Journey 8% Cumulative Convertible Class A Preferred Offering
|9 Months Ended|
Sep. 30, 2021
|Journey 8% Cumulative Convertible Class A Preferred Offering|
|Journey 8% Cumulative Convertible Class A Preferred Offering||
11. Journey 8% Cumulative Convertible Class A Preferred Offering
In March 2021, Journey commenced an offering of 8% Cumulative Convertible Class A Preferred Stock (“Journey Preferred Offering”) in an aggregate minimum amount of $12.5 million and an aggregate maximum amount of $30.0 million. The Journey Preferred Offering terminated on July 18, 2021. The Journey Preferred Stock automatically converts into Journey’s Common Stock upon a sale of Journey or a financing in an amount of at least $25.0 million within a year of the closing date of the Journey Preferred Offering (extendable by another six months at Journey’s option) at a discount of 15% to the per share qualified stock price. In the event that neither a sale of Journey nor a $25.0 million financing is completed, the Journey Preferred Stock will be exchanged for shares of Fortress common stock, at a 7.5% discount to the average Fortress common stock trading price over the 10-day period preceding such exchange.
The Company evaluated the terms of the Journey Preferred Offering under ASC 480, Distinguishing Liabilities from Equity, and determined the instrument met the criteria to be recorded as a liability. The value at conversion does not vary with the value of Journey’s common shares, therefore the settlement provision would not be considered a conversion feature. Accordingly, the Company determined liability classification is appropriate and as such, this instrument is accounted for as a liability on the Company’s unaudited condensed consolidated balance sheet.
Dividends on the Journey Preferred Stock will be paid quarterly in shares of Fortress common stock based upon a 7.5% discount to the average trading price over the 10-day period preceding the dividend payment date As consideration for the foregoing, Journey will issue to Fortress additional shares of common stock, debt securities, or a combination of the two for the amount of such dividend. At September 30, 2021 the Company recorded Shares Issuable of $0.4 million representing the dividend payable on September 30, 2021 to the Journey Preferred Stock shareholders, the payment of which was contingent upon an effective registration statement, which was declared effective on November 4, 2021. Dividends paid on the Journey Preferred Stock are recorded as interest expense on the unaudited condensed consolidated statements of operations. For the three and nine months ended September 30, 2021, interest expense was $0.4 million and $0.6 million, respectively, associated with the Journey Preferred Stock.
Journey has completed five closings in connection with the Journey Preferred Offering (“ Journey Closings”). In connection with the Journey Closings, Journey issued an aggregate of 758,680 Class A Preferred shares at a price of $25.00 per share, for gross proceeds of $19.0 million. Following the payment of placement agent fees of $1.9 million, and other expenses of $0.1 million, Journey received $17.0 million of net proceeds. Non-cash fees were the initial fair value of the contingent placement agent warrant of $0.4 million (see Note 6). The fees were recorded to debt discount on the unaudited interim condensed consolidated balance sheet at September 30, 2021.