell at or above the first escapee's price. If they don't convert but wait for the next conversion price adjustment, maybe they get more shares than the first converter because the market price is still depressed which pulls down the conversion price. If they sell these shares, the market price likely goes down more. The last one to convert may make a pile if the stock recovers. But, wait. Remember what they were doing. They agreed to earn less loan interest in exchange for an equity interest. Risk/reward game theory (granted, as I remember it from years ago) says they expect to make a multiple more off the equity kicker than they would from a straight loan which is why they took on the extra risk. So rational debenture holders would convert early if they think the market price will rise before the next conversion adjustment (in order to avoid a higher exercise price) but hold some or all of the shares to realize the anticipated increase in per-share value. Suppose they think things are slowly deteriorating? We are back to the rush to the exits question - "Do I convert and sell everything to lock in current gain/cut my losses?" OR "Do I think I have time to wait and see if there's a turnaround?" OR "If I dribble these out rather than dump them all at once, will I get a better overall price?" But each holder is deciding this independently - Do I rush to the exit, or do I hang around to turn out the light, or is the party just getting started?. Although us individual investors may "bet" on a company from time to time, my head is telling me that people who make such investments for a living are betting that the reward if the company makes it is going to more than offset the value of the tax loss and collateral if the company fails. Remember, good lenders look to the borrower's ability to repay, not to the value of the collateral the borrower is pledging since the last thing you want to do is pick up the pieces. Having just re-read this, maybe bank CDs don't look so bad after all. 8-) Regards, Harry