Convertible Instruments and Accrued Interest
|9 Months Ended|
Feb. 28, 2023
|Convertible Instruments and Accrued Interest|
|Convertible Instruments and Accrued Interest||
Note 5. Convertible Instruments and Accrued Interest
Convertible preferred stock
The following table presents the number of potentially issuable shares of common stock should shares of preferred stock and amounts of undeclared and accrued preferred dividends be converted to common stock.
Under the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), dividends on its outstanding shares of Series B Convertible Preferred Stock (the “Series B preferred stock”) may be paid in cash or shares of the Company’s common stock at the option of the Company. Dividends on outstanding shares of Series C Convertible Preferred Stock (the “Series C preferred stock”) and Series D Convertible Preferred Stock (the “Series D preferred stock”) are payable in cash or shares of common stock at the election of the holder. The preferred stockholders have the right to dividends only when and if declared by the Company’s Board of Directors. Under Section 170 of the Delaware General Corporation Law, the Company is permitted to pay dividends only out of capital surplus or, if none, out of net profits for the fiscal year in which the dividend is declared or net profits from the preceding fiscal year.
Series B preferred stock provides for a liquidation preference over the common shares of $5.00 per share, plus any accrued and unpaid dividends. In the event of liquidation, holders of Series D preferred stock will be entitled to receive, on a pari passu basis with the holders of Series C preferred stock, and in preference of any payment or distribution to holders of the Series B preferred stock and common stock, an amount per share equal to $1,000 per share plus any accrued and unpaid dividends.
Convertible notes and accrued interest
Key terms of the outstanding convertible notes are as follows:
In addition to standard anti-dilution adjustments, the conversion price of the April 2, 2021 Note and April 23, 2021 Note is subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered under the Securities Act of 1933, as amended (the “Securities Act”). The April 2, 2021 Note and April 23, 2021 Note provide for liquidated damages upon failure to deliver common stock within specified timeframes and require the Company to maintain a share reservation of 6.0 shares of common stock for each Note. Subsequent to February 28, 2023, the Company and the noteholders of the April 2, 2021 Note and April 23, 2021 Note, entered into amendments to the existing Notes, extending the original maturity date of each Note two years, for further information see Note 11, Subsequent Events.
Reconciliation of changes to the outstanding balance of convertible notes, including accrued interest, were as follows:
Long-term convertible note – April 2, 2021 Note
During the nine months ended February 28, 2023, in satisfaction of redemptions, the Company and the April 2, 2021 Noteholder entered into four exchange agreements, pursuant to which the April 2, 2021 Note was partitioned into new notes (the “Partitioned Notes”) with an aggregate principal amount of $2.0 million, which was exchanged concurrently with the issuance of an aggregate amount of approximately 9.0 million shares of common stock. The outstanding balance of the April 2, 2021 Note was reduced by the Partitioned Notes to a principal amount of $7.8 million. The Company accounted for the Partitioned Notes and exchange settlement as an induced conversion, and, accordingly, recorded a non-
cash loss on convertible debt induced conversion of $2.0 million for the three months ended February 28, 2023. For the nine months ended February 28, 2023 and 2022, the Company recorded $2.7 million and $18.9 million, respectively, in loss on convertible debt induced conversion related to the April 2, 2021 note.
As of March 31, 2023, the holders of the April 2 and April 23 Notes had waived all provisions in the notes that, based on the occurrence of various events through that date, could have triggered the imposition of a default interest rate, a downward adjustment of the conversion price, or specified other provisions relating to default, breach or imposition of a penalty. Accordingly, the Company was not in default under the notes on February 28, 2023. Refer to Note 6, Equity Awards and Warrants.
Please refer to Note 6, Convertible Instruments and Accrued Interest, in the Company’s 2022 Form 10-K for additional information.