1. The Interest is payable monthly and they refer to a default interest rate of above 18% until the default has been remedied. All agreements have default clauses but the directors have chosen not to disclose those. This is not a complete agreement it appears its really to satisfy the ASX conversion part of the loan. The default clauses may include seizure of the security which appears to be everything... EGO had a debt covered by assets to one of its shareholders and they took the assets as I understand it.
2. The conversion is already dropped to 35c and in fact, if the cash flows don't improve it goes below the example of 28c... The reason being they will have to raise cash and all the assets are already used as collateral.
3. The fact that you don't have disclosed a full agreement with default clauses is a real problem for me.
4. The other problem I have is this wording "Firstly, those funds were used to repay the Company’s existing US$5 million debt facility, which was on terms considered to be less favourable than the new Convertible Note, with the remaining funds available to be used for working capital purposes pending the receipt of new orders for the Company’s products."
Well are they or are they not? The US$5 Million carried an interest rate of 15% and also had warrants for 50% of the loan but the conversion rate was 75c.
The real kicker is that the company only got 96c in each dollar so that pushes the rate up to 14.2% and then the success fee you have to pay is a minimum of 1.5% and in fact, goes up to 4.5%.
So the all in cost is at least 15.7% and could be as high as 18.7%...
So the considered to be superior must relate to the following: Term of loan and amount of facility because it certainly doesn't relate to the cost of the loan per the information I have.
Sorry but unless I see the remedies that the lender gets upon default and who has the balance of power within that period I won't invest under any circumstances - Its one of my reasons that I think the ASX should change rules surrounding convertible loans and notes. I don't think the share price should be capable of triggering a greater number of shares even if you do issue shares.
Take this scenario you raise $16 million to repay notes at a rate of 8 cents per share. They then have the right to convert their notes into shares at 8 cents per share as well. There may well be a clause of notice period etc but really this now falls into an investment where the lender seems to have a small loan but it's wagging the entire company.
In my opinion, this loan and the previous one do not suggest that the company is at the stage of being able to get normal banking finance.
There are also behaviours here that make me uncomfortable - The annual financial statements were signed on 29 September 2017 yet this agreement for the convertible note was, in fact, signed the day before 28 September 2017. No post balance sheet event was noted. No mention of this at all just the disclosure of the previous loan.
I can understand that it could be forgotten but not something done and signed the day before the financials were signed and dated.
(20min delay)