Khgdc Bfshrs Essay

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Case 13-03 Hearts ‘R Us Preferred Stock Classification Hearts ‘R Us (“Hearts” or “the Company”) is an early-stage research and development medical device company. Hearts has no current products in the marketplace but is in the final stages of going to market with the Heart Valve System. All preliminary trials have been approved by the FDA, and the Company is in the final trial; once the final trial is complete, the Company will present the product to the FDA for final approval. If approved by the FDA, the Heart Valve System will revolutionize the way medical professionals repair heart valve defects. Bionic Body (“Bionic”), a SEC registrant, is a biological medical device company that focuses on the development of implantable biological devices, surgical adhesives, and biomaterials. Bionic could benefit from the approval of the Heart Valve System since it has a supplementary device that could be used in tandem with the Heart Valve System. As part of a financing strategy to support its operations, Hearts sold Bionic $3.5 million of Series A Preferred Shares (the “Shares”) of the Company with a par value of $1 per Share. The transaction was completed on November 30, 2011. As part of the Series A Preferred Stock purchase agreement, Bionic has the following rights: • Board Rights — As the holder of the preferred stock, Bionic is entitled to appoint one member to the Company’s board of directors (the “Board”). In addition, Bionic has the right to appoint an observer to receive all information provided to the Board and to be present at meetings of the Board. • Mandatory Conversion Right — The Shares will be converted to the Company’s common stock upon execution of an initial public offering (IPO) that nets at least $50 million in proceeds. • Contingent Redemption Right — The Shares will be redeemed for par value on the fifth

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