Reproduced unedited from the latest 10-Q.
(Highlights mine)
Group 10 Holdings LLC – Note dated August 3, 2016
"On August 3, 2016, the Company entered into a $48,000 convertible debenture with OID in the amount of $8,000 with Group 10 Holdings LLC. Along with this note, 8,000,000 commitment shares must be issued to the holder within 15 days or an event of default will have occurred (shares were issued on August 4, 2016), earned in full upon purchase of the debenture. This debenture bears 12% interest per annum with a default interest rate of the lesser of 18% or the or the maximum rate permitted under applicable law, effective as of the issuance date of this debenture (“default interest rate”). If any event of default occurs, the outstanding principal amount of this debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at holder’s election, immediately due and payable in cash in the sum of (a) one hundred eighteen percent (118%) of the outstanding principal amount of this debenture plus one hundred percent (100%) of accrued and unpaid interest thereon and (b) all other amounts, costs, expenses and liquidated damages due in respect of this debenture (“mandatory default amount”). After the occurrence of any event of default, the interest rate on this debenture shall accrue at an interest rate equal the default interest rate.
The holder had the right, but not the obligation, at any time after the issuance date and until the maturity date, or thereafter during an event of default, to convert all or any portion of the outstanding principal amount, accrued interest and fees due and payable thereon into fully paid and non-assessable shares of common stock of borrower at the conversion price, (the “conversion shares”) which shall mean the lesser of (a) sixty percent (60%) multiplied by the lowest closing price during the thirty-five (35) trading days prior to the notice of conversion is given (which represents a discount rate of forty percent (40%)) or (b) one-half of a penny ($0.005).
If the market capitalization of the borrower is less than two million dollars ($2,000,000) on the day immediately prior to the date of the notice of conversion, then the conversion price shall be twenty-five percent (25%) multiplied by the lowest closing price during the thirty-five (35) trading days prior to the date a notice of conversion is given (which represents a discount rate of seventy-five percent (75%)). Additionally, if the closing price of the borrower’s common stock on the day immediately prior to the date of the notice of conversion is less than two-tenths of a penny ($0.002) then the conversion price shall be twenty-five percent (25%) multiplied by the lowest closing price during the thirty-five (35) trading days prior to a notice of conversion is given (which represents a discount rate of seventy-five percent (75%)).
The note also contains a most favored nations status provision whereby the borrower or any of its subsidiaries issue any security (in an amount under one million dollars ($1,000,000)) with any term more favorable to the holder such more favorable term, at holder’s option, shall become a part of the transaction documents with holder.
Beginning on October 1, 2016 and continuing thereafter, so long as this debenture remained outstanding, if the Company was not current with its reporting responsibilities under Section 13 of the Exchange Act or failed to timely file, when due, any SEC report, including any required XBRL file along with such report (e.g., Forms 8-K, 10-Q or 10-K, or Schedules 14A, 14C or 14(f)), or, if the filing date of such report is properly extended pursuant to SEC Rule 12b-25, when the date of any such filing extension lapses, or any post-effective amendment to any SEC Registration Statement such shall be considered an event of default. Following the occurrence and during the continuance of an event of default, the Company agreed to pay to the holder in the amount equal to one thousand dollars ($1,000) per business day commencing the business day following the date of the event of default. On December 5, 2016, the Company, upon regaining full reporting status, cured this event of default. The default penalty of $45,000 for the period of 45 days was settled for 10,000,000 common shares of Company stock ($0.0045 per share). The current amount was recorded as interest expense and a liability for stock to be issued."
This shouldn't be news to anyone...the note was created and filed in an 8-K in August of 2016...but I didn't see any discussion of the default terms, which are unique.
When this note was signed on August 3 the company had ALREADY been out of compliance with SEC reporting requirements for a full year. In spite of that, or because of it, a term was included in the note that said (paraphrasing) if the company was STILL out of compliance on October 1 it would incur a penalty of $1,000/day until it became current in its filings.
That term resulted in a $45,000 penalty.
The original terms of the note called for TAUG receiving $40,000. In return for that they would be charged 12% interest. That rate was increased to 18% as a result of the default. Group 10 also received 8,000,000 shares to make the loan.
This is the same note that was previously describe this way in a previous post:
"Group 10 got 12% interest plus 44,000,000 shares in return for their 3 month $50 K loan....shares with a market value at the conversion date of $330,000."
At the time that I did that analysis I had not included the $45,0000 penalty in the cost of the loan.
So to summarize, the $40,000 that were borrowed cost the company 62,000,000 shares including 10,000,000 shares issued to cover the $45,000 penalty.
