Now the option pool has to get topped up such that it will be 15% of the fully diluted shares after the dilutive effect of the preferred stock sale. Because the preferred stock sale will cause a 20% dilution (selling 20% of the company) across the board, the option pool must be 18.75% prior to being diluted by the preferred stock:
Figure 5: Cap Table Accounting for the Increase in the Option Pool
|Shares or Options||Issued and Outstanding||Fully Diluted|
|Convertible Note Investors||1,448,299||12.28%||9.98%|
|Issued and Outstanding||11,793,299||100.00%|
|Option Pool Available||2,721,531||18.75%|
|Total Fully Diluted||14,514,830||100.00%|
The stock option pool must be increased from 1,155,000 to 2,721,531 in order for each to reach 18.75% of the total fully diluted shares. From Figure 5 above, it is clear that all equity and option owners have shared the burden of the increase in the stock option pool when calculated on a fully diluted basis.