Author Topic: Question Regarding Warrants / Convertible Preferred / Common Stock  (Read 574 times)

Voodooking

  • Jr. Member
  • **
  • Posts: 84
As this situation is somewhat sensitive, I don't really want to publicise the specifics of it at the moment, but would really appreciate a bit of education from people with a bit more knowledge than me regarding warrants and convertible preferred stock.

A top calibre investor, who I admire and respect, has purchased some warrants / convertible preferred shares, with the following terms:

Each warrant is exercisable into 0.1 share of Series A Convertible Preferred Stock, par value $0.01 per share at an exercise price of $1.01 per 0.1 share of Preferred Stock. Each 0.1 share of Preferred Stock will be convertible into one share of common stock, par value $0.01 per share. The Company does not currently have a sufficient number of authorized shares of Common Stock to cover the shares issuable upon the conversion of Series A Preferred Stock. As a result, before any shares of Preferred Stock can be converted, the Issuer must obtain stockholder approval of an amendment to its Tenth Amended and Restated Certificate of Incorporation, as amended, to sufficiently increase its authorized shares of Common Stock to cover the conversion of all outstanding shares of Preferred Stock into Common Stock.

The Warrants are exercisable immediately and will expire on the later of (i) the one-year anniversary of the date (the "Charter Amendment Date") on which Issuer publicly announces through the filing of a Current Report on Form 8-K that the amendment to their certificate of incorporation to sufficiently increase their authorized shares of Common Stock to cover the conversion of all outstanding shares of Series A Preferred Stock into Common Stock has been filed with the Secretary of State of the State of Delaware and (ii) December 31, 2019. Each Unit consists of one share of Common Stock and one Warrant.

The issuance of warrants has now closed, and as much as I wish I'd found out about this earlier and bought some warrants / convertible stock, it looks like I cannot. My query now is: Is it worth buying the common? What scenarios am I looking at compared to if I had bought the warrants? The price of the common has now dropped to half of what this investor paid for the warrants, so although he is getting one common and one warrant (option to buy another common share for the same price in the future) I am getting a 50% discount to his purchase price on the common, so I would be able to buy twice as much for the same price...?

I understand that if the common was selling at the same price as when the investor bought in, I would be getting a lot less for my money, but since it has dropped, I'm trying to think how he would be better off and I wouldn't? If I've missed anything glaringly obvious and I'm being completely stupid, please point it out. I'm eager to learn. Thanks  :)


Schwab711

  • Hero Member
  • *****
  • Posts: 1194
Re: Question Regarding Warrants / Convertible Preferred / Common Stock
« Reply #1 on: May 01, 2018, 07:00:11 PM »
If I were you, I'd also want to know:
Who are the major holders of common and their %s? Are any company officers?
What % of authorized shares do shares outstanding represent?
How many classes of common are there?
In the Articles of Incorporation, who is allowed to call a special meeting and/or are there any explicit restrictions on adding items to the AGM agenda?

Voodooking

  • Jr. Member
  • **
  • Posts: 84
Re: Question Regarding Warrants / Convertible Preferred / Common Stock
« Reply #2 on: May 02, 2018, 06:27:59 AM »
Thanks for the response Schwab. I've PM'd you a few details to give a bit more colour on the situation.