The filings are worth reading on $ECIG because it helps one to understand the debt structure of the company and why the notes were written as they had been.
January - February 2014 Private Placements
3 tranches totaling $11,325,000 and 1 tranche totaling $16,050,000.
These are 15% senior secured convertible promissory notes which were not intended to convert evidenced by the terms embedded in the agreements. There is no incentive given to the holders of these notes to convert. The incentive is in the interest rate of 15% which is considerable on $27MM over one year. These notes can be restructured and the company said they were making progress.
April Senior Convertible Notes 6%
3 tranches converting at $3,42 per share and one tranche converting at $4,73 per share subject to adjusted conversion price in the event of issuances below the agreed conversion price.
These notes have a redemption feature where the lenders can call in payments. Accordingly, the filings have stated that payments in $800K, and several payments of $1MM each have been made with additional redemption of $2 million scheduled...etc.
These notes were also not intended to convert judging by the redemptive nature of the loan. If the 4% notes converted (if I'm sure they have), the balance of the 4/22 and 6/3 notes could potentially convert at 115% of VWAP but that too would not be as onerous as what people think. This group might convert only if the Jan/February noteholders and the company could not come to an amicable revision for the $27MM mentioned earlier. The reason is that the holders of the Jan/Feb have a secured interest, hence the most superior claim against the company so it is important for the 6% group to not pressure the company into bankruptcy or to unnecessarily dilute the company to create bigger challenges to capital raise because they're second in line to the Jan/Feb noteholders. If shit hit the fan on $ECIG, this group is at greatest risk of not getting anything back.
My thoughts on these guys is that they too will restructure vs. opting for a debt/equity conversion. If the latter option were exercised, the holders can claim majority control of the Company which could trigger other events. The author of Seeking Alpha opined that this group could force management's hands to consider a strategic alternative (sell the company) but I do not see that as being the case going forward.
The reason why a strategic alternative (sale of company) is not in the cards at this time is this. If the theory to take out $ECIG on the dirt cheap were to be true, the holders of the 4% convertible notes would be holding stock which they converted this month. The time has lapsed considerably since conversion to not have filed the required Form 13 hence we can assume the note holder converted, sold the shares into the market and is not holding any. Had these noteholders seen the possibility to get $1,50 per share on a buyout which would be more than a 700% premium over their average conversion price of ~20c, they'd be holding. We don't see any filings.
Due to the share price sitting at 10c and the canceled re-IPO, it is going to be a challenge to do an additional raise to pay off $11.3MM. million in January. It is in both the company's and lenders' best interest to rewrite all notes which I'm fairly sure will be done.
