Convertible Preferred Stock

3 Months Ended

Aug. 27, 2023

Equity [Abstract]

Convertible Preferred Stock

Convertible Preferred Stock

On January 9, 2023, the Company issued an aggregate of 38,750 shares of the Series A Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”), all of which are convertible into shares of common stock at the election of the holders of the Convertible Preferred Stock (each, a “Holder” and collectively, the “Holders”), subject to the exchange and beneficial ownership limitations described below. The Company recorded the Convertible Preferred Stock net of issuance costs of $0.7 million.

Liquidation and Redemption

As of August 27, 2023 and May 28, 2023, the aggregate liquidation preference of the Convertible Preferred Stock approximated $40.1 million and $39.3 million, respectively.

Registration Rights Agreement

On January 9, 2023, in connection with the issuance of the Convertible Preferred Stock, the Company and the Holders also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which, among other things, the Company granted the Holders certain registration rights with respect to the shares of common stock issuable upon the conversion of the Convertible Preferred Stock. The Registration Rights Agreement contains monetary penalties if the Company fails to maintain the effectiveness of the registration statement. As of August 27, 2023, the Company has accrued approximately $0.2 million in monetary penalties under the Registration Rights Agreement due to the delinquent filing of the Company’s annual and quarterly reports with the SEC.

Classification

The Convertible Preferred Stock is redeemable by the holders after June 29, 2026. Until such date, it is redeemable contingent upon the occurrence of certain events. As a result, the Company has presented the Convertible Preferred Stock outside of permanent equity. The Convertible Preferred Stock was recorded at its issuance date fair value of the net proceeds raised. The current carrying value approximates fair value as it reflects the accumulation of the PIK dividends and accretion of the issue costs.

The Company recorded proceeds of $38.8 million, net of costs associated with the issuance of the Convertible Preferred Stock of approximately $0.7 million, approximating $38.1 million. The discount to the proceeds arising from issuance costs is being amortized up to its full redemption value through June 29, 2026.

During the three months ended August 27, 2023, the Company recorded PIK dividends of approximately $0.7 million as a reduction to Additional Paid-in Capital and an increased to the Convertible Preferred Stock balance. As of August 27, 2023 and May 28, 2023, there were approximately 40,159 shares and 39,420 shares, respectively, of Convertible Preferred Stock outstanding.