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PREFERRED STOCK AND WARRANTS
 3 Months Ended
Mar. 31, 2023
Equity [Abstract]  
PREFERRED STOCK AND WARRANTS PREFERRED STOCK AND WARRANTS
On March 28, 2023, the Company issued 55,000 shares of Preferred Stock to investors in the Private Placement at a price of $970 per share, along with 4,858,090 Warrants with an exercise price of $3.77 per share.

The Company accounts for the Preferred Stock and Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity. The fair value option was elected for the Preferred Stock, as the Company considers fair value to best reflect the expected future economic value. These liabilities will be remeasured to fair value at each subsequent reporting date using the same valuation methodology as originally applied with updated input assumptions.

The value of the Preferred Stock as of the issuance date was calculated using the Black-Derman-Toy (BDT) stochastic yield lattice model to capture the optimal timing of repayment, increasing dividend rate and other features and the value of the Warrants as of the issuance date was calculated using the Black Scholes Pricing Model.

Changes in the fair value of the Preferred Stock and Warrants will be reported as Other income (expense), net in the Company's condensed consolidated statements of operations.

The fair value of the Preferred Stock and Warrants were determined using Level 3 input and the key inputs into the models utilized were as follows as of March 31, 2023:

Preferred Stock (BDT)
Face value per share$1,000
Interest payments per year4
Dividend rate - year 1 (paid in-kind)9.25%
Dividend rate - year 2 (paid in-kind or cash at Company's choice)9.75%
Dividend rate - thereafter (paid in cash)12.00%
Yield volatility25.0%
Time to maturity (in years)2.5

Warrants (Black Scholes)
Stock price$3.42
Strike price$3.77
Risk-free rate3.67%
Volatility40.4%
Dividend yield0.0%
Time to expiration (years)4.0

The Preferred Stock is subordinate to Company indebtedness and senior to the Company’s common stock or other equity. Holders of the Preferred Stock are entitled to cumulative dividends that accrue quarterly through the September 30, 2025
maturity date. Dividends are payable in-kind during the first year at a rate of 9.25%. At the Company’s option, the dividends are payable in-kind or in cash during the second year at a rate of 9.75%. Dividends thereafter are payable in cash at a rate of 12.00%. The proceeds from the Preferred Stock issuance were approximately $53.4 million, including $10.0 million from existing related party stockholders. Offering costs paid by the Company of approximately $3.5 million were recorded in Other income (expense), net in our condensed consolidated statement of operations in the three months ended March 31, 2023. The net proceeds from the Private Placement were used for the repayment of debt. The Preferred Stock is redeemable on or after the first and second anniversaries of the closing date at a rate of 103% and 102%, respectively.The Warrants are immediately exercisable and fully earned and upon an event such a merger, consolidation, asset sale or similar change of control, the Warrants may be exercised and the holders may vote the underlying shares of common stock. In connection with the Private Placement, the Company provided the investors with certain registration rights relating to the Preferred Stock, the Warrants and the shares of the Company’s common stock underlying the Warrants, that require the Company to file a registration statement on Form S-3 with the SEC within 30 days following the closing date of the Private Placement.