Harry,
Here's what I gather
POTENTIAL FOR DILUTION
As of June 29, 1999, 10,000 shares of our Series A Convertible Preferred Stock were issued and outstanding. Each share of the Series A Convertible Preferred
Stock is convertible into such number of shares of Common Stock as is determined by dividing the stated value ($1,000) of the share of Series A Convertible
Preferred Stock, which value is increased at an annual rate of 6.0%, by the current conversion price. The conversion price prior to October 4, 1999 is $8.55 and
after October 4, 1999 is the lessor of $8.55 and 100% of a measure of the market price of the Common Stock at the time of conversion.
***
This says it is a floorless, but then there is a catch.
***
The maximum number of
shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock is 2,776,594. If we issue 2,776,594 shares of Common Stock on
conversion of the Series A Convertible Preferred Stock, the remaining outstanding shares will be redeemed by us on or before June 4, 2001 for a price of 103% of
the stated value plus a premium of 6.0% of the stated value per year. In addition, as of June 29, 1999, 2,545,343 shares of Common Stock were reserved for
issuance upon exercise of our outstanding options and warrants. Accordingly, purchasers of Common Stock could therefore experience substantial dilution of their
investment upon conversion of the Series A Convertible Preferred Stock and/ or exercise of our outstanding options and warrants.
***
Now this says the max number of shares is 2,776,594. With 10,000 shares of Convertible Preferred Stock with $1000 value, then I get
((10,000)x($1,000))/2,776,594 shares = $3.60 share price.
Thus if the price drops below $3.60, there is no further dilution of the stock. But, I think the stock is still issued, but the company buys it back to prevent the dilution. Thus the preferred holders can convert into more than 2,776,594, but the total dilution is limited as the comapny will buy back what is need to keep the dilution down. Thus if the stock drops to $1 and the prefferred convert into 10M shares, then the company has to buy back 7,223,406 shares off the market at what would be $1 a share. Thus, for the preferred holders, than can short this one to death. After the price drops below $3.60, the company wil then face expense in buying back stock, which approachs 10MM as the stock price goes to $0.
Hope I got this right
mark
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