Of course a convertible holder can short the common while providing collateral via the convertible shares.
That is true of every single convertible ever issued by any company in the world - just need to find the right broker to accept that collateral, and that goes with the territory for any investor capable of buying that convertible in the first place.
However, a variable conversion price would be needed for me to consider a particular convertible "toxic" and differentiated from the vast number of "legit" convertibles that have fixed conversion prices.
When you say "toxic" you are implying that there is a variable conversion rate involving some kind of discount to market prices. Until I see evidence of such a variable rate conversion at a discount I do not consider a convertible, from PXYN or anyone else, to be toxic. I do not see death spiral financing here, as you would seem to be trying to imply.
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