Hey Dr. H,
This is copied and pasted straight from CC's email.
Option 1:
You may hold your convertible note until a conversion event occurs, namely there is a future Series A financing round or where Enzolytics is acquired. At the end of this report, I have summarized when such a conversion event would occur and how the investor’s investment would be impacted.
Ending part of email referenced above:
For purposes of considering Option 1, we provide this general information. Please consult your financial advisor for further information. In our case, convertible notes (a SAFE) were issued to each investor with a valuation CAP of $15 Million (in some cases the valuation CAP provided was $10M). This CAP offers the possibility for appreciation in the following way.
The CAP is a ceiling on the value of our Company (i.e., a maximum dollar amount) for purposes of determining the conversion price of the note at the time of a later Series A round of funding — meaning that in a future Series A financing where financing is provided by an outside source in exchange for shares in our company, if the pre-investment valuation of our company is higher than the CAP, a note holder (you) would receive a proportionally larger number of shares than the later investor. For example, if in a Series A investment, our company were valued at $30M, a SAFE Note investor would receive twice the number of shares issued to the later investor ($30M/$15M = 2 times). And, if the Company is valued even higher at the time of a Series A financing, the SAFE note investor would be issued proportionally more shares. Also, if the Company is acquired, the initial investor’s investment would appreciate proportionally with the acquisition price as compared to the CAP - meaning if the Company were acquired for $30M, then an investment would double and so forth.
He doesn't hint that an acquisition is imminent. He just wanted to outline the 3 ways Wefunder and Start Engine investors could make money. The acquisition or series A financing is just one way.
In a follow up post to an investor made on our Facebook group for Wefunder/Start Engine investors, CC clarified that a change of control must also occur at the time of the acquisition.
Here's what he said regarding that: In the acquisition, we purposefully arranged the transaction such that upon the acquisition of BioClonetics shares by Enzolytics, and contemporaneously therewith, there was not a change in control in that the shareholders of BioClonetics took and have control of Enzolytics. Thus, we do not consider the acquisition to constitute a "Change of Control."
Also, if CC did not want this info to be shared publicly, I sincerely apologize.
GLTA and Happy New Year to all the shareholders!
