December 26, 2020
Loans represented by convertible notes are a major source of capital for exceedingly small and microcap companies. Both the lender and borrower understand the sole method of repayment is conversion to and sale of common stock. (\"market-adjustable securities\")
As a result, fixing the conversion price minimizes, but does not eliminate the market risk.
If the long recognized and relied upon \"tacking\" provision is eliminated, the borrowers and lenders will simply fix the conversion price at a tiny fraction of the existing market price that will result in the issuance of many, many more shares of common stock upon conversion than if issued at a discount. This will flood the market with common stock and materially dilute the existing shareholders.