REDEEMABLE CONVERTIBLE PREFERRED STOCK

3 Months Ended

Mar. 31, 2024

REDEEMABLE CONVERTIBLE PREFERRED STOCK

REDEEMABLE CONVERTIBLE PREFERRED STOCK

9. REDEEMABLE CONVERTIBLE PREFERRED STOCK

The table below summarizes the Company’s Redeemable Convertible Preferred Stock issuances:

Preferred Stock	Issuance Date	Shares	Cash Dividend Rate	PIK Dividend Rate	Conversion Price		Net Proceeds Received (in thousands)
Series A	28-Mar-23	25,000	14.50%	16.00%	$	9.03	$	24,400
Series A-1	6-Sep-23	38,000	14.50%	16.00%	$	7.63	$	37,100
Series A-2	15-Dec-23	35,000	14.50%	16.00%	$	6.21	$	34,100
Series A-3	27-Mar-24	20,000	14.50%	16.00%	$	6.83	$	19,500

On March 27, 2024, the Company sold, in a private placement, an aggregate of 20,000 shares of Series A-3 Redeemable Convertible Preferred Stock (the “Series A-3 Preferred Stock”) in a private placement to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three existing stockholders (the “Investors”). The Company received $19.5 million in proceeds, net of $0.5 million in original issue discount. Each of the Investors has an employee that has been elected to and serves on the Company’s board of directors, comprised of six members. The issuance of Series A-3 Preferred Stock was approved by the Company’s board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the Series A-3 Preferred Stock. Holders of Series A-3 Preferred Stock will have no voting rights with respect to the shares of Series A-3 Preferred Stock. The Series A-3 Preferred Stock will receive annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued at a fixed PIK accrual rate of 16.0% annually at the option of the Company. Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends. PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference. The Series A-3 Preferred Stock Dividend Payment Date will commence on March 31, 2024, and the Conversion Price equaled $6.83, which may be adjusted from time to time.

For accounting purposes, upon issuance of the preferred stock (collectively, the “Redeemable Convertible Preferred Stock”), the Company recorded the net proceeds as mezzanine equity (temporary equity) on the unaudited condensed consolidated balance sheets because it is not mandatorily redeemable but does contain a redemption feature at the option of the preferred holders that is considered not solely within the Company’s control. Due to the redeemable nature of the preferred stock, as further discussed below, at March 31, 2023, September 30, 2023, December 31, 2023 and March 31, 2024 the Company recorded non-cash deemed dividends of approximately $1.5 million, $1.1 million, $1.0 million and $0.5 million to increase the carrying value of the preferred stock to its redemption amounts of approximately $25.0 million, $38.0 million, $35.0 million and $20.0 million, respectively.

For the three months ended March 31, 2024, the Company paid-in-kind (“PIK”) its dividend on the preferred stock of $5.1 million. As of March 31, 2024, the carrying value of the preferred stock, inclusive of PIK dividends, is approximately $131.6 million.

Voting Rights. Holders of shares of the Redeemable Convertible Preferred Stock have no voting rights with respect to the shares of Redeemable Convertible Preferred stock.

Dividends. Holders of Redeemable Convertible Preferred Stock are entitled to receive cumulative dividends at a fixed rate of 14.5% per annum on the Liquidation Preference ($1,000 per share, or $118.0 million, increased for any PIK accruals), compounding and accruing quarterly in arrears. Dividends may be paid in cash or, if not declared and paid in cash, the amount of any such dividend shall automatically accrue at a fixed rate of 16.0% per annum on the Liquidation Preference and be added to the Liquidation Preference (a “PIK Accrual”). Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends. Additionally, while the Company has not declared or paid dividends on its common stock since its inception, holders of preferred stock will be entitled to participate in any dividends or permitted distributions to holders of common stock on an as-converted basis should they occur.

Conversion Features. In addition to the conversion rights noted in “Redemption Features (Change of Control)” below, Holders of Redeemable Convertible Preferred Stock may convert their shares into common stock at a conversion ratio (the “Conversion Ratio”) equal to the then applicable Liquidation Preference at the time of conversion divided by the then applicable Conversion Price (initially equal to an 18% premium to the volume weighted average price of common stock for the 20 trading days immediately preceding the closing date). Additionally, the Company has the right, at its option, to convert outstanding shares of Redeemable Convertible Preferred Stock into common stock at the Conversion Ratio should the Company meet certain calculated valuation metrics which when divided by the number of outstanding shares of common stock equals or exceeds 130% of the Conversion Price.

Redemption Features (Issuer). The Company has the option to redeem the Redeemable Convertible Preferred Stock in cash for an amount per share of Preferred Stock equal to (the “Redemption Price”):

● at any time prior to 120 days following the closing date, 100% of the Liquidation Preference at such time;

● at any time on or after 120 days following the closing date but prior to the 180 days following the closing date, 102% of the Liquidation Preference at such time;

● at any time on or after 180 days following the closing date but on or prior to the first anniversary of the closing date, 105% of the Liquidation Preference at such time;

● at any time after the first anniversary of the closing date but on or prior to the second anniversary of the closing date, 108% of the Liquidation Preference at such time; and

● at any time after the second anniversary of the closing date, 120% of the Liquidation Preference at such time.

Redemption Features (Change of Control). In the event of a change of control, holders have the right to receive:

● at any time on or prior to 150 days following the issuance date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity consideration equal to the 107.5% of the Liquidation Preference, or

● at any time after the one hundred fiftieth (150th) day following the issuance date, the Company shall offer each Holder a cash payment equal to the Redemption Price. Holders shall also have the ability to elect conversion into common stock at the Conversion Ratio. Until (i) a termination of or certain amendments to the Amended Term Loan Agreement or (ii) one year past the maturity date of the Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted.