Giddy, this is the same as I pointed out for the $900k note that...

Giddy, this is the same as I pointed out for the $900k note that is to be issued.

I too am highly wary of this. If the notes have exactly the same conditions as those proposed for the $900k note, it's likely fairly disastrous for other shareholders, ie. huge dilution to the extent that the company will effectively be taken over. If there was a safeguard to say something like 90% of the VWAP of the period the previous quarter we are on slightly safer ground as it least it means that they can't just smash down the sp for one day (for very little outlay) and pretty well gain control of the company.

There are just under 140million notes (counting both secured & interest bearing). These are nominally at $0.135 each for a value of $18.9 million. The new financiers will forgive $4mill of this leaving aproximately $15mil of notes that can be converted.

If they convert at current price (.003) that's 5 billion shares.

Hypothetically, if sp is at .001 (a possibility with the expenditure of very little money to knock down the sp) that's theoretically up to 15 billion shares or just over 75% of the company after the rights issue. Of this 9 billion would be for the new financiers plus what they get by converting their $900k note, say 10 billion shares which will be just over 50% of the company. Not all the other noteholders might convert at the time to maximise their return, so our new financiers could be left with well over 50% of the company, enough to make a takover bid.

That's probably the worst case. The only way to stop this would be for a shareholders group to get together and basically set a floor price by buying shares if need be. However, that's a way out possibility that could hardly be realised.

If the new condtions set a minimum of the same price that the rights issue is made at (ie. .003), it looks a bit more reasonable - ie. the noteholders would end up with about 50% of the company, plus whatever other shares they get. That's probably not unreasonable given the circumstances and would make a takeover a bit harder.

I'd hope that enough shareholders, especially the bigger ones, would be prepared to knock back a scheme which allows the noteholders to set the both the timing and value of their conversion at their own whim and at the very minimum possible price.

Hopefully also, in their negotiations with the financiers the company might see that the minimum price should be set at about what we are to pay for the rights issue, or say 90% of that in which case there is a better worst case outcome for current holders and at least some incentive to go with the rights issue so that we'd be sure that it isn't going to be knocked back (again) to 1/3 or less of what we pay for the new issues. The note holders will still be getting a fabulous deal once the company succeeds (as all us true believers think it will - one day).

Of course,if there is some great announcement and things take off for MST, there may be no need to worry, but is that likely soon?

Management, I hope you are reading this!