Messaging software and services company Critical Path Inc [CPTH] has secured a funding deal that will ensure its immediate survival, but the price is to hand control of the company to two powerful institutions that could sell the company if the right offer comes along.
After a $43 million private financing deal, investment house General Atlantic Partners LLC will own 36% of the equity and Cheung Kong Group, part of a major Hong Kong conglomerate, will hold 33%.
When it revealed third-quarter figures earlier this month, Critical Path said it was essential to its continued viability that it completed a financing deal or other strategic transaction in the current quarter. The company’s cash reserves were down to $18.2 million at the end of September after it recorded a quarterly loss of $18.6 million.
Under terms of the deal, General Atlantic will pay $10 million for notes that will convert into 6.7 million series E preferred shares once shareholders give their approval. Cheung Kong has already bought convertible notes with a face value of $32.8 million and this debt will be retired when it exchanges them for 21.9 million of the series E preferred shares. It will be invited to elect one director to the board.
In addition, there will be a $21 million rights issue when existing common stockholders will be invited to buy two of the series E preferred shares for every three shares they own. The series E shares will rank above all existing equity and will accrue dividends at an annual rate of 5.75%.
Even though Critical Path laid off 30% of its workforce at the start of the year it has remained deep in the red and revenue has been falling.
This article was based on material originally published by ComputerWire.