Stockholders' Deficit and Convertible Redeemable Preferred Stock

12 Months Ended

Feb. 02, 2020

Stockholders' Deficit and Convertible Redeemable Preferred Stock

Stockholders’ Deficit and Convertible Redeemable Preferred Stock

Common Stock

Prior to the completion of the IPO, the Company amended and restated its certificate of incorporation to authorize Class A and Class B common stock and reclassify the 100 outstanding shares of common stock into 393,000,000 shares of Class B common stock. In connection with the IPO, 47,875,000 shares of the Company’s Class B common stock were reclassified into shares of Class A common stock on a one-to-one basis. Upon completion of the IPO, 53,475,000 shares of the Company’s Class A common stock and 345,125,000 shares of Class B common stock were outstanding.

Voting Rights

Holders of the Company’s Class A and Class B common stock are entitled to vote together as a single class on all matters submitted to a vote or for the consent of the stockholders of the Company, unless otherwise required by law or the Company’s amended and restated certificate of incorporation. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share.

Dividends

Subject to the preferences applicable to any series of preferred stock, if any, outstanding, holders of Class A and Class B common stock are entitled to share equally, on a per share basis, in dividends and other distributions of cash, property or securities of the Company.

Liquidation

Subject to the preferences applicable to any series of preferred stock, if any, outstanding, in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, all assets of the Company available for distribution to common stockholders would be divided among and paid ratably to holders of Class A and Class B common stock.

Conversion of Class B Common Stock

Voluntary Conversion

Each share of Class B common stock is convertible into one fully paid and nonassessable share of Class A common stock at the option of the holder thereof with the prior written consent of the Company.

On December 20, 2019, a wholly-owned subsidiary of PetSmart, converted 6,352,546 shares of the Company’s Class B common stock into Class A common stock and sold such Class A common stock. Subsequently, on January 6, 2020, a wholly-owned subsidiary of PetSmart, converted 3,850,000 shares of the Company’s Class B common stock into Class A common stock and sold such Class A common stock.

Automatic Conversion

All shares of Class B common stock shall automatically, without further action by any holder, be converted into an identical number of shares of fully paid and nonassessable Class A common stock (i) on the first trading day on or after the date on which the outstanding shares of Class B common stock constitute less than 7.5% of the aggregate number of shares of common stock then outstanding, or (ii) upon the occurrence of an event, specified by the affirmative vote (or written consent) of the holders of a majority of the then-outstanding shares Class B common stock, voting as a separate class.

In addition, each share of Class B common stock will convert automatically into one share of Class A common stock (i) upon the sale or transfer of such share of Class B common stock, except for certain transfers described in the Company’s amended and restated certificate of incorporation, including transfers to affiliates of the holder and another holder of Class B common stock, or (ii) if the holder is not an affiliate of any of the Sponsors.

Preferred Stock

Preferred stock may be issued from time to time by the Company for such consideration as may be fixed by the board of directors. Except as otherwise required by law, holders of any series of preferred stock shall be entitled to only such voting rights, if any, as shall expressly be granted by the Company’s amended and restated certificate of incorporation.

Convertible Redeemable Preferred Stock

In October 2013, the Company issued Series A convertible redeemable preferred units and a warrant to purchase its Series A-1 convertible redeemable preferred units to an investor in exchange for $15.0 million in total proceeds and incurred transaction costs of $1.3 million. The warrant was recorded as a liability at its fair value and the remaining net proceeds were allocated to the Series A convertible redeemable preferred units. In October 2015, the warrant was exercised (net-unit settled) into 2,727,260 Series A-1 convertible redeemable preferred units (27,273 shares of Series A-1 convertible redeemable preferred stock subsequent to the 100:1 reverse share split). In April 2014, in connection with the issuance of the Series B convertible redeemable preferred units, the Company raised $30.0 million in total proceeds and incurred transaction costs of $0.1 million. In August 2014, in connection with the issuance of the Series C convertible redeemable preferred units, the Company raised $41.0 million in total proceeds and incurred transaction costs of $0.1 million. In October 2015, in connection with the issuance of the Series D convertible redeemable preferred units, the Company raised $75.0 million in total proceeds and incurred transaction costs of $1.7 million. As a result of the Company’s corporate conversion and related 100:1 reverse share split in March 2016, its convertible redeemable preferred Series A, A-1, B, C and D units were replaced with ten series of convertible redeemable preferred stock, par value $0.01 per share. In April and May 2016, in connection with the issuance of the Series E convertible redeemable preferred stock, the Company raised $75.0 million in total proceeds and incurred transaction costs of $0.1 million. In April 2017, in connection with the issuance of the Series F convertible redeemable preferred stock, the Company raised $125.0 million in total proceeds.

The following table provides information about the Company's convertible redeemable preferred stock for Fiscal Year 2017 (in thousands):


	Fiscal Year 2017
Series	Accretion
Series A voting preferred stock	$	108,880
Series A-1 voting preferred stock	15,848
Series B voting preferred stock	67,595
Series C voting preferred stock	66,513
Series D voting preferred stock	60,163
Series E voting preferred stock	42,521
Total	$	361,520

The Company classified the convertible redeemable preferred stock outside of stockholders’ deficit as the stock contained contingent redemption features that were not solely within the Company’s control. The Company recognized changes in the redemption value of the convertible redeemable preferred stock immediately as they occurred by adjusting the carrying amounts of these shares to what the redemption amounts would be assuming the shares were redeemable as of each balance sheet date.

As part of the equity reorganization in connection with the PetSmart Acquisition, all shares of the Company’s convertible redeemable preferred stock acquired by the Parent were cancelled and new shares of common stock of Chewy, Inc. were authorized for issuance.