Sorry to jump in TradeX8... no doubt this will be dismissed as just fake anyway but here goes:
http://www.nasdaq.com/investing/glossary/t/toxic-convertible
"Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as death spiral convertibles or floorless convertibles.
"
https://en.wikipedia.org/wiki/Death_spiral_financing
"Death spiral financing is a process in which
convertible financing used to fund primarily
small cap companies can be used against it in the marketplace to cause the company’s
stock to fall dramatically, which can lead to the company’s ultimate downfall.
Many small companies rely on selling
convertible debt to large private investors (see
private investment in public equity) to fund their operations and growth. This convertible debt, often
convertible preferred stock or
convertible debentures, can be converted to the
common stock of the issuing company often at steep discounts to the
market value of the common stock
".
http://pot-stocks.com/toxic-financing-convertible-notes/
"You can’t predict that a company will grow, but protecting your investment means that certain terms should raise red flags, and propel you to investigate further. It would require more than a single article to adequately explain all the forms of toxic financing, but there is one form that you will see more frequently than others, especially in the penny-stock market—
convertible notes. Although convertible notes can be complicated, it works more or less like the following example.
If a company needs to borrow money, it may have to agree to its debt being converted to free-trading shares instead of cash, but at a huge discount, perhaps based on the lowest closing prices within a period of time, say two weeks. This discount could be as high as 50-60% and could include a large percentage of the total shares. Since penny stocks are volatile, that price could be considerably below the actual market value.
Once the shares have been converted, the debt holder would then pay someone to promote the company publicly in order to raise the price again. This could attract new investors or cause the existing ones to buy more, who may not know about the debt. The lender would then sell the shares at the higher price. Referred to as dumping, this would drive down the price of the shares. In turn, this would make it difficult to raise more money and the company would likely resort to even more toxic financing. The lower the share price, the more discounted shares have to be issued to settle the new toxic debts. This is known as dilution; and this vicious cycle can often result in the collapse of the business."
