Hi all,
Here is the first part of my recollections from the EGM – it covers the formal part of the meeting (i.e. the duration of the voting on resolutions).
Claire spoke briefly and said she was excited to join board. She has skills in the operational side of running businesses and building up corporate governance, and has done this in Australia, Europe and in particular the US.
Sue read a prepared statement. I did not ask her, but suppose she did this for several reasons. Firstly, I guess they may have been expecting that the meeting might be combative – particularly since they received a pretty harsh commentary and set of questions from us. I think she wanted to be sure she addressed everything that had been asked of her. I think she was in a slightly difficult position of still having Gavin as chair for the meeting and needing to balance herself. Her role at the meeting was as an ordinary board member, not chair so she was not there to do the majority of talking. Personally, I would have preferred she had taken charge of the meeting but perhaps she wanted Gavin to wear the responsibility for the EGM and current shareholder frustration. I think it was a missed opportunity for her to stamp her authority, draw a line in the sand and start afresh. Still, it appears from her speech that she and Claire have had significant impact since joining the board.
Sue said she took a position on the board and ultimately as chair because she believes the company is on cusp of success and she can help that success. She has the time to do the job and achieve these goals.
She will implement processes to ensure actions have purpose and end goals, and be measurable. Since joining the board, the company has commenced a process of updating the business plan – which included the “cornerstone” strategy. After the business plan is finalised, KPIs will be set for all employees. Remuneration will be restructured to drive and reflect performance. There will be continuous measurement of results and a process for continual adaptation / improvement.
The company has a reputation for delivering high value add solutions for clients and the company is very well positioned for success in the “Cornerstone” initiatives. There is a pipeline of development but “Cornerstone” is the primary focus for next 12 to 24 months. For other projects to move up in priority there must be a clear business case.
Her first 90 days as chair will include finalising the business plan and reviewing the skills matrix of the board and comparing this to company needs – a decision will then be made on appropriate board composition going forward.
A new process has been introduced so that all verification of announcements and statements from management or the company must be documented prior to the announcement.
She is confident of success and hopes that by the next meeting there will be success in at least one “cornerstone” initiative.
Gavin was asked why he is buying shares in the SPP at 35c when the value is much lower now. He responded that he would prefer the SP was above 35c but he is a long-term holder, he has only ever added to his holding over the past 8 years and knowing what he does he is confident in his investment. His holding is “sticky”. The recent share price drop was driven by one broker dumping stock, followed by another which created a “what don’t I know?” scare in the market but price will recover as “Cornerstone” initiatives are won.
Regarding need to reset the 15% placement facility the question was asked that given the recent CR and the $17 million in cash, why this is needed now and why can’t the company wait 12 months? The response is that is normal practice after a CR that companies seek to have share issues ratified to restore the placement capacity. The main reason for Alexium is that the company may suddenly have a very significant opportunity requiring debt or equity to finance. If shareholder approval was required it would take around 3 months and this is not flexible / fast enough. Gavin said there is no expectation that it will be necessary but it’s good practice to have it in place just in case.
Gavin discussed the C/N. He said that in the event of default, one way the C/N allows for debt to be recovered is with shares. The ASX requires that if the C/N allows this, the company must set aside the shares required even if they are never used.
A question was asked about how the current share price affects the number of shares involved. Gavin responded that GPB is a very large provider of C/Ns to growth stage companies. In Alexium’s stage of growth, a bank won’t lend to us so we need to use someone like GPB. Our C/N is at the “good” end of C/Ns in that it does not have lots of covenants and rate resets and conversion resets involved – it’s very simple and straight forward. In the event of default or takeover, GPB have the right to recover debt with shares at the price set in the C/N or the lowest price at which shares have been issued whilst the C/N is operating.
A question was asked regarding what happens if there is a CR at 5c (for example) meaning GPB would get hundreds of millions of shares. Gavin’s response is Alexium would negotiate a new debt facility rather than let that happen. In the US, this type of debt facility is common. There are providers like Hercules who would offer us a facility, but they won’t loan less than $20 million. It is hard to get a facility for only $10 million. Higher loans get better terms but Alexium is not ready for that yet.
A question was asked about the interest rate of 13.5% - why is it so high in a near 0% interest rate environment? Gavin’s response is that 13.5% is quite good in the US market for this type of facility. A house loan on 30 year mortgage might get 4% but a debt facility for a small, growing tech business can’t get that. Rates are often significantly higher than we are paying. He said that companies that offer significantly lower interest rates are expecting a default and to then pick-up the shares. The fact we are paying 13.5% indicated that GPB expects to get paid back (i.e. they don’t expect we will default).
A question was asked about why we don’t simply pay down the debt to reduce interest payments and improve the cash flow? The response was that we need to have a strong balance sheet to show our “cornerstone” clients we can meet requirements / deliver product – i.e. that we can cover the 60 to 90 day period between supply and payment. The other is to show the US government that we have size and capacity so when they do their internal credit reviews we are solid. It is not worth paying down the debt. The interest is not so significant it is causing an issue and we are better off with the strong balance sheet and flexibility. We may pay down debt when cash flow permits or move to a revolving debt facility but not yet – we will go to that stage next. Both Sue and Claire also asked these question when they joined the board and both are satisfied with the arrangement.
That covers the formal part of the meeting (i.e. the voting on resolutions and any questions asked during that time). I will start working on Dirk’s presentation later in the day and post what I get done when I can.
Best wishes,
Alhotcop9
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