doni: Again, it's in the excerpt you posted.
"The stated dollar amount of Series EE Stock, is convertible into fully paid and
nonassessable shares of Common Stock at a conversion price $0.25 per share which
is fixed for the first 90 days following the original issue date, and 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."
According to the covenants disclosed in the 11/19/04 8-K, the stated value of each EE share is $100. The number of common shares into which each EE share is convertible is calculated by dividing $100 by the conversion price in effect. The lower the conversion price, the more shares the EE shareholder receives upon conversion.
For example, if the conversion price is $0.25, an EE share is convertible into 400 common shares. If the conversion price is $0.20, an EE share is convertible into 500 common shares.
Traditional convertible preferred shares are convertible to a fixed number of shares at a fixed price. The holder makes money on conversion only if the share price is higher than the fixed conversion price.
e.Digital's Series EE shares (and all previous CP shares) are the variety called "toxic" convertibles because the number of shares issued varies with the conversion price. These are highly dilutive and destructive to shareholder value.