Ann: Notice of Meeting including Independent Experts Report, page-8

(Fredy, look away now! This post is necessarily long and detailed. It is not for you!)

Analysis:
Well, my assessment after last year's placement and raising of the non-convertibility status of the CN in BBM's (now Edison's) hands without explicit shareholder pre-approval was accurate. Who'da thunk?
(Ok Z, that's enough with the hi-fives and back-slapping. You'll end up dislocating your shoulder if you're not careful!)

The big question arising from today's announcement is what concession has the Board extracted from BMM/Edison in return for seeking explicit shareholder pre-approval??

And after a full reading of the document, including EY's rubber-stamping, I find myself saying "nothing of substance"!

As it currently stands, Edison cannot elect to convert any of the current US$17.5m debt to shares @ 9c between now and 30 September 2020 (CN maturity). They are currently locked out of being able to increase their shareholding via conversion because they currently don't have the required shareholder pre-approval to exceed 20% ownership (currently hitting that ceiling).

Granting the pre-approval to Harbinger (the original CN owner) way back in 2011 was a concession we needed to make in order to obtain the original loan. Fair enough (i.e. normal concession for a new CN). The subsequently granting of shareholder pre-approval to Jefferies (the subsequent CN owner) in 2015 was also a necessary concession management made in return for Jefferies *halving* (<<-- yep, halving!) the original debt (it was originally US$35m), along with other negotiated elements of that refinancing deal (e.g. reduced interest rate and also lower converting price point). There were clear benefits for POS, which justified the concessions made by management on each of these two occasions. And they made sense for shareholders.

But today, what is the motivation to just "give" Edison the right to convert @ 9c without obtaining something in return (e.g. say, pushing the maturity date by a couple of years, or something else that is of value to us)? Remember, this is not a refinancing negotiation in which all the CN terms are up for renegotiation. This is BMM/Edison saying:
"Um, remember how we purchased the existing CN from Jefferies in the secondary market? Well, we now understand that the shareholder pre-approval to exceed the 20% ownership cap didn't come with it and we would like you guys (POS) to ask your shareholders for a new pre-approval that is specific to us. Mkay?"

Item 1.5 (p.10) lists the Advantages of going along with this proposal. They're all pretty nebulous, imo. Mostly fluff and very little substance, imo. Sub-items (a) and (c) fail to mention that BMM/Edison would only have the right, but not the obligation to convert @ 9c upon maturity. If the SP is materially below 9c between now and maturity, then BMM/Edison would not likely convert and POS would still have to find the money to repay in cash! Remember, granting BMM/Edison pre-approval to convert won't mean they are obliged to convert at maturity.

Conversely, if the SP rises to above 9c between now and maturity it would be *very* favourable to BMM/Edison to have obtained the right to convert @ 9c. Even better to have obtained that right without having given up anything for that privilege! I think this may be the primary motivation for this proposal. I think BMM/Edison is worried that there might be a big move up in the NP over the next 15 months (which would reflect in the POS SP) and they want to lock-in the conversion rights now. I think they are worried they might miss out on that chunk of performance and they want it for free! (Yes, I know it's an obscene use of formatting, but I've done it for a reason!)

In this proposal's current form the Board is advocating that we effectively give BMM/Edison a free call option @ 9c, yet receive nothing in return! Somehow, in this parallel universe that we have now apparently entered, BMM/Edison has managed to push this through at Board level and the result was today's announcement.

If credit markets were effectively shut (ala 2008) and we were facing an imminent repayment/refinancing dilemma, with no apparent alternative financiers to tap, then I would completely understand (read: nothing sharpens your focus like a lack of alternatives). But we're still 15 months* away from maturity and the question must be asked what other refinancing options have been explored? If those options have already been canvassed and were shaping up to be problematic, why wasn't it mentioned in this 62-page announcement??
(*Addressing the impending debt maturity 12+ months prior to maturity is prudent, but are we left to assume that the refinancing requirements were not shopped around?)

This type of announcement can only exist at the direction (sanctioning) of the Board. One must ask why the Board has chosen to confer a potential benefit to one shareholder (BMM/ Edison) at no cost or concession to that shareholder? Frankly, it's the last thing I would expect to see, given AF also has a nominee at the table. Where is the competitive push-back to BMM/ Edison's brazen gimme, gimme, gimme? Presumably AF is comfortable with all this, otherwise this document would never have seen the light of day...

The fact that today's announcement was made (in it's current form) speaks to me of a Board that is dysfunctional and not operating as it should. Directors, even nominee directors have a fiduciary duty to consider the interests of all shareholders, not just one. Maybe that's why RD is also retiring his directorship?

I think there's more to play out here that hasn't fully revealed itself yet. In the meantime here is...

My How-To-Vote Card:
- Resolution 1: NO! (We need to send a *strong signal* to BMM/Edison that we're not their bitches!)
- Resolution 2: No! (Why reward a dysfunctional Board with an increased Director's Fee pool. Kick some goals, then come back to us!).