Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the mechanics and economic impact of the automatic conversion of Quillen Technologies, Inc.'s (the "Company" or "Quillen") outstanding convertible promissory notes (collectively, the "Notes") upon the closing of the Company's Series A Preferred Stock financing (the "Series A Financing" or the "Series A"). This memorandum has been prepared at the reques

II. Background A. The Convertible Notes The Company issued a series of convertible promissory notes on March 15, 2024 to the three holders identified in Section II.B below, raising an aggregate of $1,500,000 in bridge financing to fund the Company's operations through the anticipated closing of a preferred stock financing round. The principal terms of the Notes, as set forth in the form of Convertible Promissory Note

III. Conversion Price Calculation The Notes provide that upon a Qualified Financing, the outstanding principal and accrued interest under each Note shall convert into shares of the preferred stock issued in the Qualified Financing at a conversion price per share equal to the lower of (i) the discount price and (ii) the valuation cap price. Because the conversion price is defined as the lower of these two alternatives

IV. Accrued Interest Calculation Interest on the Notes accrues at a rate of 6% per annum on a simple interest basis from the date of issuance. Under the terms of the Notes, accrued but unpaid interest converts into equity along with the outstanding principal upon a Qualified Financing. No interest payments have been made on the Notes since issuance. The accrued interest calculation is as follows: Interest Rate: 6% pe

V. Total Conversion Amount and Share Issuance A. Aggregate Conversion Amount Based on the foregoing calculations, the total amount to be converted from debt to equity upon the closing of the Series A Financing is as follows: B. Shares Issued Upon Conversion The total number of shares of Series A Preferred Stock to be issued upon conversion of the Notes is calculated by dividing the total conversion amount by the appl

VI. Impact on Series A Economics and Capitalization A. Post-Series A Pro Forma Capitalization (Fully Diluted) The following table sets forth the Company's estimated pro forma capitalization immediately following the closing of the Series A Financing, on a fully diluted basis (including all outstanding shares, shares issuable upon conversion of the Notes, and shares reserved under the equity incentive plan): Several c

VII. Transaction Document Considerations The automatic conversion of the Notes upon the closing of the Series A Financing implicates several of the definitive transaction documents. Set forth below is a summary of the key document considerations and recommended approaches for each. A. Stock Purchase Agreement The Series A Stock Purchase Agreement (the "SPA") should include a clear mechanism for the automatic conversi

VIII. Open Items and Recommendations Based on our analysis, we have identified the following open items that should be resolved prior to the closing of the Series A Financing. We recommend that these items be raised with company counsel (Gregory Navarro and Sophie Marchetti at Fenwick, Torres & Keane LLP) and, where applicable, with the note holders, as promptly as practicable.

1. Confirm Cap Denominator Calculation with Company Counsel. We recommend requesting written confirmation from Fenwick, Torres & Keane LLP that the fully-diluted pre-money share count of 12,500,000 shares is consistent with the Note terms' definition of "Company Capitalization" (or the equivalent defined term used in the Notes). In particular, we should confirm the treatment of the full equity incentive plan pool (2,

2. Verify Interest Calculation Convention. We recommend confirming whether the Notes specify a 365-day year or a 360-day year for purposes of the simple interest calculation. Our analysis above assumes a 365-day year convention, which is the more common convention for convertible notes in the venture capital context. If the Notes use a 360-day year convention, the per diem interest would be $250.00 per day (rather th

3. Closing Date Sensitivity. If the closing of the Series A Financing occurs later than the assumed date of June 15, 2026 (but before the extended maturity date of June 30, 2026), the accrued interest will increase and additional conversion shares may result. We recommend preparing a per diem interest schedule and a corresponding share issuance schedule for each potential closing date between June 1 and June 30, 2026

4. Fractional Shares. We recommend confirming the treatment of fractional shares under the Note terms. The typical convention is to round fractional shares down to the nearest whole share, with the Company paying cash for the fractional remainder, or alternatively, to round to the nearest whole share (up or down). In the present case, the per-holder share allocations at the assumed June 15, 2026 closing date yield nu

5. Authorized Share Count. We recommend ensuring that the Amended and Restated Certificate of Incorporation authorizes at least 5,351,250 shares of Series A Preferred Stock (4,500,000 new-money shares plus 851,250 conversion shares), with a recommended buffer to 5,500,000 shares or such higher number as may be appropriate to accommodate potential adjustments. This point should be coordinated with company counsel in t

6. Tax Implications of Conversion. The conversion of the Notes into Series A Preferred Stock is generally treated as a tax-free exchange under the principles of IRC § 1036 (pertaining to exchanges of securities of the same corporation), as the conversion represents a debt-to-equity conversion in the same corporate issuer. However, the accrued interest component of the conversion ($202,500 in the aggregate) may be tre

7. QSBS Considerations. The Series A Preferred Stock issued upon conversion of the Notes should qualify as "qualified small business stock" (QSBS) under IRC § 1202 on the same basis as the shares issued to the new-money investors, subject to the holder-level eligibility requirements analyzed in our separate QSBS memorandum dated April 14, 2026. Two specific points warrant attention in the context of the note conversi

8. Wire / Funds Flow. No cash changes hands in connection with the conversion of the Notes — the conversion is a cashless exchange of the Company's outstanding indebtedness for newly issued equity. The funds flow memorandum prepared in connection with the closing of the Series A Financing should clearly reflect this by indicating that the conversion shares are issued in satisfaction of the Notes and that no wire tran

IX. Conclusion Based on our analysis, the mechanics and economics of the automatic conversion of the Company's outstanding convertible promissory notes upon the closing of the Series A Preferred Stock financing may be summarized as follows: The outstanding convertible notes — with an aggregate principal of $1,500,000 and estimated accrued interest of $202,500, for a total conversion amount of $1,702,500 — will conver