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Gold/Mining/Energy : American Eco (ECGOF, ECX on Toronto exchange) -- Ignore unavailable to you. Want to Upgrade?

To: Frederick Langford who wrote (1759)	2/23/1998 8:03:00 PM
From: david james	Read Replies (1) \| Respond to of 2841

There are all sorts of "convertibles", some would be fine, some would not. 1. Floorless convertible debentures (Bad). This is what we had before. The owner of the debenture collects interest and is allowed to convert at some discount to the stock price - say 10% below the price of the previous 7 days. In this case, it often pays the owner of the debenture to short the stock down to the lowest possible price before converting and using the converted shares to cover the shorts. 2. Convertible debentures that are convertible at a discount but with a floor (better but still not good). This allows owners of the debenture to convert at a discount to the price down to some fixed level (the floor). In this case, it is profitable for the debenture holder to short the stock, but only down to the level of "the floor". 3. A "Convertible" at fixed rate (much better). This may be considered to be a form of warrant (??). In this case, the owner of the "convertible" converts from cash to shares at a predetermined and 'fixed' rate. So lets say that DBCO shareholders got $2.50/share. They might have the choice to either collect interest or be allowed to convert each 4 DBCO shares to 1 Eco share. However, one gets this conversion independent of the price of Eco, so there is no interest in the owners of the convertibles to drive the stock down. In fact, it is in their interest to see the stock as high as possible. 4. A "delayed fixed rate convertible" (better still). Same as above, except that the owners of the convertibles can convert only a portion of their shares at any time. This means that shares won't be dropped on the market all at one time and will take a much longer time to add dilution. Again, since the conversion price is pre-determined (e.g., 4 DBCO shares for each Eco share), this is really a form of delayed stock swap. And as far as I can see, all the parties would want to see the Eco shares as high as possible. I bring this up, because the "gossip" that I am hearing is that we may see the last form of convertible. I believe that McGinnis previously said that in referring to the floorless convertible debentures that he would not use that sort of financing again. However, the 4th form of convertible would, in my opinion, be quite different and would provide no motivation for the holders to drive the stock down. Furthermore, if they implemented this, I suspect that they would have a clause providing them the right to buy back the convertibles at face value if they saw fit - opening the possibility that if a bond deal went through, they could buy them at the original price (e.g., $2.50/share). And please don't take any of this as being solid information. I am just trying to put together bits and pieces that I've heard. David