The fear of mass dilution after the split is put to rest with the full ratchet anti-dilution clause. By the required restrictions, this clause calls for the highest the O/S can go until June 2023 is 20 million.
The newly issued preferred shares, E and F, must represent 80% of an as converted percentage of the commons. F at 44% and E at 36%.
Under the Series E COD, 3,600,000 shares of preferred stock will be designated as Series E. Each share of Series E will automatically convert into 100 shares of commons stock on June 30, 2023, subject to extension if approved by the Series E holders. The Series E will rank pari passu with the common stock with respect to dividends and liquidation preference on an as-converted basis. The Series E will be non-voting and contain full ratchet anti-dilution protection entitling the holder(s) to receive 36% of the Company’s common stock upon conversion, and tag along rights enabling it to participate in a sale of the Series F.
Under the Series F COD, 4,400,000 shares of preferred stock will be designated as Series F. Each share of Series F will automatically convert into 100 shares of commons stock on June 30, 2023, subject to extension if approved by the Series F holders. The Series F will rank pari passu with the common stock with respect to dividends and liquidation preference on an as-converted basis. The Series F will vote on an as-converted basis and contain full ratchet anti-dilution protection entitling the holder(s) to receive 44% of the Company’s common stock upon conversion, and tag along rights enabling it to participate in a sale of the Series E.
What Is a Full Ratchet?
A full ratchet is a contractual provision designed to protect the interests of early investors. Specifically, it is an anti-dilution provision that applies, for any shares of common stock sold by a company after the issuing of an option (or convertible security), the lowest sale price as the adjusted option price or conversion ratio for existing shareholders.
So if you take the number of each group of preferred shares, 3.6 million E, and 4.4 million F, you get 80 million as converted. Because they must maintain no less than 36% and 44%, 80% as a group, 100% would be 100 million total, meaning the common shares can not exceed 20 million. Just as a reminder none of these preferred shares can be converted until 2023.
The other clause to note is the tag along rights clause. This is a protection for each group of preferred holders to ensure equal benefit in the event of sale of either class of preferred shares.
As far as the business plans, yes, they are going to be doing some very unique things here. I will get into some of it later today.
CNGT!!
