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Anti-dilution clause...reply to private message......

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Potse   Tuesday, 03/20/12 12:53:23 PM
Re: Potse post# 57
Post # of 114 
Anti-dilution clause...reply to private message......

There is a quite interesting anti-dilution clause in this RM agreement, which will probably go mostly unnoticed by investors. Basically, for a one-year period following the closing of this RM, the DION shell owners (that is us, the holders of the 28.05M shares prior to the RM closing) are guaranteed to maintain a 5% ownership of the new company. Any issuance of new shares (in the form of common, options, warrants, etc.) during this one-year period will result in the shell owners receiving additional shares.

Off the top of my head, I can not recall seeing this type of anti-dilution protection for the lowly retail shell shareholders in any shell/RM I have been invested in or monitored fairly closely.......

To the person who sent me a private message regarding the anti-dilution clause.....

As I mentioned in the above post, I've never seen a clause like this in any RM before. This kind of dilution protection for all (not just a select few) legacy holders is something highly unusual. For obvious reasons, I would assume that Roy Teng had a significant say in how this RM is being structured.

What this clause suggests to me is that Shangrao Baihuazhou Industrial either has no near-term desire/need for financing, or it has access to bank loans. Equity-based financing is probably highly unlikely to occur for at least a year following closing of the RM, because the dilution to the company as a result of the anti-dilution clause would be very heavy unless they could get financing at an extreme premium to the share price.

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