marich...the note terms......
"I'm still trying to get a grip on this. Are you saying that the current 0/S of 120,000 shares has the potential to be diluted by millions of shares from this convertible note, the face value of which was only a few thousand dollars?"
That is correct. The terms of the note are spelled out quite clearly in the filings. If the entire note eventually gets converted into common shares, it would result in a total issuance of 11.7M shares.
I've placed in bold the key points of this deal that you should focus on. My suggestion is to just completely block out the references to the percentage ownership limit feature, since it is nothing more a "timing" feature and doesn't have any effect on the total number of shares that the note can be converted into......
On or around April 13, 2010, Cascata and Seven Palm entered into acknowledgments with the Company, whereby the Company acknowledged that the conversion price of the Note was not affected by the Company’s 1:100 reverse stock split and remained at $0.001 per share, and each holder agreed that they will not be able to convert the Note into a number of common shares that would result in them owning more than 4.99% of the issued and outstanding common stock of the Company and that neither holder would transfer or sell the Note to any third parties without the prior written consent of the Company, which consent will not be unreasonably withheld.
If the remaining approximately $11,764 of principal was converted into shares of the Company’s common stock, such Promissory Note would convert into 11,764,000 shares of common stock, however, as described above, both Seven Palm and Cascata have agreed that neither of them will ever convert an amount of the Note such that after such conversion either party would own in excess of 4.99% of the Company’s then outstanding common stock, so converting the Note can never be used to effect a change of control by Cascata or Seven Palm.
