TERM SHEET — CONVERTIBLE NOTE BRIDGE FINANCING
IMPORTANT NOTICE: This term sheet is for discussion purposes only and does not constitute a binding obligation on the part of any party. Any binding obligations will arise only upon the execution and delivery of definitive transaction documents . The terms set forth below are subject in all respects to completion of satisfactory due diligence by the Purchasers and their advisors, receipt of all required consents and approvals, and negotiation of mutually acceptable definitive documentation.
Prepared by: Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 On behalf of Skybridge Fintech Ltd.
Matter No. 1009-00001
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1. PARTIES
1.1 Issuer / Company
Skybridge Fintech Ltd. ("Skybridge" or the "Company"), a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.
Principal Office: 1400 Market Street, Suite 2200 Wilmington, DE 19801
Business Description: The Company operates a cloud-based payments orchestration and embedded lending platform designed to serve mid-market e-commerce companies. Skybridge's platform enables merchants to integrate multi-processor payment routing, automated reconciliation, and embedded lending products through a single API-driven software-as-a-service ("SaaS") interface. The Company was incorporated in the State of Delaware in 2017 and has since grown its platform to serve a substantial base of mid-market merchants, generating significant gross payment volume and recurring software revenue.
Key Management:
1.2 Lead Investor
Ridgeline Ventures Fund IV, L.P. (the "Lead Investor"), a limited partnership duly organized and existing under the laws of the State of Delaware.
Principal Office: 800 Boylston Street, 34th Floor Boston, MA 02199
General Partner: Ridgeline Ventures Management IV, LLC
Deal Lead: Samuel Okonkwo, Partner
The Lead Investor's affiliated fund, Ridgeline Ventures Fund III, L.P., is an existing Series C investor in the Company and holds shares of the Company's Series C Preferred Stock.
1.3 Co-Investors / Additional Purchasers
The following investors (together with the Lead Investor, the "Purchasers") are expected to participate in the convertible note bridge financing contemplated by this term sheet:
Beacon Hill Capital Partners, LLC, a limited liability company organized under the laws of the State of Delaware.
Principal Office: 222 West Adams Street, Suite 3400 Chicago, IL 60606
Deal Lead: Joanna Falkner, Managing Director
Status: Existing Series C investor in the Company.
Northstar Innovation Fund II, L.P., a limited partnership duly organized and existing under the laws of the State of Delaware.
Principal Office: 555 California Street, Suite 4100 San Francisco, CA 94104
General Partner: Northstar Innovation GP II, LLC
Managing Partner: Wei-Lin Chang
Status: New investor in the Company. Northstar Innovation Fund II, L.P. has not previously invested in the Company and will be participating in this financing as its initial investment in Skybridge.
Halcyon Growth Equity, L.P., a limited partnership duly organized and existing under the laws of the State of Delaware.
Principal Office: 1201 Third Avenue, Suite 5600 Seattle, WA 98101
General Partner: Halcyon Growth Management, LLC
Deal Lead: Robert ("Rob") Castillo, Partner
Status: Existing Series B investor in the Company.
2. TRANSACTION OVERVIEW
Type of Security: Convertible promissory notes (the "Notes").
Aggregate Principal Amount: Sixty Million United States Dollars ($60,000,000).
Structure: The proposed transaction is structured as a convertible note bridge financing, intended to provide the Company with growth capital and operational runway in advance of a planned Series D equity financing round, which the Company and the Purchasers anticipate will be consummated during Q3 or Q4 of 2024 (the "Planned Series D"). The Notes are designed to convert into equity securities of the Company upon the occurrence of a Qualified Financing, as more fully described in Section 5 below. In the event that a Qualified Financing does not occur within the term of the Notes, holders will have certain rights with respect to conversion at the Valuation Cap or repayment at maturity.
Definitive Agreement: The terms and conditions of the Notes and the obligations of the parties will be set forth in a Note Purchase Agreement (the "Note Purchase Agreement"), to be negotiated and executed among the Company and the Purchasers, together with such ancillary agreements and documents as are customary for transactions of this nature and as described herein.
3. ALLOCATION AMONG PURCHASERS
The aggregate principal amount of the Notes shall be allocated among the Purchasers as follows:
The allocation set forth above is subject to adjustment by mutual agreement of the Company and the Lead Investor prior to the execution of the definitive Note Purchase Agreement. Any additional Purchasers admitted in a subsequent closing pursuant to Section 12.3 below shall execute a joinder agreement and the aggregate principal amount outstanding under the Notes shall be increased accordingly, subject to the terms of the Note Purchase Agreement.
4. KEY ECONOMIC TERMS
4.1 Interest Rate
The Notes shall bear interest at a rate of 6.00% per annum (600 basis points), computed on the basis of simple interest and a 365-day year. Interest shall accrue from the date of issuance of each Note and shall not be payable in cash during the term of the Notes. All accrued but unpaid interest shall either (a) convert into equity securities of the Company in connection with a Qualified Financing, an optional conversion at maturity, or an optional conversion upon a Non-Qualified Financing, as applicable, or (b) become payable in cash at maturity or upon a Change of Control, as applicable and as described more fully herein.
For purposes of illustration, the annual interest accrual on the full aggregate principal amount of $60,000,000 at a rate of 6.00% per annum is $3,600,000. Over the full 24-month term of the Notes (assuming no conversion or repayment prior to maturity), total accrued interest on the full principal amount would be approximately $7,200,000, resulting in a total outstanding balance of approximately $67,200,000 at maturity.
4.2 Maturity Date
The Notes shall mature on the date that is twenty-four (24) months following the Closing Date (the "Maturity Date"). Based on the anticipated Closing Date of January 15, 2024, the anticipated Maturity Date would be on or about January 15, 2026. The exact Maturity Date shall correspond to the date of the initial closing under the Note Purchase Agreement.
At maturity, if no Qualified Financing has occurred and the Notes have not otherwise been converted or repaid, each holder of a Note shall have the right, at its sole option and election, to:
(a) Convert the outstanding principal amount of such holder's Note, together with all accrued and unpaid interest thereon, into shares of the Company's equity securities at the Valuation Cap price, as described in Section 5.2 below; or
(b) Demand repayment of the outstanding principal amount of such holder's Note, together with all accrued and unpaid interest thereon, in cash.
The election described above shall be made by each holder individually, and different holders may make different elections. The Company shall provide written notice to each holder no later than thirty (30) days prior to the Maturity Date reminding each holder of its election rights.
4.3 Valuation Cap
The Notes shall have a pre-money valuation cap of $750,000,000 (the "Valuation Cap"). The Valuation Cap establishes the maximum effective pre-money valuation at which the Notes may convert into equity securities of the Company, regardless of the price per share in the Qualified Financing.
Based on the Company's current capitalization, the price per share implied by the Valuation Cap is calculated as follows:
Cap-Implied Conversion Price = $750,000,000 ÷ ~48,500,000 fully diluted shares outstanding (pre-bridge) = approximately $15.46 per share
The number of fully diluted shares outstanding for purposes of the Valuation Cap calculation shall be determined on a fully diluted basis, including all outstanding shares of common stock, all outstanding shares of preferred stock (on an as-converted basis), all shares reserved and available for grant under the Company's board-approved equity incentive plans (whether or not subject to outstanding awards), and all shares issuable upon exercise or conversion of outstanding warrants, options, or other convertible securities, but excluding the shares issuable upon conversion of the Notes themselves.
4.4 Conversion discount
In addition to the Valuation Cap, the Notes shall carry a 20% discount (the "Discount") to the price per share paid by investors in the Qualified Financing. Accordingly, upon an automatic conversion in connection with a Qualified Financing, the Notes shall convert at a price equal to 80% of the price per share issued to investors in the Qualified Financing.
4.5 Conversion Price
The conversion price per share at which the Notes convert into equity securities in a Qualified Financing (the "Conversion Price") shall be the lower of:
(a) 80% of the price per share of the equity securities sold in the Qualified Financing (i.e., the 20% discount price); or
(b) The price per share implied by the $750,000,000 pre-money Valuation Cap on a fully diluted basis (i.e., approximately $15.46 per share, subject to adjustment based on the actual fully diluted share count at the time of conversion).
By way of illustration, if the Series D price per share were $22.00, the discount price would be $17.60 (80% × $22.00), while the Valuation Cap price would be approximately $15.46. In such case, the Conversion Price would be the Valuation Cap price of approximately $15.46, as it is the lower of the two. Conversely, if the Series D price per share were $18.00, the discount price would be $14.40 (80% × $18.00), which is lower than the Valuation Cap price; in that case, the Conversion Price would be $14.40.
5. CONVERSION MECHANICS
5.1 Automatic Conversion — Qualified Financing
Definition of "Qualified Financing." For purposes of this term sheet and the definitive Note Purchase Agreement, a "Qualified Financing" shall mean a bona fide equity financing round (which is anticipated to be a Series D Preferred Stock financing) in which the Company raises at least $80,000,000 in aggregate gross proceeds from new equity capital, exclusive of any amounts raised through the conversion of the Notes or any other convertible debt or equity instruments of the Company.
Automatic Conversion. Upon the closing of a Qualified Financing, all outstanding principal and accrued but unpaid interest under each Note shall automatically convert, without any further action by the holders, into shares of the equity securities issued in such Qualified Financing at the Conversion Price determined in accordance with Section 4.5 above.
Type of Securities Issued upon Conversion. The shares issued to the holders of the Notes upon automatic conversion shall be of the same series and class as the shares issued to the investors in the Qualified Financing, and shall carry identical rights, preferences, privileges, and restrictions as those issued to such investors, including but not limited to voting rights, dividend preferences, liquidation preferences, anti-dilution protections, and information and registration rights. The holders of the Notes shall, upon conversion, be treated as participants in the Qualified Financing for all purposes under the definitive transaction documents governing such financing.
5.2 Optional Conversion at Maturity
If no Qualified Financing has occurred on or prior to the Maturity Date, each Purchaser shall have the right, at its sole option and election, exercisable upon written notice to the Company delivered no later than ten (10) business days following the Maturity Date, to:
(a) Convert the outstanding principal amount of such Purchaser's Note, together with all accrued and unpaid interest thereon, into shares of the Company's common stock (or, if preferred stock of the Company is then outstanding, ) at a conversion price per share equal to the Valuation Cap price (approximately $15.46 per share, subject to adjustment for any changes in the Company's fully diluted share count between the date hereof and the date of conversion); or
(b) Demand repayment of the outstanding principal amount of such Purchaser's Note, together with all accrued and unpaid interest thereon, in cash, payable within days following such . The Company's obligation to repay the Notes at maturity shall remain subject to the subordination provisions set forth in Section 8 below.
Each Purchaser shall make its election independently, and different Purchasers may make different elections with respect to their respective Notes.
5.3 Non-Qualified Financing
In the event that the Company consummates an equity financing that does not meet the definition of "Qualified Financing" set forth in Section 5.1 above (i.e., a financing in which the Company raises less than $80,000,000 in aggregate gross proceeds from new equity capital) (a "Non-Qualified Financing"), the Notes shall not automatically convert. However, each holder of a Note shall have the option (but not the obligation), exercisable at such holder's sole election, to convert the outstanding principal and accrued but unpaid interest under its Note into shares of the equity securities issued in such Non-Qualified Financing on the same terms and at the same Conversion Price as would apply if such financing were a Qualified Financing (i.e., at the lower of the discount price or the Valuation Cap price).
Each holder electing to convert in connection with a Non-Qualified Financing shall deliver written notice of such election to the Company within business days following receipt of written notice from the Company describing the terms of such Non-Qualified Financing Any holder that does not elect to convert shall continue to hold its Note in accordance with its terms.
6. CHANGE OF CONTROL
6.1 Definition
For purposes of this term sheet and the definitive Note Purchase Agreement, a "Change of Control" shall mean any of the following events:
(i) A merger, consolidation, or other business combination of the Company with or into another entity, other than a transaction in which the holders of the Company's outstanding voting securities immediately prior to such transaction continue to hold a majority of the total voting power of the surviving or resulting entity immediately following such transaction
(ii) A sale, transfer, lease, exclusive license, or other disposition of all or substantially all of the Company's assets, whether in a single transaction or a series of related transactions; or
(iii) A transaction or series of related transactions (including any tender offer, exchange offer, or stock purchase) in which any person, entity, or "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) acquires beneficial ownership of more than 50% of the Company's outstanding voting securities.
6.2 Treatment upon Change of Control
In the event of a Change of Control occurring prior to the conversion of the Notes, each holder of a Note shall be entitled to receive, at the closing of such Change of Control, the greater of:
(i) 2.0x the outstanding principal amount of such holder's Note, plus all accrued and unpaid interest thereon (the "Multiple Payment"); or
(ii) The amount such holder would have received had the Note been converted into equity securities immediately prior to the consummation of the Change of Control at the Valuation Cap price (approximately $15.46 per share), based on the aggregate consideration payable or distributable to the Company's equityholders in connection with the Change of Control (the "As-Converted Payment").
For purposes of illustration, the maximum Multiple Payment on the full aggregate principal amount of $60,000,000 at issuance (excluding accrued interest) would be 2.0 × $60,000,000 = $120,000,000. The actual payment to each holder will depend on the timing of the Change of Control, the amount of accrued interest at such time, and the valuation and consideration in the Change of Control transaction.
6.3 Form of Payment
The Change of Control payment described above shall be made in cash at the closing of the Change of Control transaction. Notwithstanding the foregoing, the Company may, with the prior written consent of holders of a majority in aggregate principal amount of the then-outstanding Notes, elect to make such payment in the form of the consideration received or receivable by the Company or its equityholders in connection with the Change of Control transaction (whether cash, stock, or other property), valued at its fair market value as determined in good faith by the Company's Board of Directors.
7. MOST FAVORED NATION (MFN) PROVISION
7.1 MFN Right
If, at any time after the date of issuance of the Notes and prior to the Maturity Date, the Company issues any convertible promissory note, simple agreement for future equity ("SAFE"), or other convertible debt or equity instrument (each, a "Subsequent Convertible Instrument") on terms that are more favorable to the holders thereof than the terms of the Notes, including without limitation any of the following:
(a) A lower valuation cap than the Valuation Cap;
(b) A higher conversion discount than the discount;
(c) A higher interest rate than the interest rate on the Notes;
(d) More favorable conversion mechanics, repayment terms, or Change of Control provisions; or
(e) Any other economic or structural terms that are, taken as a whole, more favorable to the holders of such Subsequent Convertible Instrument than the terms of the Notes;
then each holder of the Notes shall have the right, at its sole option, to amend the terms of its Note to conform to such more favorable terms, in whole or in part.
7.2 MFN Election Procedure
Promptly, and in any event within five (5) business days following the issuance of any Subsequent Convertible Instrument, the Company shall deliver written notice to each holder of the Notes setting forth in reasonable detail the material terms of such Subsequent Convertible Instrument, together with a copy of such instrument. Each holder may elect to adopt the more favorable terms within fifteen (15) business days of receiving such written notice by delivering a written election notice to the Company. Any holder that does not timely deliver an election notice shall be deemed to have waived its MFN right with respect to such Subsequent Convertible Instrument, but shall retain its MFN right with respect to any future issuances.
7.3 Exclusions
The MFN provision set forth in this Section 7 shall not apply to the following:
(i) Shares of common stock or stock options issued or reserved for issuance under the Company's board-approved equity incentive plans in the ordinary course of business;
(ii) Shares of equity securities issued upon conversion of the Notes;
(iii) Shares of equity securities issued in connection with a Qualified Financing.
8. SUBORDINATION
8.1 Subordination to Senior Debt
The Notes and all obligations of the Company thereunder shall be subordinated in right of payment to the Company's existing senior indebtedness under that certain Loan and Security Agreement, dated as of August 15, 2022, by and between Kelvantis Lending Corp. ("Kelvantis") and Skybridge Fintech Ltd. (as amended, restated, supplemented, or otherwise modified from time to time, the "Senior Debt Agreement"), which provides for a venture debt facility in the aggregate principal amount of $15,000,000, maturing August 15, 2025 (together with all obligations arising thereunder, including principal, interest, fees, and other amounts payable to Kelvantis, the "Senior Debt").
8.2 Subordination Agreement
As a condition to closing, a Subordination Agreement in form and substance satisfactory to Kelvantis, the Purchasers, and the Company shall be negotiated, executed, and delivered by Kelvantis, the Company, and the Purchasers (or a designated representative acting on behalf of the Purchasers). Such Subordination Agreement shall set forth the terms and conditions of the subordination of the Notes to the Senior Debt, including customary standstill provisions, payment blockage provisions, and limitations on enforcement actions by the holders of the Notes during the existence of a default or event of default under the Senior Debt Agreement.
8.3 Payment Restrictions
No payment of principal, interest, or premium on the Notes shall be made by the Company at any time during which a default or an event of default exists under the Senior Debt Agreement, except as expressly permitted by the Subordination Agreement. The foregoing restriction shall apply to payments at maturity, upon a Change of Control, and in connection with any other repayment or prepayment of the Notes.
8.4 Kelvantis Consent
The receipt of the written consent and/or waiver of Kelvantis Lending Corp. with respect to the issuance of the Notes and the Company's entry into the Note Purchase Agreement and related transaction documents shall be a condition precedent to the closing of the transactions contemplated by this term sheet.
9. SECURITY
The Notes shall constitute unsecured obligations of the Company. No assets of the Company shall be pledged, hypothecated, or otherwise encumbered as collateral to secure the obligations of the Company under the Notes. The Notes shall rank pari passu among themselves and shall be subordinated to the Senior Debt as set forth in Section 8 above.
10. REPRESENTATIONS AND WARRANTIES
10.1 Company Representations and Warranties
The Company shall make customary representations and warranties in the Note Purchase Agreement, including but not limited to the following:
(a) Organization and Good Standing. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted.
(b) Authorization and Enforceability. The execution, delivery, and performance of the Note Purchase Agreement, the Notes, and all related transaction documents have been duly authorized by all necessary corporate action on the part of the Company, and each such document, when executed and delivered, shall constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, and equitable principles.
(c) Capitalization. The authorized and outstanding capital stock of the Company is as set forth in the Company Disclosure Schedule. The fully diluted shares outstanding of the Company immediately prior to the bridge financing are approximately 48,500,000 shares, calculated on a fully diluted basis. There are no undisclosed equity commitments, outstanding warrants, options, convertible securities, or other rights to purchase or acquire any equity securities of the Company, except as disclosed in the Company Disclosure Schedule.
(d) Financial Statements. The Company's audited financial statements for , which were prepared by Pinnacle Audit Group LLP (engagement partner: Lisa Johannsen) in accordance with U.S. generally accepted accounting principles ("GAAP"), and the Company's reviewed financial statements for the ended September 30, 2023, present fairly in all material respects the financial condition, results of operations, and cash flows of the Company as of the dates and for the periods presented.
(e) No Material Adverse Change. Since September 30, 2023, there has been no material adverse change in the business, financial condition, assets, liabilities, operations, or prospects of the Company.
(f) intellectual Property. The Company owns or has valid licenses to use all intellectual property necessary for the conduct of its business as currently conducted, free and clear of all liens and encumbrances (other than permitted liens). To the Company's knowledge, the Company's business as currently conducted does not infringe upon or misappropriate the intellectual property rights of any third party.
(g) Compliance with Laws. The Company is in compliance in all material respects with all applicable federal, state, and local laws, rules, and regulations, including without limitation money transmission laws, state licensing requirements, data privacy laws, and consumer protection regulations applicable to the Company's payments orchestration and embedded lending operations.
(h) Absence of Litigation. There is no action, suit, proceeding, claim, investigation, or inquiry pending or, to the Company's knowledge, threatened against the Company that, if adversely determined, would reasonably be expected to have a material adverse effect on the Company's business, financial condition, or operations, except as disclosed in the Company Disclosure Schedule.
(i) Tax Compliance. The Company has timely filed all federal, state, and local tax returns required to be filed, has paid all taxes due and owing, and has no material tax deficiencies or assessments pending or, to the Company's knowledge, threatened.
(j) Employee and Benefits Matters. The Company has approximately 310 full-time equivalent employees. The Company is in compliance in all material respects with all applicable employment and labor laws. The Company maintains employee benefit plans in compliance with ERISA and other applicable laws, and there are no pending or threatened claims with respect to such plans.
(k) Insurance. The Company maintains insurance coverage in amounts and of types customary for companies in its industry and stage of development, including general commercial liability, directors' and officers' liability, errors and omissions, and cyber liability insurance.
(l) Material Contracts. The Company has made available to the Purchasers true, correct, and complete copies of all material contracts to which the Company is a party, and all such contracts are in full force and effect.
The foregoing representations and warranties shall be further elaborated, expanded, and supplemented in the definitive Note Purchase Agreement, and shall be subject to customary qualifications, exceptions, and disclosures as set forth in the Company Disclosure Schedule to be delivered at or prior to Closing.
10.2 Purchaser Representations and Warranties
Each Purchaser shall make customary representations and warranties in the Note Purchase Agreement, including but not limited to:
(a) Accredited Investor Status. Such Purchaser is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933, as amended.
(b) Investment Intent. Such Purchaser is acquiring the Notes (and any equity securities issuable upon conversion thereof) for investment purposes only, for its own account, and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act.
(c) Access to Information. Such Purchaser has received and reviewed all information it has requested from the Company, has had the opportunity to ask questions of and receive answers from the Company's management, and has the knowledge and experience in financial and business matters to evaluate the merits and risks of the investment.
(d) Authorization. The execution, delivery, and performance of the Note Purchase Agreement and the purchase of the Notes have been duly authorized by all necessary action on the part of such Purchaser.
11. CONDITIONS TO CLOSING
11.1 Conditions to the Purchasers' Obligations
The obligations of the Purchasers to purchase the Notes and fund the aggregate purchase price at the Closing shall be subject to the satisfaction (or waiver by the Lead Investor on behalf of the Purchasers) of each of the following conditions:
(a) The representations and warranties of the Company set forth in the Note Purchase Agreement shall be true and correct in all material respects as of the Closing Date (except to the extent that any such representation or warranty is qualified by materiality, in which case it shall be true and correct in all respects).
(b) The Company and each Purchaser shall have executed and delivered the Note Purchase Agreement, and the Company shall have executed and delivered to each Purchaser its respective Note evidencing the applicable principal amount.
(c) The Company, Kelvantis Lending Corp., and the Purchasers (or their designated representative) shall have executed and delivered the Subordination Agreement, in form and substance satisfactory to all parties.
(d) The Purchasers shall have received a copy of the written consent and/or waiver of Kelvantis Lending Corp., in form and substance satisfactory to the Lead Investor, consenting to the issuance of the Notes, the Company's entry into the Note Purchase Agreement and related transaction documents, and waiving any applicable defaults or events of default under the Senior Debt Agreement triggered by such transactions.
(e) The Purchasers shall have received a legal opinion from Calderwood & Harkness LLP, counsel to the Company, in form and substance customary for transactions of this nature, addressing due organization, authorization, enforceability, no conflicts, compliance with securities laws, and such other matters as the Lead Investor's counsel may reasonably request.
(f) The Purchasers shall have received a Secretary's Certificate of the Company, executed by the Secretary or an Assistant Secretary of the Company, certifying and attaching copies of the Company's Certificate of Incorporation (as amended), Bylaws (as amended), and the resolutions of the Board of Directors authorizing the transactions contemplated hereby.
(g) The Purchasers shall have received an Officer's Certificate of the Company, executed by the Chief Executive Officer or Chief Financial Officer of the Company, certifying that the representations and warranties of the Company are true and correct as of the Closing Date and that all conditions to closing have been satisfied.
(h) The Purchasers shall have received a Certificate of Good Standing for the Company issued by the Secretary of State of the State of Delaware, dated within ten (10) business days prior to the Closing Date.
(i) The Company and the Purchasers (or their designated representative) shall have executed and delivered an Escrow Agreement with Granite Trust Company, N.A. (the "Escrow Agent"), governing the deposit, holding, and release of the aggregate purchase price.
(j) The Company and the Purchasers shall have executed and delivered Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, in form and substance satisfactory to the Lead Investor, granting the Purchasers the information rights and pro rata rights described herein.
(k) The Company and the Purchasers shall have executed and delivered Amendment No. 1 to the Right of First Refusal and Co-Sale Agreement, in form and substance satisfactory to the Lead Investor.
(l) The Board of Directors of the Company shall have approved the transactions contemplated by this term sheet and the definitive transaction documents by unanimous written consent.
(m) The stockholders of the Company entitled to vote thereon shall have approved the transactions contemplated hereby by written consent in lieu of a special meeting, in accordance with Section 228 of the Delaware General Corporation Law (the "DGCL").
(n) Since September 30, 2023, there shall have been no in the business, financial condition, assets, liabilities, operations, or prospects of the Company.
(o) The Company shall have delivered to the Purchasers the Company Disclosure Schedule, in form and substance satisfactory to the Lead Investor, setting forth all required disclosures, exceptions, and qualifications to the Company's representations and warranties.
11.2 Conditions to the Company's Obligations
The obligations of the Company to issue and sell the Notes at the Closing shall be subject to the satisfaction (or waiver by the Company) of each of the following conditions:
(a) The representations and warranties of each Purchaser set forth in the Note Purchase Agreement shall be true and correct in all material respects as of the Closing Date.
(b) Each Purchaser shall have deposited its respective commitment amount, in immediately available funds, into the escrow account established at Granite Trust Company, N.A. in accordance with the terms of the Escrow Agreement.
12. CLOSING MECHANICS
12.1 Closing Date
The initial closing of the transactions contemplated by this term sheet (the "Closing") shall occur on or about January 15, 2024 (the "Closing Date"), subject to the satisfaction or waiver of all conditions precedent set forth in Section 11 above.
12.2 Escrow
All funds to be paid by the Purchasers in connection with the purchase of the Notes shall be wired in immediately available funds to the following escrow account:
Escrow Agent: Granite Trust Company, N.A. Address: 100 Summer Street, Boston, MA 02110 Contact: Angela Petrov Escrow Account No.: 4401-7829-SBF
The escrow funds shall be held by the Escrow Agent in accordance with the terms of the Escrow Agreement and shall be released to the Company upon satisfaction of all closing conditions and execution and delivery of all required transaction documents. In the event that the Closing does not occur, the escrow funds shall be returned to the respective Purchasers, without interest. The escrow fee of $7,500 (flat fee) shall be borne solely by the Company and shall be payable to Granite Trust Company, N.A. at or prior to the Closing.
12.3 Subsequent Closings
The Company may conduct one or more additional closings for a period of up to thirty (30) days following the initial Closing Date (the "Subsequent Closing Period") to accommodate additional Purchasers who wish to participate in the convertible note bridge financing on the same terms and conditions as set forth herein and in the definitive Note Purchase Agreement. Any additional Purchaser admitted in a subsequent closing shall be required to (a) execute and deliver a joinder agreement, substantially in the form attached to the Note Purchase Agreement, pursuant to which such additional Purchaser agrees to be bound by the terms of the Note Purchase Agreement as a "Purchaser" thereunder, and (b) comply with all applicable terms of the Note Purchase Agreement, including the delivery of the applicable purchase price into escrow.
13. USE OF PROCEEDS
The net proceeds from the issuance and sale of the Notes shall be used by the Company for the following purposes:
(a) General corporate purposes, including working capital, sales and marketing, and general operating expenses;
(b) Continued product development, including investments in the Company's cloud-based payments orchestration and embedded lending platform;
(c) Bridge to Planned Series D, providing the Company with operational runway through Q3 or Q4 of 2024, at which time the Company anticipates consummating the Planned Series D equity financing round.
No proceeds from the issuance and sale of the Notes shall be used for the repayment of existing indebtedness of the Company (including any amounts outstanding under the Senior Debt) without the prior written consent of holders of a majority in aggregate principal amount of the then-outstanding Notes. This restriction on use of proceeds shall be a covenant of the Company set forth in the Note Purchase Agreement.
14. INFORMATION RIGHTS
Each Purchaser holding Notes with an aggregate principal amount of at least $5,000,000 (or ) shall be entitled to receive the following financial and operating information from the Company, subject to the execution of customary confidentiality undertakings:
(a) Annual Audited Financial Statements. The Company's audited annual financial statements, prepared in accordance with GAAP and audited by a nationally or regionally recognized independent public accounting firm, delivered within one hundred twenty (120) days following the end of each fiscal year.
(b) Quarterly Unaudited Financial Statements. The Company's unaudited quarterly financial statements, consisting of a balance sheet, income statement, and statement of cash flows, prepared in accordance with GAAP (subject to normal year-end adjustments and the absence of footnotes), delivered within forty-five (45) days following the end of each fiscal quarter.
(c) Monthly Management Reports. Monthly management reports, including key performance metrics such as annual recurring revenue ("ARR"), gross payment volume ("GPV"), cash position, monthly burn rate, delivered within thirty (30) days following the end of each calendar month.
(d) Prompt Notices. Prompt written notice of any material adverse change in the business, financial condition, or operations of the Company, any material litigation or threatened claims, or any regulatory inquiry or investigation.
The specific information rights described above shall be set forth in detail in the Note Purchase Agreement and/or in Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, as applicable. All information furnished to the Purchasers pursuant to these information rights shall be subject to confidentiality obligations as set forth in the definitive transaction documents.
15. PREEMPTIVE / PRO RATA RIGHTS
Each Purchaser shall be granted a pro rata right to participate in the Qualified Financing (anticipated to be the Planned Series D) based on such Purchaser's pro rata share of the Notes, calculated on an as-converted basis at the Valuation Cap price. Such preemptive rights are intended to allow each Purchaser to maintain its proportionate economic interest in the Company in connection with the Planned Series D, and shall be in addition to (and not in lieu of) the conversion of the Notes into equity securities in the Qualified Financing.
The specific terms and conditions of the preemptive and pro rata participation rights shall be set forth in Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, which shall be negotiated, executed, and delivered as a condition to closing.
16. TRANSFER RESTRICTIONS
The Notes may not be transferred, assigned, pledged, hypothecated, or otherwise disposed of by any holder without the prior written consent of the Company, which consent may be withheld in the Company's sole discretion, except for transfers:
(a) To an affiliate of the transferring Purchaser (as defined in Rule 405 under the Securities Act), provided that such affiliate agrees in writing to be bound by the terms and conditions of the Note Purchase Agreement and the Notes; or
(b) In connection with a Change of Control of the Purchaser (i.e., a change in control of the entity that holds the Note, as opposed to a Change of Control of the Company).
All Notes shall bear a customary restrictive legend substantially in the following form (or such other form as counsel to the Company may reasonably require), reflecting the private placement nature of the offering and applicable securities law restrictions:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THIS NOTE IS ALSO SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE NOTE PURCHASE AGREEMENT, DATED AS OF [CLOSING DATE], BY AND AMONG THE COMPANY AND THE PURCHASERS PARTY THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
17. GOVERNING LAW AND DISPUTE RESOLUTION
Governing Law. This term sheet and the definitive Note Purchase Agreement, the Notes, and all related transaction documents shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict of laws principles.
Exclusive Jurisdiction. Each party hereby submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or, if the Court of Chancery declines to accept jurisdiction over a particular matter, the Superior Court of the State of Delaware (Complex Commercial Division), or (b) the United States District Court for the District of Delaware, for the resolution of any dispute, claim, or controversy arising out of or relating to this term sheet, the definitive transaction documents, or the transactions contemplated hereby or thereby. Each party irrevocably waives any objection to the laying of venue in such courts and any claim that any such action or proceeding has been brought in an inconvenient forum.
Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS TERM SHEET, THE DEFINITIVE TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
18. EXPENSES
Each party shall bear its own costs and expenses incurred in connection with the negotiation, documentation, and consummation of the transactions contemplated by this term sheet and the definitive transaction documents, except as follows:
(a) Investor Legal Fees. The Company shall reimburse the reasonable and documented legal fees and out-of-pocket disbursements of Whitfield, Pratt & Soo LLP (counsel to the Lead Investor and the Purchaser syndicate) incurred in connection with the negotiation, documentation, and closing of the transactions contemplated hereby, subject to a cap of $125,000. Such reimbursement shall be payable at the Closing and shall be conditioned upon the Closing having occurred.
(b) Escrow Fees. The Company shall bear all escrow fees payable to Granite Trust Company, N.A. in connection with the transactions contemplated hereby, including the flat fee of $7,500 described in Section 12.2 above.
(c) Filing and Regulatory Fees. The Company shall bear all filing fees and regulatory costs incurred in connection with the filing of Form D with the SEC, state blue sky and notice filings, and any other regulatory filings required in connection with the offering and sale of the Notes.