No. of Recommendations: 1
To anticipate your next question, the reason the debt is convertible is because the lender plays second fiddle to the secured creditors of the company (the bank). The bank gets paid off first, then the subordinated debt holders can get paid. Since the subordinated debt holders have to wait until after the bank gets paid before they will get paid, they require some additional incentive to lend money to the company. In this case that "incentive" is the ability to convert their "2nd mortgage" (as Marv called it) into common stock of the company.

Hope this helps.
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