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3. Mezzanine Equity
On the Navitas Closing Date, the Company issued and sold 50,000 of its Series A Preferred Stock to the Investor, at a purchase price of $1,000 per share, for aggregate gross proceeds of $50.0 million and net proceeds of approximately $49.2 million after deducting issuance costs of approximately $0.8 million.
On the Terrasoul Closing Date, the Company issued and sold 60,000 shares of its Series A Preferred Stock to the Investor, at a purchase price of $1,000 per share, for aggregate gross proceeds of $60.0 million and net proceeds of approximately $59.9 million after deducting issuance costs of approximately $0.1 million.
The Company has authorized 110,000 shares of its Series A Preferred Stock, of which 110,000 shares were issued and outstanding as of June 30, 2026.
The material terms of the Series A Preferred Stock, as set forth in the Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”), are summarized below.
| | ● | Ranking. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights on the distribution of assets upon liquidation, dissolution or winding up of the Company. No shares of parity or senior securities were outstanding on June 30, 2026. |
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| | ● | Dividends. The Series A Preferred Stock accrues cumulative dividends, payable in kind, at an annual rate of 5.00% of the accumulated stated value, compounded quarterly. The dividend rate steps down to 0.00% on the fifth anniversary of March 11, 2026. Holders also participate, on an as-converted basis, in any cash dividend declared on the common stock. Accrued dividends are added to the accumulated stated value and are reflected in the accretion of the carrying value of the Series A Preferred Stock to its maximum redemption value described under “Redemption” below. |
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| | ● | Liquidation. Upon any liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock is entitled to receive, before any distribution to holders of common stock, a per-share amount equal to the greater of (i) the accumulated stated value plus accrued dividends and the remaining dividends that would accrue through the fifth anniversary of the Navitas Closing Date, and (ii) the amount the holder would have received on an as-converted basis (the “Repurchase Price”). |
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| | ● | Conversion. Each share of Series A Preferred Stock is convertible at the option of the holder into common stock at an initial conversion price of $3.57 per share, subject to customary anti-dilution adjustments. Following the 30-month anniversary of March 11, 2026, the Company may cause a mandatory conversion of all outstanding shares if specified trading-price, trading-volume, trailing EBITDA and liquidity conditions are satisfied, as set forth in the Certificate of Designation. |
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| | ● | Redemption. The Series A Preferred Stock is redeemable at the Repurchase Price upon (i) a Fundamental Change (which includes a 50% change of beneficial ownership of the common stock, specified mergers or sales of substantially all assets, stockholder approval of a plan of liquidation or dissolution, and a delisting from specified national securities exchanges), at the option of the holder; (ii) at any time on or after the seventh anniversary of March 11, 2026, at the option of the holder; and (iii) automatically upon an Insolvency Event. Because redemption upon a Fundamental Change and the holder optional redemption on or after the seventh anniversary are contingent events not solely within the Company’s control, the Series A Preferred Stock is classified outside of permanent equity as mezzanine equity in accordance with ASC 480-10-S99-3A and Rule 5-02.27 of Regulation S-X. |
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| | ● | Voting. Holders of Series A Preferred Stock vote with the holders of common stock as a single class on an as-converted basis. Certain actions by the Company, including amendments to the Certificate of Designation that are adverse to the holders and the creation or issuance of parity or senior securities, require the prior written approval of the holders of a majority of the outstanding Series A Preferred Stock. |
Because the Series A Preferred Stock becomes redeemable at the holder’s option on the seventh anniversary of March 11, 2026 based solely on the passage of time, the Company has concluded that it is probable of becoming redeemable and, in accordance with ASC 480-10-S99-3A, has elected to accrete the carrying value of the Series A Preferred Stock to its maximum redemption value using the interest method over the period to the holder’s first redemption date. Under this method, the initial carrying value of $109.2 million is accreted to the maximum redemption value of $140.6 million on a prospective basis over 30 quarterly periods ending on the seventh anniversary of March 11, 2026, using an initial weighted average effective annual rate of approximately 3.62%. Subsequent changes in the estimated maximum redemption value, if any, will be accounted for prospectively as changes in estimate. Accretion is recorded as a reduction of retained earnings (or, in the absence of retained earnings, additional paid-in capital) and a corresponding increase in the carrying value of the Series A Preferred Stock. For the three and six months ended June 30, 2026, the Company recognized $1.0 million and $1.1 million, respectively, of accretion.
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