Note 14 – Redeemable Series E Convertible Preferred Stock

On October 22, 2018, the Board approved a resolution to designate a series of 2,900,000 shares of its Redeemable Series E Convertible Preferred Stock pursuant to its articles of incorporation of which 2,846,356 were issued. The Redeemable Series E Convertible Preferred Stock has a stated value of $0.99 per share; is convertible to Common Stock at a price of $0.78 per share.

On May 6, 2019, 2,633,678 outstanding shares of Redeemable Series E Convertible Preferred Stock, represented an element of the purchase price were acquired and recorded at fair value (on an as converted into common stock basis) based on the $6.00 per share closing price of Better Choice Company’s shares of Common Stock as they remained outstanding after the reverse acquisitions discussed in Note 2 above.

On May 10, 2019 and May 13, 2019, holders of the Company’s Redeemable Series E Convertible Preferred Stock converted 689,394 and 236,364 preferred shares into 875,000 and 300,000 shares of the Company’s Common Stock, respectively.

The below table summarizes changes in the balance of Redeemable Series E Convertible Preferred Stock since inception through September 30, 2019 including its value prior to acquisition by the Company.

The rights preferences and privileges of Redeemable Series E Convertible Preferred stock are as follows:

 

Voting

The Redeemable Series E Convertible Preferred Stock has voting rights equal to those of the underlying Common Stock and ranks senior in respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.

Dividends

The holders of the Redeemable Series E Convertible Preferred stock are entitled to receive cumulative dividends at a rate of 10% per annum on the stated value. Each Holder of Redeemable Series E Convertible Preferred stock will be entitled to receive dividends or distributions on each share of Redeemable Series E Convertible Preferred stock on an as converted into common stock basis. Pursuant to waiver letters executed by each investor, the holders of the Company’s Redeemable Series E Convertible Preferred Stock agreed to waive their right to the distribution of dividends until October 22, 2019. Dividends accrued are $0.2 million as of September 30, 2019.

Liquidation

In the event of a Liquidation Event, the holders of Redeemable Series E Convertible Preferred stock will be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders, before any amount shall be paid to the holders of any of shares of Common Stock, an amount per share of Series E Preferred equal to the greater of (A) the sum of (1) the Stated Value thereof plus (2) the Additional Amount thereon and any accrued and unpaid Late Charges with respect to such Stated Value and Additional Amount as of such date of determination (the “Conversion Amount”) and (B) the amount per share such holder of Redeemable Series E Convertible Preferred would receive if such holder converted such Series E into Common Stock immediately prior to the date of such payment. Liquidation Event means, whether in a single transaction or series of transactions, the voluntary or involuntary liquidation, dissolution or winding up of the Corporation or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Corporation and its Subsidiaries, taken as a whole.

Conversion

Each holder of Redeemable Series E Convertible Preferred stock will be entitled to convert any portion of the outstanding Redeemable Series E Convertible Preferred held by such holder into validly issued, fully paid and non-assessable shares of common stock at the Conversion Rate. The number of shares of common stock issuable upon conversion of any share of Redeemable Series E Convertible Preferred would be determined by dividing (x) the Conversion Amount of such share of Series E Preferred by (y) the Conversion Price. The Redeemable Series E Convertible Preferred Stock has a stated value of $0.99 per share; is convertible to Common Stock at a price of $0.78 per share.

Redemption

Under certain default conditions, the Redeemable Series E Convertible Preferred Stock is subject to mandatory redemption in cash equal to 125% of the greater of $0.99 per share ($1.23 per share) or 75% of the market price of the Common Stock. The Redeemable Series E Convertible Preferred Stock has a stated value of $0.99 per share; is convertible to Common Stock at a price of $0.78 per share.Redemption of the Redeemable Series E Convertible Preferred stock also occurs upon Triggering Events, which are not all entirely within the control of the Company. Due to this redemption option, the Redeemable Series E Convertible Preferred stock is recorded in the mezzanine equity and subject to subsequent measurement under the guidance provided under FASB ASC 480-10-S99-3A, Accounting for Redeemable Equity Investments.