v3.26.1
Mezzanine Equity and Stockholders’ Deficit
 3 Months Ended
Mar. 31, 2026
Mezzanine Equity and Stockholders’ Deficit [Abstract]  
Mezzanine Equity and Stockholders’ Deficit

10. Mezzanine Equity and Stockholders’ Deficit

 

Reverse Recapitalization

 

All issued and outstanding shares of Legacy Merlin’s redeemable convertible preferred stock automatically converted, on a one-to-one basis, into shares of Legacy Merlin common stock immediately prior to the consummation of the Merger. Upon the Closing of the Merger, all issued and outstanding shares of Legacy Merlin’s common stock were exchanged for common stock at an exchange ratio of approximately 3.102.

 

The following table presents the impact of the exchange ratio on Legacy Merlin’s redeemable convertible preferred stock, after the exercise of Legacy Merlin warrants to acquire its redeemable convertible preferred stock (refer to Note 9. Warrants), and the issuance of common stock following conversion of the redeemable convertible preferred stock:

 

Class of Legacy Merlin Redeemable Convertible Preferred Stock   Number of Shares Issued and Outstanding Before Closing     Exchange Ratio     Common Stock Issued After Conversion  
Series Seed redeemable convertible preferred stock     3,293,745       3.102       10,215,578  
Series A redeemable convertible preferred stock     7,493,114       3.102       23,239,955  
Series A-1 redeemable convertible preferred stock     928,217       3.102       2,878,873  
Series B redeemable convertible preferred stock     4,718,309       3.102       14,633,876  
Series B-1 redeemable convertible preferred stock     947,631       3.102       2,939,086  
Total     17,381,016               53,907,368  

 

Common Stock

 

As of March 31, 2026, the Company has 800,000,000 shares of $0.0001 par value common stock authorized. The voting, dividend and liquidation rights of the common stockholders are subject to, and qualified by, the rights, powers and preferences of the preferred stockholders and as designated by resolution of the Board of Directors. The holders of the common stock are entitled to one vote for each share of common stock held.

 

As of March 31, 2026, 715,455,443 shares of common stock are reserved for the conversion of Series A Preferred Stock and exercise of stock options and PIPE Warrants.

 

Series A Preferred Stock

 

As of March 31, 2026, the Company has authorized 50,000,000 shares of Series A Preferred Stock, $0.0001 par value, each with a stated value of $12.00 (“Stated Value”). As described below, the sum of (i) the Stated Value, (ii) any dividends paid in-kind, and (iii) any cash dividends not yet paid shall be referred to herein as the “Accrued Value.”

 

The Company’s Series A Preferred Stock were issued in connection with the Closing PIPE (refer to Note 3. Reverse Recapitalization), the exchange of 2024 LSA Amendment Warrants (refer to Note 9. Warrants), and the conversion of Pre-PIPE Bridge and Pre-Funded PIPE Notes issued and outstanding as of the Closing Date (refer to Note 8. Debt).

 

In March 2026 after the Merger, certain holders of Series A Preferred Stock converted 3,571 shares of Series A Preferred Stock into 3,579 shares of common stock. As of March 31, 2026, 21,711,880 shares of Series A Preferred Stock remained outstanding.

 

As described below, the Series A Preferred Stock is redeemable outside the control of the Company and is accordingly classified in mezzanine equity. The Company accretes changes in the redemption amount from the Closing Date to the earliest redemption date, which is five years from the Closing Date, using the effective interest method.

 

The Series A Preferred Stock has the following rights and preferences:

 

Voting Rights

 

On all matters subject to the authorization of the holders of common stock, the holders of Series A Preferred Stock are entitled to vote together with holders of common stock on an as-converted basis. Further, so long as at least 20% of the Series A Preferred Stock issued as of the Closing Date remain outstanding, the holders of Series A Preferred Stock are granted certain customary protective rights.

 

Dividends

 

The Series A Preferred Stock accrue cumulative, semi-annually compounding dividends, and are accrued whether or not earned or declared and whether or not there are any earnings, profits, surplus, or other funds or assets available for payment thereof (“Series A Accrued Dividends”). Series A Accrued Dividends accrue on the Accrued Value of each share of Series A Preferred Stock, at the Company’s election, (i) at 10.0% if paid in cash or (ii) at 12.0% if paid in-kind. The Company shall not make any dividends on any common stock unless the holders of Series A Preferred Stock also receive (i) all Series A Accrued Dividends and (ii) participating dividends on an as-converted basis.

 

Liquidation

 

In the event of liquidation, dissolution or winding up of the Company or upon the occurrence of a Deemed Liquidation Event (as defined in the Company’s Certificate of Designation), the holders of Series A Preferred Stock shall be entitled to receive, prior to any payments to holders of common stock, the greater of (i) the Accrued Value and (ii) the amount that would have been payable to holders of Series A Preferred Stock as if such shares converted to common stock immediately prior to such event. After such preferential payments are made, the remaining assets of the Company are to be distributed amongst the holders of Series A Preferred Stock and common stock pro rata, on an as-converted basis. The total amount payable to holders of Series A Preferred Stock is hereinafter referred to as the “Liquidation Amount.”

 

Conversion

 

Each share of Series A Preferred Stock is convertible at any time, at the option of the holder, into a whole number of shares of Company Stock determined by dividing (i) the Accrued Value by (ii) the then-applicable conversion price. The conversion price is initially $12.00, subject to customary adjustments for stock dividends and splits, dilutive issuances of common stock, subsequent rights offerings, pro rata distributions, and fundamental transactions. Additionally, if on the twenty-first (21st) trading day following date that is six months after the Closing Date, the 20-day volume-weighted average price of common stock is less than the conversion price then in effect, the conversion price shall be reduced to the greater of (i) such volume-weighted average price and (ii) $5.00.

 

Put Rights

 

Unless prohibited by applicable laws, the Series A Preferred Stock is redeemable at the option of the holder commencing after the fifth anniversary of the Closing Date at a redemption price equal to the Accrued Value.

 

Call Rights

 

Unless prohibited by applicable laws, the Company shall retain the option to redeem the Series A Preferred Stock at any time, as follows:

 

● Prior to the first anniversary of the Closing Date, at a redemption price equal to 150% of the Accrued Value;

 

 

● On or after the first anniversary of the Closing Date, but before the second anniversary, at a redemption price equal to 140% of the Accrued Value;

 

● On or after the second anniversary of the Closing Date, but before the third anniversary, at a redemption price equal to 130% of the Accrued Value;

 

● On or after the third anniversary of the Closing Date, but before the fourth anniversary, at a redemption price equal to 120% of the Accrued Value;

 

● On or after the fourth anniversary of the Closing Date, but before the fifth anniversary, at a redemption price equal to 110% of the Accrued Value;

 

● On or after the fifth anniversary of the Closing Date, at a redemption price equal to 100% of the Accrued Value.