Series E Convertible Preferred Stock

3 Months Ended

Mar. 31, 2023

Series E Convertible Preferred Stock

Series E Convertible Preferred Stock

5. Series E Convertible Preferred Stock

On April 28, 2022, the Company entered into a Preferred Issuance Agreement, or PIA, with Harvard Bioscience, Inc., or HBIO, dated as of April 27, 2022. Pursuant to the PIA, the Company and HBIO agreed that once HBIO has paid at least $4.0 million in certain settlement and related legal expenses, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA.

On June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $4.0 million amount, the Company issued HBIO 4,000 shares of Series E Convertible Preferred Stock, or Series E Preferred, at a price of $1,000 per share to satisfy the Company’s related indemnification obligations pertaining to the $4.0 million, in lieu of paying cash. As of March 31, 2023, there were 4,051 shares of Series E Preferred outstanding and includes approximately $251,000 accrued as dividends payable as shares of Series E Preferred.

The rights, preferences, and privileges of the Series E Preferred stock were as follows as of March 31, 2023:

Dividends: Payable quarterly in additional shares of Series E Preferred stock at a rate of 8% per annum, accrued daily and compounded quarterly.

Voting Rights: The holders of Series E Preferred stock shall have no voting rights except as required by applicable law.

Consent Rights: As long as any shares of Series E Preferred stock are outstanding, the holder of the Series E Preferred stock has certain consent rights with respect to the Company (a) incurring any indebtedness for borrowed money or any guaranty therefore in excess of $500,000 individually or in the aggregate, (b) entering into certain new material related party transactions, and (c) authorizing or issuing any securities unless the same ranks junior to the Series E Preferred.

Liquidation Rights: The Series E Preferred stock shall, with respect to dividends and distributions upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or a deemed liquidation event or otherwise, rank prior to all classes of Common Stock of the Company and, except for any Preferred Stock that may be pari passu or senior to the Series E Preferred Stock, in each case, if consented to by the holder of the Series E Preferred, all other classes or series of Preferred Stock of the Company, whether currently existing or hereafter created.

Mandatory Conversion: Each share of Series E Preferred stock will automatically convert into shares of Common Stock of the Company upon the earlier to occur of the Company’s offering that includes common stock (whether private placement or public offering) that coincides with its uplisting onto NASDAQ, its initial public offering pursuant to a Registration Statement on Form S-1 that includes common stock following the issuance of the Series E Preferred, or its initial private placement that includes common stock following the issuance of the Series E Preferred in the event the gross proceeds of such private placement are at least $4,000,000. In such instance, each share of Series E Preferred will convert into that number of shares of Common Stock determined by dividing (i) the stated value plus all accrued and unpaid dividends, by (ii) the lowest price per share of common stock purchased in the applicable offering by the Company which triggered the mandatory conversion, or if such price cannot be reliably determined, a reasonably calculated price per common share determined by the Company and the holder.

Optional Conversion: Each share of Series E Preferred stock will also be subject to optional conversion by the holder thereof into that number of shares of Common Stock determined by dividing (i) the stated value plus all accrued and unpaid dividends, by (ii) a price per share equal to the average of the volume weighted average trading prices of the Common Stock for the most recently completed sixty (60) consecutive trading days prior to the date of determination.

The conversion options require settlement through a variable number of shares. Based on the mechanic of the conversion options, it is not possible to determine if the Company would be able to satisfy the settlement of the conversion option. Shareholder approval would be required to increase the number of authorized common shares. This action would be outside of the control of the Company. Accordingly, it is presumed that cash settlement would be required. Management has determined that based upon this analysis, temporary equity classification would be appropriate.

Other than Series E Preferred shares, there were no other shares of any of the other classes of preferred stock outstanding as of March 31, 2023. Authorized shares for each preferred stock class are as follows:

	Authorized
Undesignated preferred stock		979,000
Series B convertible preferred stock		1,000,000
Series C convertible preferred stock		4,000
Series D convertible preferred stock		12,000
Series E convertible preferred stock		5,000