I found this info via AI re Convertible Notes , which suggests...

I found this info via AI re Convertible Notes , which suggests to me that whilst there will be dilution HRZ will have on board an entity likely to promote the company if not entertain enhancing their interest in HRZ.

"There are several ways a startup can raise capital. One way is to issue convertible notes to investors. In exchange, those investors loan the company funds. Convertible notes give investors a right to recover their loan amount (usually with interest) or have their loan amount (and any interest) convert into shares when certain pre-agreed trigger events occur.

To reward the investor, the terms of convertible notes may include a discount to the market value of a share at conversion. This allows the investor to receive shares at a lower price than what they are worth.

Using convertible notes to raise capital is attractive to startups because it can be simpler and quicker than an equity investment. It also saves the company from having to issue shares to investors, and therefore negotiate a valuation, upfront. However, convertible notes may convert into shares at some point. It is important to understand the:

• consequences of this; and
• practical steps your company must take when this happens.

Convertible Notes on the Cap Table

Convertible notes will convert into shares (or be subject to repayment) at predetermined trigger events. These trigger events are usually:

• the maturity date (when the loan amount must be repaid or converted if another trigger event has not occured);
• a ‘qualifying financing’ (where the company raises a round of equity investment through the issue of shares to investors); or
• an ‘exit event’ (where a company sells its shares and assets or lists on a stock exchange).

When using convertible notes, your investors do not receive shares upfront. They are therefore noteholders rather than shareholders. However, they will receive shares if their convertible notes convert. Therefore, it is important to carefully consider the effect of convertible notes on your company’s cap table. You should also note that your convertible notes may attract interest. If this is the case, the amount that will convert is generally not just the original loan amount.

For example, when you are considering undertaking a qualifying financing, you will need to prepare a capitalisation table that shows what the company’s share structure will look like after the qualifying financing is complete. In this capitalisation table, it is important to show the:

• new investors being issued shares as part of the qualifying financing; and
• shares which will be issued to your noteholders upon conversion of their convertible notes.

This allows you to consider the potential dilutive effect of the noteholder conversions on the existing shareholders’ shareholdings. In turn, this may affect how much of the company you are willing to part with in your qualifying financing. Your new investors will also want to understand the effect of noteholder conversions. This is because this impacts how much of the company they will own after the qualifying financing is complete.

Conversion at the Maturity Date

If a qualifying financing or exit event does not occur before the maturity date, a noteholder can usually choose to:

• recover their loan amount (plus interest); or
• convert their loan amount (plus interest) into shares.

If the noteholder does not make a choice within the required time frame after the maturity date, the convertible note terms will usually outline an automatic result. Typically, the result is that the amount will convert to shares.

If the convertible notes convert into shares, the company will need to determine how many shares to issue to the noteholder. To do so, the company will usually divide the loan amount, plus any accrued interest, by a certain share price. A pre-agreed method set out in the convertible note terms will determine this price.

For example, the share price could be decided by an independent valuer based on the fair market value of the shares at the maturity date.

You will also need to determine the class of shares to issue to the noteholder. Conversion at the maturity date will usually require the company to issue the noteholder with the highest class of shares on issue at the time."
Courtesy of AI.

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