MDuffy, you were right to be confused about post 51010, since much of that was contradictory and did not make sense, like the short selling theory previously posted.
The reply you got, “The anti dilutive measures gave them more shares if the price went down...which it did, and they got more shares” actually made some sense and for some other company’s loans could be true.
If the anti-dilutive criteria simply ties the Conversion Price to the latest open market share price, then when the SP drops below the Conversion Price, then the Conversion Price goes down, and the Note holders could convert the Notes into more shares.
But this depends on the terms and conditions specified in the loan documents. The loan documents specify all of the terms and conditions, which include the determination of Note Conversion Price, Warrant Exercise Price and the anti dilutive measures that the company and the Note holders have agreed to.
If you look at Exhibit 10.2, Form of Note, under the definitions section you will find:
“Dilutive Issuance” shall have the meaning set forth in Section 5(b).
In Section 5 starting on page 8, you will find:
Section 5. Certain Adjustments.
(b) Subsequent Equity Sales. Except for Exempt Issuances, if, at any time, for so long as the Note or any amounts accrued and payable thereunder remain outstanding until such time as the Company closes the Public Offering and receives at least $5 million in gross proceeds from the Public Offering, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the Conversion Price then in effect (such lower price, the “Base Conversion Price” and each such issuance or announcement a “Dilutive Issuance”), then the Conversion Price shall be immediately reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.
If the price per share for a Dilutive Issuance, is less than the Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the Conversion Price in effect at the time of such amendment or adjustment, then the Conversion Price shall be adjusted upon each such issuance or amendment as provided in this Section 5(b). In case any Common Stock Equivalent is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction (including an offering of units), (x) the Common Stock Equivalents will be deemed to have been issued for the Option Value of such Common Stock Equivalents and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued or sold for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value. If any shares of Common Stock or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for cash, the amount of such consideration received by the Company will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock or Common Stock Equivalents are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the VWAP of such public traded securities on the date of receipt (or the last Trading Day). If any shares of Common Stock or Common Stock Equivalents are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be.
If the holder of Common Stock or Common Stock Equivalents outstanding on the Original Issue Date or issued thereafter shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price then in effect, such issuance shall be deemed to have occurred for less than the Conversion Price on such date and such issuance shall be deemed to be a Dilutive Issuance.
If the Company enters into a Variable Rate Transaction despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised under the terms of such Variable Rate Transaction.
The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b) (other than any Exempt Issuance), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
The provisions of this Section 5(b) shall apply each time a Dilutive Issuance occurs after the Original Issue Date but prior to the date that the Company closes the Public Offering and receives at least $5 million in gross proceeds from the Public Offering and so long as the Note or any amounts accrued and payable thereunder remain outstanding, but any adjustment of the Conversion Price pursuant to this Section 5(b) shall be downward only. Notwithstanding the foregoing, no adjustment of the Conversion Price will be made under this Section 5(b) in respect of an Exempt Issuance.
These are most of the anti-dilution provisions that were agreed to. Section 5(b), Subsequent Equity Sales, describes many variations of actions by Sigma that could lead to lowering the Conversion Price, but I do not see any criteria that would cause the Conversion Price to be reduced simply due to the share price on the NASDAQ dropping below the $4.13 Conversion Price.
To put this in very simple terms, Sigma would have to sell shares or grant options that would be priced lower than the Conversion Price in order for the Conversion Price to be forced lower. As an example, if Sigma was to do another Private Placement and priced the shares at $2.87, then yes the Conversion Price would drop to $2.87. But the fact that the share price has dropped below $4.13 on the open market, has not resulted in the Conversion Price dropping. It remains at $4.13.
Also note that 5(b) starts with the phrase “Except for Exempt Issuances”. The definition of Exempt Issuances is provided in the definition section of Exhibit 10.1, the Stock Purchase Agreement:
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock dividends, stock splits or combinations) or to extend the term of such securities, (c) securities in connection with the Public Offering, and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
This exception means that the 20,000 unvested stock options that the company granted to a company officer at an exercise price of $3.27 per share on 4/19/17 (described in the Subsequent Events section of the latest 10-Q) is not a Dilutive Issuance and therefore did not lower the Conversion Price to $3.27. . MdDuffy, a statement can make sense and even be logical, but if it does not reflect the actual facts that apply to the given situation, then it should be disregarded. Look at the facts and decide for yourself.
