con notes,workings,benefit's,implications.

Good afternoon all,

This post is in no way having a go at the companies noteholders personally,my reason for posting my thoughts on these Convertible notes is mainly so that we can discuss "Con Notes,workings,benefit's,implications"
I have kept this post as short as possible so, I urge you all to take the time and read it carefully.And please respond with your criticisms,thoughts etc.

If there are any current noteholders out there I would sincerely like to hear your side of the story,so please respond Like i stated, my concern is not a personal one with the noteholders themselves.

There are many more issues/ramifications in respect to shareholders connected to these CN's.I would like others to carefully read my post so that 1) any mistakes in my calcs can be corrected, 2) offer an alternative point of view. 3)Possibly analyse where the company will be able to finance the main game of the PB 100 plus well programme ? ( not sure if SG plans on fewer wells now that we will be embarking on a hori programme ? )


The Noteholders or as I refer to them as Daytraders,why ? Well the noteholders are not here for the long term benefit of the company, they make a quick buck and move on,only in this case, our Series 3 noteholders are also benefiting from receiving 5% of the SRH #5 profits paid quarterly for the next five (5) years.This begins when the company receives its first full payment of sales for a full quarter of production.

For those interested, I have put together some numbers on the current share register of the company and, the potential future register using two conversion prices of the 10 day VWAP and 5 day for the series 3 notes.Obviously the quick access to the finance through this CN raise is very juicy to GGP management and as well the obvious financial incentives to the holders/clients of Novus and to Novus themselves with their fees.



Some points of concern I have with the Convertible Notes are not just the Dilution but,

1) The ability to sell them with an instant conversion.



2) The company is selling them to traders and not investors who don't give a damn about the long term future of the company.



3) The "traders" continually convert the notes into shares and then sell the shares which causes continual share price decline which in turn impacts the long term investors/shareholders in the company.



For the sake of this exercise I will use .006 and .005


I would like to point out that I am of the opinion that it is not unusual to find a company the size of GGP in the predicament it finds itself in, where it is at an embryonic stage of development and it finds it hard to access capital because of its minuscule production. Or is it plainly just the excess baggage of the legal issues ?? I am really unsure ?



Current shares outstanding 2,584,967,992.


Total of current conv notes:

22.2m maturing 31/12/12

12.2m maturing 30/06/13

38m maturing 30/09/14

72.4m

add Proposed notes: 100m and you will have a total of 172.4m notes outstanding




If the SP VWAP is ~ .006 then with 10% discount the conversion price is .0054

Face value of notes = .05

.05 divided by .0054 = 9.26 conversion factor


So potentially 172.4m notes can be converted into a further 1,596,296,296 new shares

Together with the current shares outstanding = 4,181,264,288 shares in total

Add the 646,241,998 from the Rights Issue and there will potentially be a total of 4,827,506,286 shares on the books.




Remember, not all the notes have to be converted, Novus might just ask for the money when they mature, in which case you will not get the same degree of dilution.

The ones maturing this month may have to be converted or the principle paid back.

22.2m notes x .05 = $1.1m. Where will the $1.1mill come from ? if this is the outcome

There may be the option of extending the maturity date??



If the SP goes to .005 then with 10% discount the conversion price is .0045

.05 face value divided by .0045 = 11.11

172.4m notes x 11.111 = 1,915,555,555 new shares


Here is what potentially added to the register for just the companies first Horizontal well, SRH #5.

First, we have yesterdays ann of the Rights issue which will add some 646,241,998 new shares. No arguments there, as stated its unavoidable ! Then throw in the convertible notes, 100,000,000 of them. Here goes ,

100,000,000 series 3 notes
If the SP VWAP is ~ .006 then with 10% discount the conversion price is .0054

Face value of notes = .05

.05 divided by .0054 = 9.26 conversion factor

9.26 x 100,000,000 = 926,000,000 shares from the convertible notes Plus the 646,241,998 new shares from the Rights Issue we have a grand total of

SRH #5 will potentially add 1,572,241,998 new shares to the register

So it will only get worse if we use yesterday's conversion rate of .0053 and so on and so on.


Add that on to the current shares plus those that will be issued from the Rights issue and you will potentially have 5,146,765,545 shares.