Draper Oakwood Technology Acquisition, Inc. (DOTA), announced this morning that it has arranged two backstops to secure its business combination with Reebonz Limited. However, most of the finer details that you would want to see (and that DOTA doesn’t want you to see) have been left out. Presumably, DOTA will release those details in an 8-K after the market close….most likely at 5:29PM…on a Friday…hoping no one notices. (Spoiler alert: we’re all going to look for it.)
However, before we get to those finer details, a quick summary on the backstops:
- One investor has agreed to acquire 1,000,000 shares of Class A common stock of the Company (”the Backstop Shares”)
- The other investor has agreed to acquire $5 million of shares of Common Stock in open market or in privately negotiated transactions prior to 5:00 pm ET on December 14, 2018.
Additionally, the Backstop Investors have agreed that until the earlier of the closing of the Business Combination (“the Closing”) or the date on which the Business Combination Agreement is terminated, the Backstop Investors will not transfer any Common Stock, including any Backstop Shares that they acquire.
So what’s in it for the Backstop Investors? Well, DOTA will issue to the Backstop Investors restricted Common Stock (the “Additional Shares”) at the rate of 0.25 share for each Backstop Share purchased and not redeemed. Plus, the Backstop Shares and (when registered) the Additional Shares will be sold in market transactions during the 90-day period following the Closing (which 90 day period may be shortened to up to 60 days by Reebonz Holding), subject to certain volume and sale limitations.
Even better…any shares not sold in the open market during the period will be purchased by Reebonz Holding at the end of the period AND…under certain circumstances, Reebonz Holding may be required during such 90-day period to purchase certain of the securities held by the Backstop Investors. PLUS…if the proceeds from such sales are less than 110% of the aggregate amount paid by the applicable Backstop Investor for the Backstop Shares, Reebonz Holding has agreed to pay to such Backstop Investor the difference in cash (the “Guaranty Obligation”).
The Guaranty Obligation: Reebonz Holding has agreed to deposit the portion of the funds currently held in a trust account for the benefit of the Backstop Shares (based on the price per share to be paid to the Company’s public stockholders who have redeemed their public shares in connection with the Closing) into a segregated escrow account, as security for the payment of the Guaranty Obligation.
And the icing on this cake? The Company agreed with one Backstop Investor that if the Business Combination Agreement is terminated, the Company will liquidate promptly thereafter. So if Reebonz walks away…DOTA is done. No more extensions. It’s do or die time.
However, there’s a lot of detail in this release that’s missing but will hopefully be forthcoming in an 8-K. Such as:
- What are the volume and sale limitations for the Backstop Shares and (when registered) the Additional Shares that will be sold in market transactions during the 90-day period following the Closing?
- Who are the Backstop Investors?
- What are the certain circumstances that force Reebonz Holding to purchase “certain” of the securities during the 90-day period post-closing?
Regardless, this is not good and extremely dilutive to any shareholders who do NOT redeem. However, maybe that was the point….everyone was going to redeem anyway. Looks like we might have another “I-AM/Smaaash” on our hands and you have to wonder what Reebonz is thinking right now. Maybe someone should show them Smaaash’s current stock price…
We’ll update as further information becomes available.