Copying word for word from the Duncan, Lynn and Wade bill:

4/20/10 - Telecon with Chris Nichols regarding results of BK hearing; telecon with Terry Lynch and Scott Dockter regarding remaining reorg plan for Firstgold; research use of 1145 under bankruptcy Code to issue freely tradable stock.

Sorry, I copied the spelling mistakes as well. The comment about BK code 1145, is the use of the debtor to issue stock to the creditors instead of cash payment. These were the "qualified creditors" I was referring to in my other post on BK law. This issue of stock, of course, dilutes the common stock. Here is the estimate of dilution:

1) Lets assume the secured creditors are satisfied with the property and assets. I think that is reasonable. Since Gold is above 1200k/ounce and Northwest was giving 9.5 million in cash for half of the assets. Is it a reach that all of the assets are worth 20 million?

2) So lets deal with the unsecured creditors. And I will be rounding $ heavily for easy math. The monthly statement has them listed ~11 million. There was ~ 3 million listed in restricted cash. I am assuming it was for/from one or more of the USCs. So ~8 million is owed. I don't think the local/state/federal gov will take stock, so that ~1 million will not be included in the stock offerring. So 7 million worth of stock can be distributed based on the % owed. The monthly statement listed 69 million in debt. 8 divided by 69 is 12%.

3) You must keep 50% of the original owners, after the ownership change, to keep the Net Operating Loss carryover. If all of the ~7 million creditors have been creditors for more than 18 months, all of them can be considered owners. 50% minus 12% is 38%. So the current common stock can be reduced to 38% ownership and still keep NOL carryover.

4) This is where things can get bad. But I hope it won't. I haven't seen a law preventing some of the large stock holders, to join in the reorg (especially if they will help with financing, or the ones that could muster and sue later) and be part of the 50% preownership retention. Before Chapter 11 I thought I saw that the large stockholders were about 30% ownership. Thus keeping the large stock holders and the creditors, 50% could be reached. Thus reducing the nobody stock holders (like me) to zero. Then able to issue the other 50% to Durarock and the new stockholders. Very depressing scenerio. if someone knows a law to prevent this please let me know. I am hoping Firstgold is small enough they don't want to risk the class action later and instead just dilute the SH evenly.

5) So 38% and I think SD owns about 3%, thus SH can be diluted to about 1/3 (if scenerio in part 4 above doesn't occur). But 1/3 of something is better than....

-Y