1. Suppose WSC decides to provide Bridge financing according to the terms in Exhibit 4. How do the terms related to warrants (Oversubscription in Exhibit 4) and pay-to-play clause impact the ownership of the VCs who continue to participate, and what impact does this have on investor IRRs? Should WSC exercise pay-to-play clause? Explain. (Use the attached spreadsheet to answer this question).
       

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Exhibit 4 Proposed terms in Bridge Financing for Fast lon Battery Terms Amount of Financing Pro-rata: Security/Price Terms of Series A2 Extension Investor Rights Agreement Oversubscription Details Minimum of $5M Source: Casewriters. WSC: $1,875,000 Franconia: $1,875,000 Bluelock: $1,250,000 A2 Preferred/Flat Round (same price as A2) Identical to current terms of Series A2 Preferred Stock (Majority vote to change rights, preferences and privileges) No change required. (Majority vote to Amend) In the event an investor purchases more than its pro-rata amount, such investor will be issued Common Stock warrants equal to the amount of the oversubscription divided by the A2 purchase price. The warrants will have an exercise price of $0.50 per share and a 10 year life. Pay to Play: (pending agreement from In the event an investor does not participate to its full pro-rata, all its current Series A investors) existing Preferred Stock converts to Common Stock at a 10-1 ratio. (e.g. 10 shares of preferred stock would be converted into 1 share of common stock) Exhibit 4 Proposed terms in Bridge Financing for Fast lon Battery Terms Amount of Financing Pro-rata: Security/Price Terms of Series A2 Extension Investor Rights Agreement Oversubscription Details Minimum of $5M Source: Casewriters. WSC: $1,875,000 Franconia: $1,875,000 Bluelock: $1,250,000 A2 Preferred/Flat Round (same price as A2) Identical to current terms of Series A2 Preferred Stock (Majority vote to change rights, preferences and privileges) No change required. (Majority vote to Amend) In the event an investor purchases more than its pro-rata amount, such investor will be issued Common Stock warrants equal to the amount of the oversubscription divided by the A2 purchase price. The warrants will have an exercise price of $0.50 per share and a 10 year life. Pay to Play: (pending agreement from In the event an investor does not participate to its full pro-rata, all its current Series A investors) existing Preferred Stock converts to Common Stock at a 10-1 ratio. (e.g. 10 shares of preferred stock would be converted into 1 share of common stock)

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To analyze the impact of the terms related to warrants Oversubscription and the paytoplay clause on the ownership of venture capitalists VCs and inves... View the full answer