|9 Months Ended
Sep. 30, 2022
11. STOCKHOLDERS’ EQUITY
2020 Bridge Financing
Pursuant to a Securities Purchase Agreement dated February 7, 2020, the Company sold The shareholders of Chanticleer common stock received shares of Amergent on a 1 for 1 basis (spin-off shares) and received 1 share of Sonnet common stock for 26 shares of Chanticleer common stock held at the time of the Merger. shares of a new series of convertible preferred stock of Chanticleer (the “Series 2 Preferred”) to an institutional investor. In March 2020, an aggregate of shares of Series 2 Preferred were converted into shares of common stock. In connection with the Merger, all remaining outstanding shares of the Series 2 Preferred were automatically cancelled and exchanged for substantially similar shares of preferred stock in Amergent.
During the year ended December 31, 2021, the investors converted shares of the Series 2 Preferred into common shares and sold those common shares in the market. In addition, the investors sold their remaining Series 2 Preferred to other investors. The shares sold to the investors no longer contain the True-Up Payment provision discussed below. The new investors converted shares of Series 2 Preferred into shares of common stock during May 2021, and shares of Series 2 Preferred remain outstanding at December 31, 2021 and September 30, 2022.
The Series 2 Preferred is classified in the accompanying condensed consolidated balance sheets as temporary equity due to certain contingent redemption features which are outside the control of the Company.
Designations, rights and preferences of Series 2 Preferred:
Stated value: Each share of Series 2 Preferred had a stated value of $.
True-Up Payment: Amergent was required to pay the original holder an amount in cash equal to the dollar value of 125% of the stated value of the Series 2 Preferred less the proceeds previously realized by the holder from the sale of all conversion and spin-off shares received by holder in Amergent, net of brokerage commissions and any other fees incurred by the holder in connection with the sale of any conversion shares or spin-off shares on April 1, 2021 (which period was extended). This True-Up Payment was settled in July 2021 with a payment of $0.1 million, and the cash previously held in escrow for repayment is no longer subject to restriction for this matter.
The Company determined that the True-Up Payment constituted a “make-whole” provision as defined by U.S. GAAP that was required to be settled in cash and, as such, was bifurcated from the host instrument, the Series 2 Preferred. It was accounted for as a derivative liability prior to settlement, with changes in fair value recorded in change in fair value of derivative liabilities in the condensed consolidated statement of operations. A $0.1 million increase in fair value was recorded for the three months ended September 30, 2021 and a $0.1 million decrease in fair value was recorded for the nine months ended September 30, 2021.
Redemption: There are triggering events, as defined, that can cause the Series 2 Preferred to be redeemable at the option of the holder, some of which are outside the control of the Company.
Conversion at option of holder/ beneficial ownership limitation: The Series 2 Preferred is convertible at the option of holder at the lesser of (i) $1.00 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) or (ii) 90% of the five day average volume weighted average price of the common, provided the conversion price has a floor of $0.50 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like). Conversion is subject to a beneficial ownership limitation of 4.99%. This limitation was increased by the holder to 9.99% prior to the Merger.
Liquidation preference: Upon any liquidation, dissolution or winding-up of the Company, the holder is entitled to receive out of the assets, whether capital or surplus, an amount equal to 125% of the stated value plus any default interest and any other fees or liquidated damages then due and owing thereon under the Certificate of Designations, for each share of Series 2 Preferred before any distribution or payment to the holders of common stock.
Voting rights: The holder of Series 2 Preferred has the right to vote together with the holders of common stock as a single class on an as-converted basis on all matters presented to the holders of common stock and shall vote as a separate class on all matters presented to the holders of Series 2 Preferred. In addition, without the approval of the holder, the Company is required to obtain the approval of Series 2 Preferred, as is customary, for certain events and transactions not contemplated by the Merger.
Triggering events: Breach of the Company’s obligations will trigger a redemption event.
Anti-dilution: The Series 2 Preferred provides for customary adjustments in the event of dividends or stock splits and anti-dilution protection.
At September 30, 2022, the outstanding warrants consisted of the following:
A summary of the warrant activity during the nine months ended September 30, 2022 is presented below:
As discussed in Note 9, 1,350,000 warrants were granted in March 2022 in connection with the issuance of 8% Convertible Debt and are equity-classified in the condensed consolidated financial statements. The net proceeds from the issuance were allocated to the 8% Convertible Debt and the warrants based on their relative fair values at the issuance date, resulting in an allocation of approximately $0.3 million to the warrants. Assumptions used in calculating the fair value of the warrants at the issuance date include the following:
In August 2021, the Company adopted the 2021 Inducement Plan (the “Plan”). Under the 2021 Inducement Plan, the Company can grant stock options and stock awards. There are shares of common stock reserved for issuance under the Plan. As of September 30, 2022, shares remained available for future grants.
In November 2021, the Company adopted the 2021 Equity Incentive Plan (the “Incentive Plan”). Under the 2021 Incentive Plan, the Company can grant stock options and stock awards. The stockholders of the Company approved the Incentive Plan on December 30, 2021. There are shares of common stock reserved for issuance under the Incentive Plan. As of September 30, 2022, shares remained available for future grants.
Share-based awards generally vest over a period of , and share-based awards that lapse or are forfeited are available to be granted again. The contractual life of all share-based awards is . The expiration date of the outstanding share-based awards is August 2026.
During the three and nine months ended September 30, 2022, the Company recorded share-based compensation expense of approximately $ and $ , respectively, in general and administrative expenses.