Frank,
What this means is that you can get shares back by rendering your debentures at a cost to you of $0.01 per share. Right now you have a CD (Certificate of Debenture) that has a face value of X dollars. Say you had Y shares before the conversion, 90% of these shares got converted into debt at a price per unit of $ 0.001, so your CD has a face value of:
X = 0.001 * (0.9 * Y)
They are telling you that with this CD worth X dollars, you can buy shares at a cost to you of $0.01 per unit.
So that gives you a number of common shares equal to:
Nbr of shares = X/ 0.01 = 0.001 * 0.9 * Y / 0.01 = 0.09 * Y
Which is 9 % of your original number of shares
(pre-conversion).
The only condition where surrendering your CD for common shares would be interesting to you is if the PPS goes up 426 % from 0.0001 ( you have to take 0.0001 as a baseline since this was the last value of the PPS recorded before the conversion).
So basically the break-even point for debtholders is:
0.0005-0.0006 (0.000526 to be exact).
This should have been the new PPS after the conversion, to make it neutral to debtholder/shareholders. Unfortunetally the market didn't play its natural role of adjusting the price.
That's why right now you see a discounted PPS for PAIM, which is a buying opporunity.
I expect arbitrageur to close that gap pretty soon and see the PPS go to the 0.0005-0.0006 range "naturally".
If PAIM dilutes furthers, then the PPS will go back down to its basement (0.0001). If PAIM stays away from massive dilution and we get some golden production (Yeahh!!! baby !!!) , then expect the PPS to go above that range, which means that you're going to start making money.
I look at it as doing something smarter than just a reverse split, in the sense that you've got upside if you hold on to the CD. This is because the break-even point is 0.0005.
And remember that if you elect to surrender your CD, you're really making only 20% on the dollar for each PPS increase after 0.0005 (Reverse Split effect), where you're still making 100% on the dollar if you held on to the CD.
That's why if you want out, you might as well just wait for the PPS to reach 0.001, at which point the 10% left over common shares have gained 900%, and you broke even as compared to the PPS from before the conversion, then you can sale your common shares, and you get the CD "for free", and you basically just wait and see what happens in the long run, this becomes "free money" to you, and may well be a nice surprise 5 years from now.
The company is essentially telling you that they are going to reward patient debtholders with significant upside (yes 900% ROI over 5 years is considered significant, that's 58% annualized returns).
If the price per share goes to the 0.0005-0.0006 range and let's assume that all debtholders ( for the sake of the argument) decide to surrender their CD, then effectively what happened was a Reverse Split. The nice thing about it is the shareholders decide ... and the market for that matter.
This is all explained in the press release, read carefully:
"As an example, a shareholder owning 1,000,000 common shares will keep 100,000 common shares and receive a CD with a face value of $900 due and payable in 5 years without interest. In this example, any time during the 5 years, the holder will be entitled to convert that CD to 90,000 common shares."
