ERHC Energy Inc (ERHE)

[nordicroots]

Questions on reverse splits from ERHC FAQ page:
Reading the company’s thoughts on considering a reverse split I noted the following:
http://erhc.com/faq/

Q: Is the company considering a reverse split to raise the price of the stock?
The company continues to review all options at this time.
Q: If a reverse split was done would the number of shares the company can issue (currently 3 billion) also be adjusted downward to reflect the split?
Usually, when a reverse stock split is done, companies might elect to keep the number of shares they are authorized to issue at the same amount. Thus, if a company were authorized to issue 1 million shares and before a split had issued 500,000, then carries out a 500:1 split, the shares it can issue will still remain 1 million while the issued shares after the split are then only 1,000.
What caught my eye was the part highlighted of the answer given. This tells us a little more about their line of thinking and it goes beyond just the possibility of a reverse split – which by itself really has no meaningful impact on the company’s worth in terms of market capitalization (think back to the example MTO gave earlier of the way the pizza gets sliced up). What is sort of important in this line of thinking, as they present it, is that in one breath they acknowledge how a reverse split works yet in the next they are tossing out the idea that even though technically a reverse split would also reduce the number of authorized shares commensurately by the ratio of the reverse split – they sort of indicate their desire to ignore that factor by inserting an additional thought of an increase in authorized shares into the mix without coming right out and the words directly, i.e., specifically calling it an increase in authorized shares; made with the reference in this very smooth, simple and well crafted passage - “companies might elect to keep the number of shares that are authorized to at the same amount.” Almost makes it sound like these two things belong together naturally as though it is quite common and not really a big deal.
What concerns me is that this could suggest that if they were to propose a reverse split, they might also at the same time be inclined to subtly increase the authorized shares by leaving it the same at 3 billion #. These are of course two distinctly separate and tremendously important issues.
That would give them a lot more room to further dilute current shareholders even more than they already have wouldn’t it? Even if the RS were not put to a shareholder vote, at the very least I think that such a move with respect to the AS would require a shareholder vote. Anyone had any experience in situations where the shareholders rejected a management proposal to increase authorized shares under such circumstances?
Here is a write up on splits in the Investopedia website in case anyone wants to read more:
http://www.investopedia.com/articles/01/072501.asp