| Members' Deficit | 8. Members’ deficit Under the Fourth Amended and Restated Limited Liability Company Agreement (the “Operating Agreement”), the Company is authorized to issue 101,000,000 common units, of which 10,850,000 have been reserved for issuance as Profits Interests and 32,620,000 are reserved for six separate classes, the Series A convertible preferred units (the “Series A units”), the Series B convertible preferred units (the “Series B units”), the Series C convertible preferred units (the “Series C units”), the Series C-1 convertible preferred units (the “Series C-1 units”), the Series D convertible preferred units (the “Series D units”), and the Series E convertible preferred units (the “Series E units”), collectively the “Preferred Units”. The members of the Company who hold these common and Preferred Units are not liable, solely by reason of being a member, for the debts, obligations, or liabilities of the Company whether arising in contract or tort; under a judgment, decree, or order of a court; or otherwise. The members are not obligated to make capital contributions to the Company. The Company will dissolve generally only upon the written consent of a majority of the members. The Company’s Profits Interests may be subject to either a combination of service, market, or performance vesting conditions. Vested Profits Interests are treated as common units for purposes of distributions. Convertible Preferred Units In October 2020, the Company entered into a Series E Preferred Unit Purchase Agreement (“Series E Agreement”). Between October 2020 and January 2021, the Company sold a total of 10,493,767 units of its Series E units at a purchase price of $ 7.1471 per unit, for total net proceeds of $ 74.8 million, net of issuance costs of $ 0.2 million. The subsequent closings were considered to be mutual options as neither the purchasers nor the Company had a commitment or obligation to purchase or sell additional units. As such, these rights were not accounted for separately. The Series E units were sold at a price lower than the Series C-1 and Series D units resulting in an anti-dilution adjustment to the Series C-1 and Series D conversion prices. The anti-dilution adjustment did not create a contingent beneficial conversion. The Company’s convertible preferred units consisted of the following (in thousands, except unit amounts):
Units Carrying Liquidation Units issuable
June 30, 2021 Authorized Outstanding Value Preference upon conversion
Series A convertible preferred units 4,000,000 4,000,000 3,974 8,000 4,000,000
Series B convertible preferred units 2,600,000 2,510,246 10,080 19,332 2,510,246
Series C convertible preferred units 5,000,000 4,972,115 32,348 32,488 4,972,115
Series C-1 convertible preferred units 2,520,000 2,504,099 17,607 18,270 2,511,608
Series D convertible preferred units 7,500,000 3,149,577 52,214 49,174 3,400,875
Series E convertible preferred units 11,000,000 10,493,767 74,811 75,000 10,493,767
32,620,000 27,629,804 $ 191,034 $ 202,264 27,888,611
Units Carrying Liquidation Units issuable
December 31, 2020 Authorized Outstanding Value Preference upon conversion
Series A units 4,000,000 4,000,000 $ 3,974 $ 8,000 4,000,000
Series B units 2,600,000 2,510,246 10,080 19,332 2,510,246
Series C units 5,000,000 4,972,115 32,348 32,488 4,972,115
Series C-1 units 2,520,000 2,504,099 17,607 18,325 2,511,058
Series D units 7,500,000 3,149,577 52,214 53,102 3,380,906
Series E units 11,000,000 9,609,491 68,491 68,680 9,609,491
32,620,000 26,745,528 $ 184,714 $ 199,927 26,983,816 The following provides a summary of the rights of the holders of convertible preferred and common units, prior to the Offering: Conversion Rights The holders of Preferred Units have the right to convert the Preferred Units at any time into common units at an initial conversion ratio of one -to-one, subject to certain adjustments. The Preferred Units will automatically convert into common units at the conversion rate in effect at that time immediately upon the closing of an IPO that results in total proceeds to the Company of at least $ 100.0 million. Redemption rights No Preferred Units or common units are unilaterally redeemable by either the unitholders or the Company; however, the Company’s Operating Agreement provides that upon any liquidation event such units shall be entitled to receive the applicable liquidation preference. Net Income and Loss Allocation Net income and loss shall be allocated to the Preferred Units in a manner that if the Company were to liquidate completely and in connection with such liquidation (i) sell all of its assets at their carrying values, defined as the fair market value, (ii) settle all of its liabilities to the extent of the available assets of the Company, and (iii) each Preferred Unit holder were to pay to the Company at that time the amount of any obligation then unconditionally due to the Company, then each Preferred Unit holder’s capital account balance would correspond as closely as possible to the distributions that would result if the distributions to such Preferred Unit holders were made in accordance with the Operating Agreement. Distributions Distributions of the Company’s assets to Preferred Unit holders or common unit holders shall be made with the approval of the Board of Managers and with sufficient working capital reserves retained. There shall be no distribution to the Preferred Unit holders until such time as the Company has earned gross revenues of $ 20.0 million on a cumulative basis (or such other lesser amount as unanimously approved by the board of managers). The Company has not declared any distributions to date. After the Company earns $ 20.0 million and prior to $ 50.0 million in gross revenue on a cumulative basis, distributions are as follows:
First, to the Preferred Unit holders, on a pari passu and pro rata basis, until the cumulative amount of distributions made with respect to each unit equals their aggregate capital contributions; and
Second, to common unit holders pro rata in proportion to the number of common units held. After the Company earns $ 50.0 million and prior to $ 100.0 million in gross revenue on a cumulative basis, distributions are as follows:
First, to Preferred and common unit holders, on a pari passu basis and pro rata in proportion to the number of units, until the cumulative amount of distributions made with respect to each unit equals their aggregate capital contributions;
Second, to Preferred Unit holders, on a pari passu basis and pro rata in proportion to the number of Preferred Units held, until they have been distributed an additional amount equal to their aggregate capital contributions; and
Third, 100 % to common unit holders, excluding common unit holders who were formerly Preferred Unit holders subject to automatic conversion of their Preferred Units. After the Company earns $ 100.0 million in gross revenue on a cumulative basis, distributions are as follows:
First, to the Preferred Unit holders, on a pari passu basis and pro rata in proportion to the number of preferred units, until the cumulative amount of distributions made with respect to each unit equals their original capital contribution, then until the cumulative amount made with respect to each unit equals their aggregate contribution; and
Second, to Preferred Unit holders and common unit holders pro rata in proportion to the number of common units held assuming full conversion of Preferred Units to common units at the applicable conversion rate. Liquidating Distributions In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, including a merger or sale of the Company (“Deemed Liquidation Event”), the amount to be paid for each class of unit is equal to the original price of the issuance, plus any declared but unpaid dividends. At June 30, 2021, the liquidation priority is as follows:
First 100 % to the holders of Series E units until they have been distributed an amount equal to their aggregate capital contributions less any amounts previously distributed to the Preferred Unit holders;
Second 100 % to the holders of Series D units, until they have been distributed an amount equal to their aggregate capital contributions less any amounts previously distributed to the Preferred Unit holders;
Third 100 % to the holders of Series A, B, C, C-1 units pari passu and pro rata in proportion to the number of Preferred Units held by each, until the holders of Series A units and Series B units have been distributed an amount equal to 200 % of their aggregate capital contributions less any amounts previously distributed to the Preferred Unit holders and the holders of Series C units and C-1 units have been distributed an amount equal to their aggregate capital contributions less any amounts previously distributed to the Preferred Unit holders; and
Thereafter, 100 % to the holders of Series A, B, and common units pari passu and pro rata in proportion to the number of common units held by each, assuming full conversion of the Preferred Units into common units at the then-applicable conversion rate, as defined in the Operating Agreement. Tax Distributions Within ninety days of the end of each fiscal year, the Company will make a distribution to each holder of units out of any available cash of the Company an amount equal to the excess of the sum of:
the product of any amount of net income and gain taxable at ordinary tax rates allocated with respect to each unit and the maximum marginal rate of federal, state and local income and employment tax applicable to an individual subject to tax with respect to such income or gain, and
the product of the amount of net income and gain table at long-term capital gains rates allocated with respect to such unit and the maximum marginal rate of federal, state and local income and employment tax applicable to an individual subject to tax with respect to such income or gain, and
in the event of allocation by the Company of net income or gain taxable at a rate other than the ordinary or long-term capital gains rates contemplated in clauses (i) and (ii) above, the product of the amount of such net income and gain taxable at such other rate allocated with respect to such unit and the maximum marginal rate of federal, state and local income and employment tax applicable to an individual subject to tax with respect to such income or gain, over the cumulative cash distributions previously made with respect to such unit. No tax distributions were made during any of the periods presented. Voting Rights The holders of Preferred Units, on an as converted to common unit basis, and the holders of common units shall vote together and not as separate voting groups on all matters required or permitted to be voted on, consented to, or taken or approved by the unit holders of the Company. Registration Rights Under our investors’ rights agreement, certain holders of our units have the right to demand that we file a registration statement or request that their units be covered by a registration statement that we are otherwise filing. Holders of the Company’s Preferred Units have the right to request the Company to file certain registration statements with the Securities and Exchange Commission for the registration of shares related to the Preferred Units. The obligations of the Company regarding such registration rights include, but are not limited to, commercially reasonable efforts to cause such registration statement to become effective, keep such registration statement effective for up to 120 days, prepare and file amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and furnish to the selling holders copies of the prospectus and any other documents as they may reasonably request. The terms of the registration rights provide for the payment of certain expenses related to the registration of the shares, including a capped reimbursement of legal fees of a single special counsel for the holders of the shares, but do not impose any obligations for the Company to pay additional consideration to the holders in case a registration statement is subsequently withdrawn at the request of the holders. Common Units Holders of the Company’s common units have no explicit redemption rights and vote on a one-to-one basis based on the number of common units held. Common units reserved for future issuance, consisted of the following as of:
June 30, December 31,
Class of Units/Shares 2021 2020
Units reserved for conversion of outstanding Series A 4,000,000 4,000,000
Units reserved for conversion of outstanding Series B 2,510,246 2,510,246
Units reserved for conversion of outstanding Series C 4,972,115 4,972,115
Units reserved for conversion of outstanding Series C-1 2,511,608 2,511,058
Units reserved for conversion of outstanding Series D 3,400,875 3,380,906
Units reserved for conversion of outstanding Series E 10,493,767 9,609,491
Units reserved for Profit Interests, issued and outstanding 8,547,401 6,926,358
Units reserved for options, issued and outstanding 2,292,309 —
Units reserved for Profit Interests and options, authorized for future issuance 10,290 3,923,642
38,738,611 37,833,816 |
