Blue Biofuels Inc (BIOF)

[LTE]

The losers in "death spiral" financing due to "calamitous dilution":

There's an ALLM ally posting here whose supporting "death spiral" /
toxic debt financing.

But if anyone wants to really know what's at stake, this scholarly
article shows that the shareholders are basically screwed:

<<V Managerial Motivations, Winners, Losers, and Remedies to Contract Design

Table II shows the largest investors in floating-priced convertibles. While the obvious gains from the issuance of death spiral convertibles accrue to the holders themselves, the losses are dispersed over multiple stakeholders. The biggest losers are usually the company's original creditors. If most of the issuing companies are destined for business demise anyway, then the company should probably terminate its life while assets remain to pay off existing debts. In reality, however, after the "death ride" is over, there is usually nothing left, and the creditors are left with nothing. The common shareholders also lose. In addition to the often calamitous amount of dilution they suffer, the possibility that their stock will be worthless is very real. Unfortunately, most companies do not inform their common shareholders of such deals until long after they have been struck and the toxics issued. There is no regulatory requirement that issuing companies must warn their shareholders of such deals beyond their regular SEC filings, particularly if the issuing company's shares are traded on the OTCBB or the Pink Sheets. Therefore, when a company issues toxics immediately after completing its regular filing, shareholders may well remain unaware until the firm's next filing, which could be three to five months later. By then, the stock price may have plummeted.>>

http://www.freepatentsonline.com/article/SAM-Advanced-Management-Journal/130469754.html