e.Digital Corporation (fka EDIG)

[Cassandra]

doni: It's right there in your excerpt:

"... commencing 90 days following the original issue date, the conversion price shall equal the lower of (i) $0.25 and (ii) 85% of the average of the volume weighted average price per share of any ten days during the twenty consecutive trading days immediately preceding the conversion date."

On 2/16/05 the conversion price of the Series EE preferred shares becomes floating and is calculated at 85% of the lowest average of any 10 days in the preceding 20 consecutive trading days with a maximum conversion price of $0.25.

There is no floor in the conversion formula, which is the worst I've seen in any of e.Digital's convertible shares given that it allows the lowest average of any 10 days in a consecutive 20 trading day period. Pervious formulas were tied to the preceding 10 trading days.

The Series EE shares are classic floorless, toxic convertibles.

An S-3 is required to be filed by 12/16/04 to register common shares for conversion. If late, e.Digital will owe liquidated damages penalties.

The financiers can legally short shares to which they have conversion rights as it is considered an underlying long position.