Another letter I sent to the Ministre, AMF, Ouellette, TrudeThe irrationality of the argument put forward by the SALP interests in the April 15, 2019 press release announcing restructure
The April 15
th press release in the section called “Background to the Refinancing Transactions” details the time period that lead up to the restructure and its rationalization to provide formal (if not actual or believable) motivation for the board/management decisions made that ultimately took the company away from the shareholders with the cout de grace that was the hardship application to deny shareholders their right to a vote, but can only truly be seen as a thin veneer put forward to rationalize their actions.
When faced with a decision whether to make a hardship application for a company, there are two distinct situations that require different actions to insure justice and fairness to ALL. The rationalization presented by the this section of the April 15 press release ignores this basic difference and as a result misapplies the regulations to effect a great injustice to shareholders and a unjust taking and enrichment of SALP/Thomvest interests as explained below. The press release also assumes the “good faith” of the board and management in their actions and also refers to all the standard ways of protecting oneself when taking part in dubious actions. You hire someone (Echelon in this case) to write a “fairness opinion” usually known as a “hired gun” to get the opinion you want. You only hire those willing to provide the desired opinion, or use the opinion that suits your desired result. Easy to get and pay for if you are part of richest family in Canada. For the optics, you hire well respected and neutral third party Lazard to try to raise money but limit their possible actions (only to non core assets) so they fail. Again for the optics and legal fig leaf, you also restrict your own direct participation in the decisions of the supposedly “good faith and independent” board, but near the end all the members of the board/management know where their loyalties must go if they are to retain their very well paying jobs in the future, with all the perks and bonus options. In fact in the 1
st Qrtr 2019 report it was announced that some 3.75 BILLION shares valued at about $57,000,000 (at the artificially low price of $0.01521 per share) were reserved toward bonus option plan for these same “good faith” board/management. Would they give this all up in order not to breech their fiduciary duties to the shareholders?
The two distinct situations referred to above are 1) where the company is insolvent so that the underlying assets are worth less than the outstanding debt so selling off parts or all of the company will leave nothing for the shareholders in residual value, 2) where the underlying asset value is large and future potential is promising and large but there is a temporary liquidity issue such as not being able to make an interest payment. In the first case, (not that of PLI) the hardship application makes sense if for some reason the debtor wish to restructure as would the company management, while unfortunately the investors have simply made a bad investment and can not be seen to complain.
However in situation 2), the application of the TSX hardship regulations inappropriate, unjust and very damaging to the shareholders who still own considerable recoverable equity in the company. To simply hand this considerable equity over to the creditor on top of the payment of the outstanding loans BY DENYING THE SHAREHOLDERS THEIR RIGHT TO VOTE AND VALUATION, is a gross travesty of justice. A board faced with this decision in case 2) has two options,
- they can either unjustly hand over ALL of the remaining equity to the creditor over and above the REAL outstanding loan by a fictitious setting of the restructure debt to an equity conversion rate unreasonably low (as in this case it was set to $0.0152 per share for some 15 BILLION shares at 91% below the [already artificially low] 5 day market price as per the press release). They do so by following the creditor’s (SALP) demand for them to file a hardship application, thus conveniently circumventing the pesky need for a vote and valuation that would assuredly block their desired take over, and handing them the keys to the company. But they do so at the cost of breeching their fiduciary duty to the shareholder that requires them to do what is in the shareholder’s best interest.
- Or, the board can instead seek protection under the CCAA or other bankruptcy laws provided for just such situations that would put a stay on the execution of the lien and action on the loan, provide time under the watchful eye of affair and neutral judge to raise funds not subject to the lien, to allow the company to reach revenue (here, such as commercialization of Ryplazim upon the upcoming FDA approval and the likely granting of the pediatric voucher by the FDA worth upon resale about $150 MILLION US or so in the coming months. In the alternative the judge could also put in place the acceptance of the proffered (but refused by the board) $40-$50 million in loans offered PLI by a group of small retail investors, or the judge could have continued the use of the ATM facility to fund the company for a time by investors willing to buy PLI equity on the open market, or the judge could have much broadened the directions given to Lazard to consider the sale of CORE assets in part or in whole. Such sales would have been very possible as they would not be subject to any overhanging lien (as they would payoff the loan (of $120 Mil – NOT $239 Mil as the board gave to SALP!). It is very clear this was very feasible as that is in fact the very plan that SALP just announced that Lazard is NOW preparing in its 2019 Q1 press release – the sale or partnering of the Ryplazim (protein division), a CORE asset of PLI – BUT which would NOW only accrue to the primary benefit of SALP and NOT the shareholders. In such a sale under the CCAA and the watchful. fair eye of the NEUTRAL judge. Everything recovered above the loan amount would go to the rightful shareholders and NOT to SALP as per the restructure! In addition to the Ryplazim and large pipeline of blood plasma proteins, the very valuable assets included the world class PPPS fractionation and purification process that yields much higher amounts of the rare blood proteins and enables their commercialization that the standard Cohn fractionation system could not do. And last but not least the very valuable small molecule therapeutics (PBI4050 family of drugs) to treat fibrotic diseases of all the major organs (heart. Lungs, liver, kidneys). Such a treatment is the current “holy grail” of much medical research and extremely valuable with the potential of BILLIONS in annual revenue. Witness the purchase by Roche in 2014 of Intermune for it antifibrotic drug Perfinidone, for the single application of IPF (only lungs) for some $8.3 Billion US. More recent trials have shown that the PBI4050 treatment are more efficacious than that of Perfinidone.
Thus, the board/management, by choosing to file the hardship application at the behest of SALP rather than applying for a stay under the CCAA was an absolute abdication of their fiduciary duty to the shareholders to retain their own positions (jobs) and bonuses at the company under SALP. Making the declaration of inability to pay only served SALP’s Interest to accelerate the interest. INSTEAD, simply going to the judge for the stay under the CCAA would have avoided this. Making this voluntary declaration of inability to pay and making the hardship application rather than asking for the stay under the CCAA shows which interest the “good faith” board/management were serving.
The history recounted in the April 15
th press release does not touch on the predatory nature of the lending extended by SALP/Thomvest so clearly visible with 20/20 hindsight. They were painted as the good guy, supportive of PLI and its shareholders. While what they were really doing was insinuating themselves with the overhanging liens they knew would prevent third party financing. They then extended the debt to 2024 in Nov 2018 to 2024 to further ingratiate themselves upon the shareholders while the actual purpose was to be able to DOUBLE the demanded loan amount from $120 mil to $239 Mil a few short months later of UNEARNED interest. So very shameless and predatory – as we see with 20/20 hindsight their true intentions. While it is not perfectly clear when various individuals buckled under to serve the interests of SALP, it is clear that by the final weeks before the restructure they had all done so and discarded their fiduciary duty to the shareholders. Very intense and lengthy questioning of all these parties under oath by the AMF will shed much need light on their actions and motivations during this period.
In hindsight we can see that from the Nov 2918 loan extension to 2024 (so they could charge another $119 Mil in unearned interest) to the removal of Pierre Laurin in Dec 2018, to the hiring of Lazard in Feb 2019, so late in the process WITH VERY LIMITED SCOPE IN THEIR INSTRUCTIONS, and then all the final machinations in March 2019 to the declaration of Inability to pay the interest and the hardship application are the numerous steps to the SALP desired take over of the valuable assets of the shareholders WITHOT a VOTE or Valuation! They (through their hired guns) dictated the ridiculously low price 91% below an already artificially depressed price. There is no way. Their is no way this is fair or just. And for twice what they really owed! Why on earth would a creditor EVEN WITH A HARDSHIP APPLICATION be allowed to himself (through his hired banker) dictate and set the conversion price of his debt to equity so very very low?? What does the hardship application have to do with the repricing of the many warrants?? Why would the board agree to do that? How does Echelon have the unmitigated gall to call this “FAIR” to shareholders in their totally irrational and one sided “fairness opinion” issued on April 14, 2019. It was the treacherous yanking of the SALP support although when at the previous AGM, Clulow had indicated they were in full support to bring PLI to commercialization, yet in the final months leading up to approval and commercialization that lead to the crisis while knowing full well that due to the SALP lien they could not finance elsewhere they reneged as was the plan all along. Did SALP all of a sudden think in the few final months that the underlying technology was not capable of supporting their loan. Of coarse not. They knew it was very valuable, and so they wanted it for themselves and now was the time to to put the final steps of the plan in place. This is what going for a stay under CCAA rather than for a hardship application would have prevented. So no, there was NO “GOOD FAITH” action here by the board/Management – just much self-interest to protect their jobs, perks and bonuses and much deceit in the unfolding plan of SALP to engineer the take over for a mere $120 Mil loan. This was the time to set the hook and reel in the fish!
The faith in the Canadian security markets very much depends on how the AMF regulators will deal with this very highly visible and much followed and very promising stock. The AMF must show definite strong action and not turn a blind eye as the TSX did. The AMF should DENY the hardship application and reverse the restructure back to the original some 740 Million shares (not some 20Billion shares) and freeze all transaction that further the restructure plan and order that a judge be appointed to supervise the company under the CCAA and that the judge stay any execution of the lien and reinstate the debt amount to the $120 Mil actually due and so provide the time needed to supervise the raising of funds to payoff the SALP loan and funding of the operations of the company to commercialization through financing now possible under the court, ahead of the lien or through sale of the various non core real estate assets or if necessary through sale of some or even all of the very valuable core assets. Under a fair judge their is no need or reason for a hardship application! There never was any hardship here to provide the share holders with a vote as the AGM was always held in this time frame and could have been easily provided for but instead SALP chose to POSTPONE the AGM specifically to deny the shareholders their vote via the totally improper and unfair hardship application made in “BAD FAITH” by the board/management.
Sincerely,
..................
PLI long time investor