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[QUOTE]Originally posted by glassman: [QB] [b]The deal seems straightforward enough—although it can take many forms. The financiers will give the company money in exchange for a convertible debenture, preferred or equity line at a discount to the market price of the shares. The key here is that the conversion rate/price is not fixed, and in some cases there is a share price level, usually significantly below current market that will stop the advancement of a larger second tranche of funds. My stock will never get that low, concludes the CEO, confident that this deal will save his company. What he doesn’t know is that these sharks have likely found the company not based on the potential of the technology, but on the capital structure and the potential to whack the crap out of the share price and make them and their buddies a crap-load of fast money. The result will likely be the complete destruction of the company at most, massive crippling dilution for the shareholders at least and likely land the whole thing in litigation. A handful out of hundreds of company that go down this road actually prosper, but not before a lot of financial pain for everyone other than the ‘good samaritans’ that structure these toxic deals. Without fixed pricing, the financiers and their buddies make their money by pounding the shares through shorting—usually of the naked variety-- and, once the price has been decimated (the dreaded death spiral) convert their debenture, preferred —whatever—into ridiculously cheap shares to cover their massive short sales. Usually, the lower the price, the more shares they get courtesy of a favorable value/conversion rate. [/b] http://www.smallcapnetwork.com/archive/listserv/20051101-1.html of course you've already read this board right? [URL=http://www.allstocks.com/stockmessageboard/ubb/ultimatebb.php/ubb/get_topic/f/14/t/004460/p/1.html#000017]http://www.allstocks.com/stockmessageboard/ubb/ultimatebb.php/ubb/get_topic/f/14 /t/004460/p/1.html#000017[/URL] [/QB][/QUOTE]
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