Quoted below are excepts from the 10K annual in regards to the PP terms. My post
here deals with the conversion rate or supposed floor if you will. I believe that
Dr. Frankel has acknowledged that there is in fact no floor after having been
advised that there was one. I still cannot say with accuracy even after reading
the public record. I can however say that I do not believe that there is a floor.
I have tried my best to highlight what I believe to be the pertinent passages that
operate in that area of interest. I have not been selective through omission in as
much I think I've seen all that is filed on the subject and listed it below.
Further to that I've also made a chart indicating the geometric growth that would
be experienced by the PP holders as they convert at lower and lower share prices.
All quantities of shares in the yield are based upon the conversion of only $1,000,000
in debt. The numbers still have to be multiplied by the amount of funds used and
subsequently converted. Right now at $5,000,000 trending towards $10,000,000.
Please keep in mind that the PP debenture specifically gives the debenture holders the
right to short and even short against the box. I had originally thought that RG would
withhold the filing for SEC registration so as to wait for a share price increase
and thereby cause relative little dilution. The company did file and as we can all
see the price has been going south ever since.
These conversion amounts are per $1,000,000
Share Price/Discount Yield in Common shares
0.125 0.0875 $1,000,000 11,428,571
0.12 0.084 $1,000,000 11,904,762
0.115 0.0805 $1,000,000 12,422,360
0.11 0.077 $1,000,000 12,987,013
0.105 0.0735 $1,000,000 13,605,442
0.1 0.07 $1,000,000 14,285,714
0.095 0.0665 $1,000,000 15,037,594
0.09 0.063 $1,000,000 15,873,016
0.085 0.0595 $1,000,000 16,806,723
0.08 0.056 $1,000,000 17,857,143
0.075 0.0525 $1,000,000 19,047,619
0.07 0.049 $1,000,000 20,408,163
0.065 0.0455 $1,000,000 21,978,022
0.06 0.042 $1,000,000 23,809,524
0.055 0.0385 $1,000,000 25,974,026
0.05 0.035 $1,000,000 28,571,429
0.045 0.0315 $1,000,000 31,746,032
0.04 0.028 $1,000,000 35,714,286
0.035 0.0245 $1,000,000 40,816,327
0.03 0.021 $1,000,000 47,619,048
0.025 0.0175 $1,000,000 57,142,857
0.02 0.014 $1,000,000 71,428,571
0.015 0.0105 $1,000,000 95,238,095
0.01 0.007 $1,000,000 142,857,143
0.005 0.0035 $1,000,000 285,714,286
Various statements have been attributed to Mr. Deutsche relative to doing whatever
he could to get the price down. I cannot comment on the veracity of those statements
made by the poster ztect, only that he has stated that they were made by Mr. D. directly
to him in a phone conversation.
If there is any truth to these statements then there would certainly appear to be a
correlation between the statements and the action of the share price. If there
is no floor as it would appear in the filed document then please carefully review
the chart to see how PP holders in floorless debentures can basically take over a
company by driving the price ever lower for conversion at their
preordained price through the shorting of the stock. One day we, at almost 20,000,000
shares, owning almost 25% of the 80 or so million share issued wake up and find that
we still own 20 or so million shares but that the PP holders or whomever they
represent now own 400,000,000 shares and our 25% equity has just been readjusted
downwards to just 4% of the total issued.
I have also included other excerpts for your perusal and education. Many more questions
arise but there is just so much that can be done on one post.
I would sincerely appreciate any constructive comments especially from Zev who
seems to have been following floorless debentures for some time now.
Definitions;
3. The Holder of this Debenture is entitled, at its option, to convert at any
time commencing on the date hereof, the principal amount of this Debenture or
any portion thereof, together with accrued but unpaid interest, into shares of
Common Stock of the Company ("Conversion Shares") at a conversion price for
each share of Common Stock ("Conversion Price") equal to 70% of the Market Price
at the Conversion Date (as defined in Section hereof), subject to adjustment as
set forth in Section 3(e) of the Registration Rights Agreement. The term "Market Price"
shall have the meaning set forth in the Purchase Agreement.
(a) The Company agrees that it will prepare and file with the Securities and
Exchange Commission ("Commission"), no later than April 15, 1999, a registration
statement under the Securities Act (the "Registration Statement"), at the sole expense
of the Company (except as provided in Section 3(c) hereof), in respect of all
holders of Registrable Securities, so as to permit a public offering and resale
of the Registrable Securities under the Act.
The Company
shall use its best efforts to cause the Registration Statement to become effective
within ninety (90) days from such filing date, or, if earlier, within five (5) days
of SEC clearance to request acceleration of effectiveness. The number of shares
designated in the Registration Statement to be registered shall include the
number of shares of Common Stock which would be issued upon conversion of
the Convertible Debentures assuming a Market Price of $0.10 per share of
Common Stock, and shall include appropriate language regarding reliance upon
Rule 416 to the extent permitted by the Commission. The Company will notify Holder
of the effectiveness of the Registration Statement within one Business Day
of such event.
No where in this PP agreement can be found that $0.10 is the floor. The statement
noted above uses the word assumed but not the words limited
to $0.10. Therefore if the price were to fall even lower than $0.10, which by
the way at 30% discount, would produce a conversion rate of $0.07 and thereby for
each $1,000,000 used 14,285,714 shares to be issued in the conversion. So
far a total of $5,000,000 is planned out of the total of $10,000,000, which if the
floor was $0.10 could result in 142,285,714 new shares to be issued. However, if
there is no floor as one would be led to believe by the lack of associated wording,
and the price moved further south check out the chart.
(e) In the event that (i) the Registration Statement to be filed by the Company
pursuant to Section 3(a) above is not filed with the Commission on or before April 15, 1999,
(ii) the Registration Statement is not declared effective by the Commission within
ninety (90) days from the filing date, or (iii) the Registration Statement is not
maintained as effective by the Company for the period set forth in Section 3(b)
above (each a "Registration Default") then the Company will provide Holder (pro rated
on a daily basis), as liquidated damages for such failure and not as a penalty, at
the election of the Company either (A) two and one-half percent (2.5%) of the
remaining principal balance of any Convertible Debenture plus the aggregate market
value of shares of Common Stock issued upon conversion of any Convertible
Debenture and still held by the Investor, for every month or portion thereof thereafter
until the Registration Statement has been filed, or declared effective in
the event of late effectiveness (in case of clause (ii) above) or in the case of
lapsed effectiveness (in the case of clause (iii) above) (regardless of whether
one or more such Registration Defaults are then in existence) until the Registration
Statement has been declared effective; or (B) an adjustment to the Conversion Price
of all unconverted Convertible Debentures by decreasing the percentage of
the Market Price by two and one-half percent (2.5%) for each month or portion thereof
thereafter until such Registration Default is cured. Such payment of the liquidated
damages shall be made to the Holder in cash (if the cash option is elected by the
Company), within five (5) calendar days of demand, provided, however, that the payment
of such liquidated damages shall not relieve the Company from its obligations to
register the Registrable Securities pursuant to this Section. The market value
of the Common Stock for this purpose shall be the closing price (or last trade,
if so reported) on the Principal Market for each day during such Registration Default.
Section 1.14. "Market Price" on any given date shall mean the average of the closing
bid prices on the Principal Market (as reported by Bloomberg L.P.) of the Common Stock
during the five Trading Day period ending on the Trading Day immediately prior
to the date for which the Market Price is to be determined
The Company has duly and validly authorized and reserved for issuance shares of Common
Stock sufficient in number for the conversion of the Convertible Debenture
(assuming a Market Price of $0.10). The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Conversion
Shares. The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Convertible Debentures in accordance with this
Agreement and the Convertible Debentures is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership interests
of other stockholders of the Company and notwithstanding the commencement of
any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall
not seek judicial relief from its obligations hereunder except pursuant to
the Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Convertible
Debenture. The Company agrees, without cost or expense to the Investor, to
take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock, par value $0.0001, of which 57,527,738
shares are issued and outstanding as of November 10, 1998 and 10,000,000 shares
of preferred stock, par value $0.001 per share, of which no shares are issues and
outstanding. Except for outstanding options to acquire approximately 13.4 million
shares of Common Stock, there are no outstanding Capital Shares Equivalents,
other than the Revolving Credit Loan Agreement between the Company and its Chairman,
Robert P. Gordon, which, if funded, is convertible into curiously
a blank space in the Edgar public record shares of Common Stock (as disclosed
in the Company's Form 10-QSB for the quarter ended March 31, 1998). All of the
outstanding shares of Common Stock of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the accuracy of
the Investor's representations in Article III, the sale of the Convertible
Debenture and the Conversion Shares will not require registration under the
Securities Act and/or any applicable state securities law. When issued and paid
for in accordance with the Convertible Debenture, the Conversion Shares will be
duly and validly issued, fully paid, and non-assessable. Neither the sales of the
Convertible Debenture or the Conversion Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement, or the Convertible Debenture will (i) result
in the creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Convertible Debenture, the Conversion Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire the Capital Shares or other securities of the Company. The Convertible
Debenture and the Conversion Shares shall not subject the Investor to personal liability
to the Company or its creditors by reason of the possession thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the Company to
issue the Conversion Shares pursuant to any conversion of the Convertible Debenture;
such amount of shares of Common Stock to be reserved shall be calculated based
upon a Market Price for the Common Stock under the terms of the Debenture of $0.10.
The number of shares so reserved from time to time, as theretofore increased or reduced
as hereinafter provided, may be reduced by the number of shares actually delivered
pursuant to any conversion of the Convertible Debenture.
This last paragraph appears to be very deceptive. When you read the body of the
agreement it appears clear to me that $0.10 is not a floor, however, when reading
this last paragraph it appears to imply a floor of $0.10. Very confusing at
best and deceptive otherwise.
SC
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