Tom,
I hope the new year is treating you well. I am writing in connection with the ongoing Series Seed Preferred Stock financing of Meridian Diagnostics, Inc. (the "Company"). As you know, we represent Cobalt Ventures Fund III, LP, the lead investor in the round.
With the anticipated simultaneous sign-and-close currently targeted for February 9, 2026, we wanted to reach out now to align on the convertible note conversion mechanics so that we can ensure the cap table, Schedule of Investors, and all related closing documentation accurately reflect the conversion shares. Set forth below is our analysis of the conversion math under the Convertible Note Purchase Agreement dated September 12, 2023 (the "Note Purchase Agreement"). We would appreciate your and the Company's review and confirmation of these figures.
**1. Summary of Outstanding Notes**
Based on our review of the Note Purchase Agreement, the following convertible promissory notes remain outstanding:
- Dr. Margaret Liu — $1,200,000 aggregate principal amount - Clearwater Bridge Associates, LLC — $900,000 aggregate principal amount
Aggregate principal: **$2,100,000**, with both notes issued on September 12, 2023 under the Note Purchase Agreement.
**2. Accrued Interest Calculation**
The notes bear simple interest at a rate of 5.0% per annum. Assuming a conversion date of February 9, 2026, the accrual period runs from September 12, 2023 through February 9, 2026 — approximately 29 months. On that basis, we calculate aggregate accrued interest as follows:
> $2,100,000 × 5.0% × (29 / 12) = **$253,750**
This yields a total conversion amount (principal plus accrued interest) of:
> $2,100,000 + $253,750 = **$2,353,750**
We note that this calculation uses a 29-month approximation for ease of illustration. We would ask that the Company confirm the exact accrual amount based on the precise day-count convention specified in the notes (e.g., actual/365 vs. 30/360) and the applicable accrual start date.
**3. Determination of Applicable Conversion Price**
The new-money price per share of Series Seed Preferred Stock is $2.6786, derived from the $30,000,000 pre-money valuation divided by 11,200,000 pre-money fully-diluted shares (see Section 4 below for the derivation of the denominator).
Under the note terms, two conversion price calculations apply, with the noteholders converting at the lower of the two:
- *discount Price:* 20% discount to the Series Seed price > $2.6786 × (1 – 0.20) = **$2.1429** per share
- *Valuation Cap Price:* $25,000,000 pre-money valuation cap ÷ 11,200,000 pre-money fully-diluted shares > $25,000,000 ÷ 11,200,000 = **$2.2321** per share
Because the discount price ($2.1429) is lower than the cap price ($2.2321), the **discount price of $2.1429 per share** is the applicable conversion price.
**4. Pre-Money Fully-Diluted Share Count**
For completeness, the 11,200,000 pre-money fully-diluted share count used in the calculations above is composed of the following:
- 10,000,000 shares of Common Stock outstanding; plus - 1,200,000 new shares to be added to the option pool under the 2024 Equity Incentive Plan (increasing the total reserved pool from 400,000 shares to 1,600,000 shares)
**Total: 11,200,000 shares.** This is the same denominator used for pricing the new-money Series Seed Preferred shares issued to Cobalt Ventures and the other cash investors.
**5. Total Shares Issued on Conversion**
Applying the conversion price to the total conversion amount:
> $2,353,750 ÷ $2.1429 = **approximately 1,098,362 shares** of Series Seed Preferred Stock
These shares would be issued as Series Seed Preferred Stock carrying the same rights, preferences, and privileges as the shares issued to the new-money investors — including the 1× non-participating liquidation preference and broad-based weighted average anti-dilution protection — subject to any differences specified in the notes themselves or as set forth in the Amended and Restated Certificate of Incorporation.
**6. Proposed Per-Noteholder Share Allocation**
We would ask that the Company confirm the pro rata allocation of conversion shares between the two noteholders. Our preliminary allocation, which assumes that interest accrues proportionally to each noteholder's principal amount and that the notes are otherwise on identical terms, is as follows:
*Dr. Margaret Liu:* - Principal: $1,200,000 - Accrued interest: $1,200,000 × 5.0% × (29/12) = $145,000 - Total conversion amount: $1,345,000 - Conversion shares: $1,345,000 ÷ $2.1429 ≈ **627,635 shares**
*Clearwater Bridge Associates, LLC:* - Principal: $900,000 - Accrued interest: $900,000 × 5.0% × (29/12) = $108,750 - Total conversion amount: $1,008,750 - Conversion shares: $1,008,750 ÷ $2.1429 ≈ **470,727 shares**
*Combined total: approximately 1,098,362 shares* (consistent with the aggregate figure above).
In particular, we would appreciate your confirmation that (a) both notes were issued on the same date and bear the same interest rate, discount, and valuation cap, and (b) there are no side letters or amendments that would result in different conversion terms for either noteholder.
**7. Action Items and Next Steps**
To keep the transaction on track for a February 9 close, we would appreciate the Company's confirmation of the following at your earliest convenience, ideally in advance of the due diligence completion target of January 31, 2026:
1. *Conversion math:* Confirmation (or any corrections) of the interest accrual, applicable conversion price, and resulting share counts set forth above, including the exact day-count methodology and accrual start date under the notes.
2. *Per-noteholder allocation:* Verification of the individual share allocations for Dr. Liu and Clearwater Bridge, including confirmation that the notes are on identical terms.
3. *Closing documentation:* The conversion shares will need to be reflected in the final Schedule of Investors (or a separate conversion schedule) to be attached to the Stock Purchase Agreement. We will coordinate with you on the appropriate format once the numbers are confirmed.
4. *Noteholder execution:* Please confirm whether the Company is coordinating directly with Dr. Liu and Clearwater Bridge Associates on execution of any required joinder agreements or conversion documentation, or whether there is anything our client should be doing on that front.
We have prepared an internal convertible note conversion analysis and an updated cap table reflecting the figures above, and we are happy to share our working model if it would be helpful for your and the Company's review.
Please don't hesitate to reach out if you have any questions or if it would be useful to jump on a call to walk through any of this. We look forward to hearing from you.
Best regards,
Garrett Simmons Associate Calderwood & Harkness LLP 1800 Page Mill Road, Suite 200 Menlo Park, CA 94025 gsimmons@calderwoodharkness.com
Matter No. 1004-00001