I'll give it a try but I could be wrong.
On August 31, 2005, the company entered into a subscription agreement with STEELHEAD Investments LTD, Nite Capital LP, and SRG Capital LLC whereby these investors are purchasing a total $4,500,000 in 5% convertible notes, with 3 year Class A Warrants to purchase up to an additional $6,818,181 in common stock of the Registrant.
Pretty straightforward. A loan @ 5% with a right to purchase shares up to a specific dollar amount by exercising warrants.
Under the funding arrangement, the promissory notes are convertible into common stock of the Company at $1.65 per share. Prior to any notice of conversion the Company has the right to redeem the note at a premium for cash, subject to a 5-day right to convert by the investor. The notes amortize at 12.5% per quarter payable each quarter in cash or common shares.
1.Fixes the share conversion price.
2.Gives the company the right to redeem the note @ a premium. . Not sure of the meaning of the "5-day right right to convert" provision. It could mean, the investor has 5 days to convert after the company gives notice of intent to redeem. Somebody help me here.
3.Appears like the principle on the notes must be paid back @ at the rate of 12% of the outstanding balance each quarter OR it denotes the premium the company has to pay for redeeming the notes. I'm not sure Again, I need help.
The Investors will receive one Class A Warrant to purchase one share of common stock for each that the notes would be convertible into had they been converted on the closing date (August 31, 2005) (a total of 2,727,273 shares). The per share exercise price of the Warrants is $2.50.
Seems like typical legal mumbo-jumbo to explain the obvious. The conversion price on the settlement date(8/31/05) is/was $1.65. If the conversion had taken place on that date, the lender would have realized 2,727,273 shares. This statement fixes the maximum number of warrants the lender can exercise @ $2.50 ea. I have no idea why they chose this tortured method to fix the maximum number of warrants. Probably satisfies some legal requirement.
The math reconciles:
4,500,000 divided by 1.65 = 2,727,273
6,818,181 divided by 2.50 = 2,727,273
Any contract lawyers out there?
