Friday 20th July 2018
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SeaDragon's proposed funding transaction is not fair to non-associated shareholders but the positives outweigh the negatives given the position in the company is in, according to independent advisers Campbell MacPherson.
"SeaDragon is currently cash constrained and requires an immediate injection of capital to fund operating losses and execute its business plan. In the event that funding is not secured it is highly likely that the directors will have no option but to place the company into receivership or liquidation," according to the advisers' report.
The fish oil manufacturer has forecast a net loss of between $3.6 million and $4.6 million in the year ending March 31, 2019, and said its ability to deliver on its forecast depends on securing long-term funding for the company.
SeaDragon hammered out a deal under which Australian investment firm BioScience Managers and Pescado Holdings, which is associated with Christchurch's rich-lister Stewart family, each agreed to advance up to $3 million via a new convertible loan note facility. An existing convertible loan note facility and existing option to purchase $3 million of ordinary shares in SeaDragon with Comvita will be amended.
The deal requires shareholder approval at the Aug. 8 annual general meeting in Auckland.
According to the advisers, the main negative aspect is that the assessed value per convertible loan note exceeds the consideration offered by Pescado, Bioscience and Comvita for each note. Campbell MacPherson has assessed the value of the convertible loan notes to be in the range of $1.03 to $1.23 per note. Each note is being issued for a consideration of $1.
"In our view, this is the key criteria in assessing that the proposed transactions are 'not fair' to the non-associated shareholders," it said.
It also said the potential allotment of shares to Pescado, Bioscience and Comvita as a result of the conversion of the loans and/or the exercise of the Comvita option would be dilutive to the non-associated shareholders.
On the positive side, it said the deal will collectively provide essential funding for the company. It noted the SeaDragon board does not expect the full $6 million to be drawn down and therefore "a $6 million facility does provide the company with a degree of certainty in the event that additional funding is required in the short to medium-term."
it also said that the interest rate structure is favourable to SeaDragon.
SeaDragon shares last traded at $0.004 or four-tenths of a cent.
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