Let me start by saying that I am not an expert on convertible notes.

My understanding is that they are a mix of a fixed (or variable) interest rate loan and share options.  Basically they are a loan with a determined interest rate structure - whether they are fixed rate or variable rate appears to be part of the initial offering information.   The difference is that when the lender goes to collect on his loan, the loan can be paid off in cash or in shares or a combination of both.  The shares used to pay off the loan can have a pre-determined strike price (like options excercise) or maybe a strike price cap.

I may be a little off here, and I think that there are huge numbers of variations depending on who decides what in terms of paying off the loan, how, and when.  I think that in the worst case (for the lender) they are basically guaranteed the interest rate on the loan, and might not see any appreciation from the share price, and may even take a loss on the share price (depending on the terms).

Best case is that they get paid out in shares valued considerably below the market price at the time of payout. 

Any experts on convertible notes should correct any mistakes in that summary, and maybe expound on the exact terms of the Silver Standard offering and what the pros and cons are to investors in the notes.

As far as investors in the common shares, I think that this is one of the least evil ways of raising additional capital.  It does not artificially limit the future earnings from the mine (like hedging would).  It does not immediately increase the number of shares outstanding.

However, in the long run, this will almost certainly increase the number of common shares (and thus dilute).

It has been noted by other sources that the dilution of this offering amounts to about a 5% dilution.

I must say that I am a little surprised as I thought that Silver Standard had sufficient funds to develop Pirquitas.  However, they might have felt that they did not want to deplete their funds to that level.