NOTE PURCHASE AGREEMENT
EXECUTION VERSION
dated as of
January 15, 2024
by and among
SKYBRIDGE FINTECH LTD.
a Delaware corporation
and
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
Aggregate Principal Amount of Convertible Promissory Notes: Up to $60,000,000
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NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "Agreement") is made and entered into as of January 15, 2024, by and among Skybridge Fintech Ltd., a Delaware corporation (the "Company"), and the several purchasers listed on Schedule 1 attached hereto (each, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, the Company desires to issue and sell, and each Purchaser desires to purchase, convertible promissory notes in the aggregate principal amount of up to Sixty Million Dollars ($60,000,000) (the "Notes"), on the terms and subject to the conditions set forth herein;
WHEREAS, the Notes shall be convertible into shares of the Company's capital stock upon the terms and subject to the conditions set forth herein and in the Notes;
WHEREAS, the Company is a corporation duly organized and existing under the laws of the State of Delaware, engaged in the business of providing a cloud-based payments orchestration and embedded lending platform for mid-market e-commerce companies, with its principal executive offices located at 1400 Market Street, Suite 2200, Wilmington, Delaware 19801;
WHEREAS, the Company's Board of Directors has determined that the issuance and sale of the Notes on the terms set forth herein is in the best interests of the Company and its stockholders and has approved the transactions contemplated hereby;
WHEREAS, the parties desire to set forth the terms and conditions upon which the Notes will be issued, sold, and purchased; and
WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in Article 1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises and covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1: DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors (or comparable governing body) of such other Person.
"Agreement" means this Note Purchase Agreement, dated as of January 15, 2024, by and among the Company and the Purchasers, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Board" or "Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday, or a day on which commercial banks in the State of Delaware or the State of New York are authorized or required by law, regulation, or executive order to close.
"Change of Control" means any of the following: (a) any merger, consolidation, share exchange, reorganization, recapitalization, or other similar transaction involving the Company in which the holders of the outstanding capital stock of the Company immediately prior to such transaction hold, immediately following such transaction, less than fifty percent (50%) of the combined voting power of the outstanding capital stock of the surviving or resulting entity (or its parent entity); (b) any sale, lease, license, transfer, or other disposition (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Company; (c) any exclusive license of all or substantially all of the Company's intellectual Property to any Person or group of related Persons; or (d) any transaction or series of related transactions (including any tender offer, exchange offer, or stock acquisition) resulting in any Person or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquiring beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than fifty percent (50%) of the combined voting power of the outstanding capital stock of the Company.
"Closing" means the Initial Closing or any Subsequent Closing, as the context requires.
"Closing Date" means, with respect to any Closing, the date on which such Closing occurs.
"Company" means Skybridge Fintech Ltd., a Delaware corporation (EIN: 83-2147605; Delaware Secretary of State File Number: 6384291), and its successors and assigns.
"Company intellectual Property" means all intellectual Property that is owned by, or purported to be owned by, the Company, including all intellectual Property that has been developed by or on behalf of the Company or any of its employees, consultants, or contractors.
"Conversion discount" means twenty percent (20%), such that the Notes convert at eighty percent (80%) of the price per share paid by investors in the Qualified Financing.
"Conversion Price" means the lower of (a) the discounted Price and (b) the Valuation Cap Price.
"discounted Price" means eighty percent (80%) of the price per share of the equity securities sold in the Qualified Financing, reflecting the application of the Conversion discount.
"Disclosure Schedule" means the Company Disclosure Schedule delivered by the Company to the Purchasers on January 14, 2024, a copy of which is attached hereto and made a part hereof for all purposes.
"Escrow Account" means Granite Trust Escrow Account No. 4401-7829-SBF, maintained at Granite Trust Company, N.A.
"Escrow Agent" means Granite Trust Company, N.A., a national banking association organized and existing under the laws of the United States.
"Escrow Agreement" means that certain Escrow Agreement, dated as of the date hereof, by and among the Company, the Purchasers (as defined therein), and the Escrow Agent, as the same may be amended from time to time.
"Event of Default" has the meaning set forth in Section 8.1 of this Agreement.
"Existing Debt" means the Company's outstanding indebtedness under the Loan Agreement in the outstanding principal amount of Fifteen Million Dollars ($15,000,000), maturing on August 15, 2025, together with all accrued and unpaid interest, fees, and other amounts owing thereunder.
"Final Closing" means the Subsequent Closing occurring on January 26, 2024, as described in Section 2.2(b).
"Fully Diluted Shares" means the total number of shares of the Company's capital stock, determined on a fully diluted, as-converted basis, including (a) all shares of common stock outstanding, (b) all shares of common stock issuable upon conversion of all outstanding shares of preferred stock, (c) all shares of common stock issuable upon the exercise or conversion of all outstanding options, warrants, and other convertible or exercisable securities (whether or not vested or currently exercisable), and (d) all shares of common stock reserved for future issuance under the Company's equity incentive plan(s) that have not been allocated to outstanding awards. As of the date hereof, the Fully Diluted Shares are approximately forty-eight million five hundred thousand (48,500,000) shares.
"GAAP" means United States generally accepted accounting principles, as in effect from time to time, consistently applied throughout the periods involved.
"Governmental Authority" means any federal, state, local, municipal, or foreign government, or any department, commission, board, bureau, agency, public authority, instrumentality, regulatory or administrative body, court, tribunal, arbitrator, or self-regulatory organization of any thereof, or any quasi-governmental body exercising any regulatory, taxing, importing, or other governmental or quasi-governmental authority.
"Holders" means, collectively, the Purchasers and any permitted transferees who hold Notes in accordance with the terms of this Agreement, and "Holder" means any one of them.
"Initial Closing" means the closing of the purchase and sale of the Notes at the Initial Closing, as described in Section 2.2(a) of this Agreement.
"Initial Closing Amount" means Forty-Five Million Dollars ($45,000,000), representing the aggregate principal amount of Notes purchased at the Initial Closing.
"Initial Closing Date" means January 15, 2024.
"intellectual Property" means all of the following, in any jurisdiction throughout the world: (a) patents and patent applications (including all reissues, divisions, provisionals, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof); (b) trademarks, service marks, trade dress, logos, trade names, corporate names, brand names, and other source identifiers, together with all goodwill associated therewith, and all registrations and applications for registration thereof; (c) copyrights and copyrightable works, and all registrations and applications for registration thereof; (d) trade secrets, know-how, inventions (whether or not patentable), processes, techniques, algorithms, software, databases, data collections, and confidential business information; (e) internet domain names; and (f) all other intellectual property rights and industrial property rights, and all applications, registrations, licenses, sublicenses, agreements, and rights relating to any of the foregoing.
"Investors' Rights Agreement" means that certain Amended and Restated Investors' Rights Agreement, dated as of July 28, 2021, by and among the Company and the investors named therein, as amended by Amendment No. 1 thereto, dated as of the date hereof.
"Kelvantis" means Kelvantis Lending Corp., a Delaware corporation.
"Key Person" means each of (a) Arjun Mehta, the Company's Chief Executive Officer, and (b) Elena Vasquez, the Company's Chief Technology Officer.
"Lead Investor" means Ridgeline Ventures Fund IV, L.P., a Delaware limited partnership.
"Loan Agreement" means that certain Loan and Security Agreement, dated as of August 15, 2022, by and between Kelvantis Lending Corp. and the Company, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Majority Holders" means, at any time, the Holders of Notes representing a majority in aggregate outstanding principal amount of all Notes then outstanding.
"Material Adverse Effect" means any change, event, occurrence, circumstance, condition, development, or effect that, individually or in the aggregate with all other changes, events, occurrences, circumstances, conditions, developments, or effects, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, liabilities, financial condition, results of operations, or prospects of the Company, or (b) the ability of the Company to perform its obligations under this Agreement, the Notes, or any other Transaction Document or to consummate the transactions contemplated hereby and thereby; provided, however, that none of the following shall be deemed, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) changes in conditions in the United States or global economy or capital markets generally, (ii) changes in conditions generally affecting the industry in which the Company operates, (iii) changes in applicable law or in GAAP or regulatory accounting requirements, (iv) the announcement of, or compliance with, the transactions contemplated by this Agreement, (v) any natural disaster, act of God, epidemic, pandemic, hostilities, act of war, sabotage, cyberattack, terrorism, military action, or any escalation or worsening thereof, or (vi) any failure by the Company to meet any internal or published projections, budgets, plans, or forecasts of its revenues, earnings, or other financial performance or results of operations (it being understood that the underlying causes of such failure may, if they are not otherwise excluded by the foregoing clauses, be taken into account in determining whether a Material Adverse Effect has occurred), except, in the cases of clauses (i), (ii), (iii), and (v) above, to the extent that such change, event, or effect has a disproportionate adverse effect on the Company relative to other similarly situated companies operating in the same industry.
"Maturity Date" means January 15, 2026, which is twenty-four (24) months following the Initial Closing Date.
"MFN Securities" means any convertible promissory note, simple agreement for future equity (SAFE), convertible loan, or any other convertible security or instrument issued by the Company after the date hereof and prior to the conversion or repayment in full of the Notes.
"Note" or "Notes" means the convertible promissory notes issued or issuable to the Purchasers pursuant to this Agreement, substantially in the form attached hereto as Exhibit A, as the same may be amended, restated, or modified from time to time.
"Note Purchase Agreement" means this Agreement, as defined in the preamble hereto.
"Person" means any individual, corporation, limited liability company, partnership, limited partnership, joint venture, syndicate, sole proprietorship, trust, unincorporated association, Governmental Authority, or any other form of entity or organization.
"Purchasers" means the Persons listed on Schedule 1 hereto, and any Person who becomes a party to this Agreement pursuant to a Joinder Agreement executed in connection with a Subsequent Closing, in each case, together with their respective successors and permitted assigns.
"Qualified Financing" means a bona fide equity financing of the Company, following the date hereof, in which the Company raises aggregate gross cash proceeds of at least Eighty Million Dollars ($80,000,000) from the issuance and sale of shares of its preferred stock (excluding any amounts received from the conversion of the Notes and any other convertible securities), in a single closing or a series of related closings, on terms approved by the Board of Directors.
"ROFR Agreement" means that certain Right of First Refusal and Co-Sale Agreement, dated as of July 28, 2021, by and among the Company and the investors and other stockholders named therein, as amended by Amendment No. 1 thereto, dated as of the date hereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Subordination Agreement" means that certain Subordination Agreement, dated as of the date hereof, by and among Kelvantis Lending Corp., the Purchasers, and the Company, as the same may be amended from time to time.
"Subsequent Closing" means any closing of the purchase and sale of Notes occurring after the Initial Closing, as described in Section 2.2(b) of this Agreement.
"Transaction Documents" means, collectively, this Agreement, the Notes, the Subordination Agreement, Amendment No. 1 to the Investors' Rights Agreement, Amendment No. 1 to the ROFR Agreement, the Escrow Agreement, the Joinder Agreement(s), and all exhibits, schedules, certificates, instruments, and other documents executed or delivered in connection herewith or therewith, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Valuation Cap" means Seven Hundred Fifty Million Dollars ($750,000,000), on a pre-money basis.
"Valuation Cap Price" means the price per share equal to the Valuation Cap divided by the Fully Diluted Shares. As of the date hereof, the Valuation Cap Price is approximately Fifteen Dollars and Forty-Six Cents ($15.46) per share, based on $750,000,000 divided by approximately 48,500,000 Fully Diluted Shares.
Section 1.2 — Rules of Construction
In this Agreement, unless the context otherwise requires:
(a) The headings of the articles, sections, and subsections herein are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
(b) Words importing the singular include the plural and vice versa, and words importing any gender include all genders.
(c) The words "hereof," "herein," "hereto," "hereunder," and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement.
(d) The word "including" (and its derivatives, including "include" and "includes") means "including without limitation" and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.
(e) References to any statute, law, rule, or regulation shall be deemed to refer to such statute, law, rule, or regulation as amended, supplemented, modified, restated, or re-enacted from time to time, and any successor thereto.
(f) References to any agreement or other document shall be deemed to refer to such agreement or document as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
(g) References to "$" or "Dollars" mean the lawful currency of the United States of America.
(h) References to "days" mean calendar days unless otherwise specified as "Business Days."
(i) Any reference to a particular section, article, exhibit, or schedule shall be a reference to a section or article of, or exhibit or schedule to, this Agreement, unless the context otherwise requires.
(j) All accounting terms not specifically defined herein shall be construed in accordance with GAAP.
(k) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
ARTICLE 2: PURCHASE AND SALE OF NOTES
Section 2.1 — Authorization; Issuance of Notes
The Company has duly authorized the issuance and sale of Notes in the aggregate principal amount of up to Sixty Million Dollars ($60,000,000). Each Note shall be substantially in the form attached hereto as Exhibit A and shall be duly executed by an authorized officer of the Company. The Notes shall bear simple interest at a rate of six percent (6.00%) per annum (600 basis points), computed on the basis of a three hundred sixty-five (365)-day year and actual days elapsed, from and after the applicable Closing Date. Based on the full aggregate principal amount of Sixty Million Dollars ($60,000,000), annual interest accrual shall be Three Million Six Hundred Thousand Dollars ($3,600,000) per annum. The Notes shall mature on the Maturity Date, which is January 15, 2026, unless earlier converted or repaid in accordance with the terms of the Notes and this Agreement.
Section 2.2 — Purchase and Sale
(a) Initial Closing. The initial closing of the purchase and sale of the Notes (the "Initial Closing") took place on January 15, 2024 (the "Initial Closing Date") at the offices of Calderwood & Harkness LLP, 600 Lexington Avenue, New York, New York 10022, or remotely via the exchange of executed documents and wire transfer of funds. At the Initial Closing, the Company issued and sold, and the following Purchasers purchased, Notes in the following respective principal amounts, for an aggregate purchase price equal to the respective principal amount of each Note set forth opposite such Purchaser's name:
Each Purchaser participating in the Initial Closing paid its respective purchase price by wire transfer of immediately available funds to the Escrow Account in accordance with Section 2.3 hereof. The Company delivered to each such Purchaser a duly executed Note in the applicable principal amount as set forth above.
(b) Subsequent Closings. Following the Initial Closing, the Company may conduct one or more additional closings (each, a "Subsequent Closing") at any time within thirty (30) days following the Initial Closing Date (i.e., on or before February 14, 2024) for the sale and issuance of additional Notes in an aggregate principal amount not to exceed Fifteen Million Dollars ($15,000,000), to existing Purchasers or new Persons who become Purchasers hereunder. Each Subsequent Closing shall be subject to the satisfaction or waiver of the conditions set forth in Article 6 of this Agreement, applied mutatis mutandis as of the date of such Subsequent Closing. At each Subsequent Closing, each purchaser participating therein (to the extent not already a party to this Agreement) shall execute and deliver a Joinder Agreement substantially in the form attached hereto as Exhibit B, pursuant to which such purchaser shall become a party to this Agreement and shall be entitled to the rights, and shall be subject to the obligations, of a Purchaser hereunder.
The Final Closing occurred on January 26, 2024, at which the following Purchasers purchased Notes in the following respective principal amounts:
Northstar Innovation Fund II, L.P. became a party to this Agreement by executing and delivering a Joinder Agreement dated January 26, 2024, in the form attached hereto as Exhibit B. The aggregate principal amount of Notes issued pursuant to the Initial Closing and the Final Closing is Sixty Million Dollars ($60,000,000).
Section 2.3 — Escrow
All purchase price amounts payable by the Purchasers at the Initial Closing and at each Subsequent Closing shall be deposited by wire transfer of immediately available funds with Granite Trust Company, N.A. (the "Escrow Agent") into Escrow Account No. 4401-7829-SBF (the "Escrow Account") maintained at the Escrow Agent's offices. The Escrow Agent shall hold all such funds in escrow and shall release such funds to the Company (by wire transfer to the account designated by the Company in its wire transfer instructions delivered at the applicable Closing) upon joint written instruction of the Company and the Lead Investor (or the Lead Investor's legal counsel, Whitfield, Pratt & Soo LLP) confirming that all conditions to the applicable Closing set forth in Article 6 have been satisfied or waived. In the event that any Closing does not occur and the conditions to such Closing are not satisfied or waived within the applicable time period, the Escrow Agent shall return the applicable funds (together with any interest earned thereon, net of applicable escrow fees) to the applicable Purchasers. The escrow fee of Seven Thousand Five Hundred Dollars ($7,500) for all services rendered by the Escrow Agent in connection with the transactions contemplated hereby shall be borne solely by the Company. The escrow arrangements shall be governed in all respects by the Escrow Agreement.
Section 2.4 — Use of Proceeds
The Company shall use the net proceeds from the sale of the Notes for general corporate purposes, including working capital, product development (including continued development of the Company's cloud-based payments orchestration and embedded lending platform), sales and marketing, and other operating expenses in the ordinary course of business. Without limiting the foregoing, the Company shall not use any proceeds from the sale of the Notes for the repayment of the Existing Debt except as permitted by and in accordance with the Subordination Agreement.
Section 2.5 — Schedule of Purchasers
Schedule 1 attached hereto sets forth each Purchaser's name, address, aggregate commitment amount, percentage of the total offering, applicable Closing(s), and wire transfer instructions. The information set forth on Schedule 1 may be updated from time to time by the Company with the consent of the Lead Investor to reflect Subsequent Closings, the execution and delivery of Joinder Agreements, and permitted transfers of Notes.
ARTICLE 3: TERMS OF THE NOTES
Section 3.1 — Interest
The Notes shall bear simple interest on the outstanding principal amount thereof at a rate of six percent (6.00%) per annum (600 basis points). Interest shall be computed on the basis of a three hundred sixty-five (365)-day year and the actual number of days elapsed. Interest shall accrue on each Note from and including the applicable Closing Date on which such Note is issued and shall continue to accrue until such Note is converted in full, repaid in full, or otherwise satisfied in accordance with the terms hereof and the terms of such Note. Interest shall not be compounded and shall not be payable in cash during the term of the Notes; rather, all accrued and unpaid interest shall convert together with the outstanding principal amount upon conversion of the Notes pursuant to Section 3.3 or Section 3.4 hereof, or shall be payable together with the outstanding principal amount upon repayment at maturity pursuant to Section 3.4 hereof or upon a Change of Control pursuant to Section 3.5 hereof, as applicable.
Section 3.2 — Maturity
Unless earlier converted or repaid in accordance with the terms hereof and the Notes, all outstanding principal and all accrued and unpaid interest under the Notes shall be due and payable in full on the Maturity Date, which is January 15, 2026 (twenty-four (24) months following the Initial Closing Date). If the Maturity Date falls on a day that is not a Business Day, then payment shall be due on the next succeeding Business Day, and interest shall continue to accrue through and including the date of actual payment.
Section 3.3 — Automatic Conversion upon Qualified Financing
(a) Upon the closing of a Qualified Financing (an equity financing in which the Company raises aggregate gross cash proceeds of at least Eighty Million Dollars ($80,000,000) from the issuance and sale of shares of preferred stock, excluding amounts received from the conversion of the Notes and any other convertible securities), all outstanding principal and all accrued and unpaid interest under each Note shall automatically convert, without any further action on the part of the Holders, into shares of the equity securities issued and sold in such Qualified Financing.
(b) The conversion price per share at which such principal and accrued interest shall convert (the "Conversion Price") shall be the lower of:
(i) eighty percent (80%) of the price per share paid by the investors in the Qualified Financing (the "Discounted Price"), reflecting the twenty percent (20%) Conversion discount; or
(ii) the Valuation Cap Price, which is equal to the Valuation Cap ($750,000,000) divided by the Fully Diluted Shares. As of the date hereof, the Valuation Cap Price is approximately Fifteen Dollars and Forty-Six Cents ($15.46) per share, calculated as $750,000,000 divided by approximately 48,500,000 Fully Diluted Shares.
(c) The number of shares of equity securities issuable to each Holder upon conversion shall be determined by dividing (x) the sum of (A) the outstanding principal amount of such Holder's Note plus (B) all accrued and unpaid interest thereon as of the date of conversion, by (y) the Conversion Price.
(d) The shares of equity securities issued upon conversion of the Notes shall carry the same rights, preferences, privileges, and restrictions as the shares of equity securities sold to the other investors in the Qualified Financing; provided, however, that if the Lead Investor and the Company mutually agree in writing, such converted shares may be issued as a separate series of preferred stock (sometimes referred to as "shadow preferred stock") having economic terms (including liquidation preference, dividend rights, and anti-dilution protections) substantially similar to the equity securities sold in the Qualified Financing, but which may differ with respect to certain governance-related terms (such as protective provisions or board designation rights) as agreed by the parties.
(e) Upon conversion, each Note shall be deemed paid in full and cancelled, and the Company shall have no further obligations with respect thereto except as set forth in this Section 3.3 and the applicable provisions of this Agreement that survive such conversion.
Section 3.4 — Optional Conversion at Maturity
If no Qualified Financing has occurred on or before the Maturity Date, each Holder shall have the right, at such Holder's sole option, to elect one of the following alternatives by delivering written notice to the Company at least fifteen (15) Business Days prior to the Maturity Date:
(a) Conversion to Common Stock. Convert all outstanding principal and all accrued and unpaid interest under such Holder's Note into shares of the Company's common stock at a conversion price per share equal to the Valuation Cap Price (approximately $15.46 per share, subject to adjustment for any stock splits, stock dividends, combinations, recapitalizations, or similar events occurring after the date hereof). The number of shares of common stock issuable upon such conversion shall be determined by dividing (x) the sum of the outstanding principal amount plus all accrued and unpaid interest under such Holder's Note, by (y) the Valuation Cap Price. Upon such conversion, the Note shall be deemed paid in full and cancelled; or
(b) Repayment in Cash. Demand repayment in full of all outstanding principal plus all accrued and unpaid interest under such Holder's Note in cash, payable by the Company on the Maturity Date by wire transfer of immediately available funds to the account designated by such Holder.
If a Holder fails to deliver timely written notice of its election pursuant to this Section 3.4, such Holder shall be deemed to have elected repayment in cash pursuant to clause (b) above.
Section 3.5 — Change of Control
(a) Upon the occurrence of a Change of Control at any time prior to the conversion of the Notes in full, each Holder shall be entitled to receive the greater of:
(i) the "Change of Control Payment," which shall be equal to two times (2.0x) the outstanding principal amount of such Holder's Note plus all accrued and unpaid interest thereon as of the date of the Change of Control; or
(ii) the amount such Holder would have received had the outstanding principal and all accrued and unpaid interest under such Holder's Note been converted into shares of the Company's common stock at the Valuation Cap Price (approximately $15.46 per share) immediately prior to the consummation of such Change of Control, and such shares were then included in the proceeds distributed to stockholders in connection with such Change of Control, in accordance with the Company's Certificate of Incorporation as then in effect.
(b) For purposes of illustration, the maximum aggregate Change of Control Payment payable to all Holders under clause (i) above (assuming no prior conversion, no prior repayment, and a full principal balance of $60,000,000, and excluding accrued interest) would be One Hundred Twenty Million Dollars ($120,000,000), calculated as 2.0 multiplied by $60,000,000.
(c) Payment of any amounts due under this Section 3.5 shall be made by the Company (or, at the direction of the Company, by the acquiring party in such Change of Control) within five (5) Business Days following the closing of the Change of Control transaction, by wire transfer of immediately available funds to the accounts designated by the Holders. The Company shall provide each Holder with at least fifteen (15) Business Days' advance written notice of any proposed Change of Control, setting forth in reasonable detail the material terms and conditions thereof, together with the Company's calculation of the amounts payable to each Holder under this Section 3.5.
(d) All payments under this Section 3.5 are subject in all respects to the terms of the Subordination Agreement.
Section 3.6 — Most Favored Nation (MFN)
(a) If, at any time while any Note is outstanding, the Company issues or sells any MFN Securities (including, without limitation, any convertible promissory note, SAFE, or other convertible security or instrument) to any Person on terms that are, in any material respect, more favorable to the holder or holders thereof than the terms of the Notes (including, without limitation, a lower valuation cap, a higher conversion discount, a higher interest rate, more favorable Change of Control terms, additional information rights, additional board rights, or other additional or more favorable economic, governance, or protective provisions), then each Holder shall have the right, exercisable upon written notice delivered to the Company within thirty (30) days after receiving notice of such issuance pursuant to Section 7.5 hereof, to amend the terms of such Holder's Note to incorporate any or all of such more favorable terms, effective as of the date of issuance of such MFN Securities.
(b) The MFN rights set forth in this Section 3.6 shall not apply to: (i) shares of equity securities sold in a Qualified Financing; (ii) shares of common stock or options issued to employees, directors, consultants, or advisors of the Company pursuant to the Company's equity incentive plan(s) approved by the Board of Directors; (iii) shares of common stock issued upon exercise or conversion of options, warrants, or convertible securities outstanding as of the date hereof and described in the Disclosure Schedule; or (iv) shares of capital stock issued in connection with bona fide strategic partnerships, joint ventures, licensing arrangements, or technology agreements approved by the Board of Directors, provided that the primary purpose of such issuance is not to raise equity capital.
Section 3.7 — Subordination
(a) The obligations of the Company under the Notes are expressly subordinated and made junior in right of payment to the prior payment in full of all obligations of the Company under the Existing Debt, on the terms and subject to the conditions set forth in the Subordination Agreement, dated as of January 15, 2024, by and among Kelvantis Lending Corp., the Purchasers, and the Company.
(b) Notwithstanding any provision of this Agreement or the Notes to the contrary, no payment on account of principal or interest under the Notes shall be made (and no Holder shall be entitled to demand, accept, or receive any such payment) at any time during which a default or event of default (as defined in the Loan Agreement) exists under the Loan Agreement, except to the extent expressly permitted by the Subordination Agreement.
(c) Each Holder, by its acceptance of a Note, acknowledges the subordination provisions set forth herein and in the Subordination Agreement and agrees to be bound thereby.
Section 3.8 — Prepayment
The Company may not prepay the Notes, in whole or in part, without the prior written consent of (a) the Lead Investor and (b) the Majority Holders. Any permitted prepayment shall be applied ratably among the Holders based on the outstanding principal amounts of their respective Notes.
Section 3.9 — No Security
The Notes are unsecured obligations of the Company and shall not be secured by any lien, charge, pledge, mortgage, security interest, or encumbrance on any property or assets of the Company or any of its subsidiaries. Nothing in this Agreement or the Notes shall be construed to create any security interest in favor of the Holders.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as of each Closing Date applicable to such Purchaser (except as set forth in the Disclosure Schedule delivered by the Company to the Purchasers on January 14, 2024, as the same may be supplemented with respect to any Subsequent Closing) as follows:
Section 4.1 — Organization and Standing
The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. A Certificate of Good Standing was obtained from the Delaware Secretary of State on January 11, 2024 (Delaware File Number: 6384291). The Company has full corporate power and authority to own, lease, and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of its business requires such qualification or licensing, except where the failure to be so qualified or licensed would not, individually or in the aggregate, have a Material Adverse Effect. The Disclosure Schedule sets forth each jurisdiction in which the Company is qualified to do business as a foreign corporation.
Section 4.2 — Corporate Power and Authority
The Company has all requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement, each of the other Transaction Documents to which it is or will be a party, and to issue and sell the Notes. The execution, delivery, and performance by the Company of this Agreement and the other Transaction Documents, and the issuance and sale of the Notes, have been duly authorized by all necessary corporate action on the part of the Company, including (a) the Unanimous Written Consent of the Board of Directors of the Company, dated January 10, 2024, approving the transactions contemplated by this Agreement and the other Transaction Documents, and (b) the Written Consent of Stockholders of the Company in Lieu of Special Meeting, dated January 12, 2024, approving such matters as are required by applicable law and the Company's Certificate of Incorporation and Bylaws. No other corporate action on the part of the Company or its stockholders is necessary to authorize the execution, delivery, and performance of this Agreement and the other Transaction Documents or the issuance and sale of the Notes.
Section 4.3 — Authorization; Enforceability
This Agreement has been, and each other Transaction Document to which the Company is a party has been or will be (as of the applicable Closing Date), duly executed and delivered by the Company and constitutes, or when so executed and delivered will constitute, a legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws of general application affecting the enforcement of creditors' rights generally, and (b) general principles of equity, including principles of commercial reasonableness, good faith, and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 4.4 — Capitalization
(a) As of the date hereof (and prior to the issuance of the Notes), the Company's fully diluted capitalization consists of approximately forty-eight million five hundred thousand (48,500,000) Fully Diluted Shares, which amount includes all outstanding shares of common stock, all outstanding shares of preferred stock (on an as-converted-to-common basis), all shares issuable upon the exercise of outstanding options and warrants (whether or not vested), and all shares reserved for future issuance under the Company's equity incentive plan. The Disclosure Schedule sets forth a complete and accurate capitalization table of the Company as of the date hereof, including the number and class or series of all outstanding shares of capital stock, the names and holdings of all stockholders, and the number and exercise prices of all outstanding options and warrants.
(b) The Company's prior equity financing history includes the following:
(i) Series A Preferred Stock financing, with Crestpoint Seed Partners, L.P. as the lead investor;
(ii) Series B Preferred Stock financing, with Halcyon Growth Equity, L.P. as the lead investor; and
(iii) Series C Preferred Stock financing, completed in July 2021, with Ridgeline Ventures Fund III, L.P. and Beacon Hill Capital Partners, LLC as co-lead investors, at a post-money valuation of approximately $620,000,000.
(c) All outstanding shares of the Company's capital stock have been duly authorized, are validly issued, fully paid, and nonassessable, and were issued in compliance with all applicable federal and state securities laws. No shares of capital stock are subject to, or were issued in violation of, any preemptive rights, rights of first refusal, or similar rights. The Company has reserved a sufficient number of authorized but unissued shares of capital stock to satisfy the conversion of all Notes in full (assuming conversion at the Valuation Cap Price or such lower Conversion Price as may be applicable).
(d) The Company's most recent Section 409A fair market valuation is $8.42 per share of common stock as of September 15, 2023, as determined by Atlas Valuation Services, Inc. in accordance with Section 409A of the Internal Revenue Code and the regulations promulgated thereunder.
Section 4.5 — No Conflicts
The execution, delivery, and performance by the Company of this Agreement and each of the other Transaction Documents, the issuance and sale of the Notes, and the consummation of the transactions contemplated hereby and thereby do not and will not: (a) conflict with or violate the Company's Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, each as currently in effect; (b) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment, injunction, decree, or other legal requirement of any Governmental Authority applicable to the Company or any of its properties or assets; (c) result in a breach of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the acceleration of, create in any party the right to accelerate, terminate, or modify, or require any notice or consent under, any material contract, instrument, agreement, or arrangement to which the Company is a party or by which the Company or any of its properties or assets is bound (including the Loan Agreement, subject to receipt of the consent of Kelvantis Lending Corp. described in Section 4.6(c) hereof); or (d) result in the creation or imposition of any lien, charge, claim, pledge, security interest, or other encumbrance on the properties or assets of the Company, other than liens arising under the Subordination Agreement.
Section 4.6 — Consents and Approvals
No consent, approval, license, permit, authorization, or order of, or registration, qualification, designation, declaration, or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery, and performance of this Agreement and the other Transaction Documents by the Company, or the issuance, sale, and delivery of the Notes, except for:
(a) the filing of a Notice of Exempt Offering of Securities on Form D with the SEC pursuant to Regulation D under the Securities Act (which Form D was filed on January 16, 2024, with respect to the Initial Closing, and will be amended to reflect any Subsequent Closings);
(b) applicable state securities or "blue sky" notice filings required in the states of Delaware, Massachusetts, Illinois, California, and Washington, which filings have been or will be made within the time periods required by applicable law; and
(c) the consent and waiver of Kelvantis Lending Corp. under the Loan Agreement, which consent and waiver was obtained on January 12, 2024, as evidenced by the Lender Consent and Waiver Letter signed by Theodore "Ted" Marsh on behalf of Kelvantis.
Section 4.7 — Financial Statements
The Company has delivered to each Purchaser (or made available for review) the following financial statements (collectively, the "Financial Statements"):
(a) audited financial statements of the Company for the fiscal year ended December 31, 2022 (the "Audited Financial Statements"), consisting of the audited balance sheet as of December 31, 2022 and the related audited statements of operations, stockholders' equity (deficit), and cash flows for the fiscal year then ended, together with the notes thereto, all as prepared by Pinnacle Audit Group LLP (Lisa Johannsen, Engagement Partner) in accordance with GAAP and accompanied by the unqualified report of Pinnacle Audit Group LLP thereon; and
(b) reviewed (unaudited) financial statements of the Company as of and for the nine (9) months ended September 30, 2023 (the "Interim Financial Statements"), consisting of the unaudited balance sheet as of September 30, 2023 and the related unaudited statements of operations and cash flows for the nine-month period then ended.
The Financial Statements fairly present, in all material respects, the financial condition and the results of operations of the Company as of the dates and for the periods indicated therein, and were prepared in conformity with GAAP applied on a consistent basis throughout the periods involved; provided, however, that the Interim Financial Statements are subject to the absence of footnotes and normal year-end audit adjustments, none of which, individually or in the aggregate, are expected to be material.
Section 4.8 — Absence of Changes
Since September 30, 2023 (the date of the Company's most recent balance sheet included in the Financial Statements), except as set forth in the Disclosure Schedule:
(a) there has been no Material Adverse Effect;
(b) the Company has not declared, set aside, or paid any dividend or distribution on any shares of its capital stock;
(c) the Company has not made any material change in its accounting methods, principles, or practices;
(d) the Company has conducted its business in all material respects in the ordinary course, consistent with past practice; and
(e) there has been no event, occurrence, or development that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.
As additional context, the Company's key financial and operating metrics as of September 30, 2023 were as follows: annual recurring revenue ("ARR") of approximately $78,000,000; annualized gross payment volume ("GPV") of approximately $4,200,000,000; net revenue retention of approximately 128%; cash and cash equivalents on hand of approximately $18,500,000; average monthly cash burn rate of approximately $4,800,000; implied pre-bridge cash runway of approximately 3.9 months; and approximately 310 full-time equivalent employees.
Section 4.9 — Intellectual Property
(a) The Company owns, or has valid and enforceable rights (through license, sublicense, or other agreement) to use, all intellectual Property that is necessary for or material to the conduct of the Company's business as presently conducted and as proposed to be conducted, free and clear of all liens (other than non-exclusive licenses granted in the ordinary course of business).
(b) To the Company's knowledge, the conduct of the Company's business does not infringe, misappropriate, or otherwise violate the intellectual Property rights of any third party, and no claim or action alleging any such infringement, misappropriation, or violation is pending or, to the Company's knowledge, threatened against the Company.
(c) The Company has obtained valid and enforceable intellectual property assignment agreements from each of its founders (including Arjun Mehta and Elena Vasquez), each current employee, and each independent contractor who has contributed to the development of any Company intellectual Property, pursuant to which all right, title, and interest in and to intellectual Property created by such individuals in the course of their service to the Company has been assigned to the Company.
(d) The Company's intellectual Property due diligence was conducted by Peter Vassiliev and Wendy Schultz of Calderwood & Harkness LLP in connection with this transaction, and the results thereof have been made available to the Purchasers through the data room maintained by the Company.
Section 4.10 — Material Contracts
(a) The Disclosure Schedule sets forth a complete and accurate list of all material contracts to which the Company is a party or by which any of its properties or assets is bound (the "Material Contracts"), including all contracts involving aggregate payments or receipts in excess of $500,000 per year, all contracts with Key Persons, all contracts with Affiliates, all outstanding loan agreements (including the Loan Agreement), and all contracts that are otherwise material to the business, assets, or operations of the Company.
(b) Each Material Contract is valid, binding, and in full force and effect, and is enforceable against the Company and, to the Company's knowledge, against the other parties thereto, in accordance with its terms. Neither the Company nor, to the Company's knowledge, any other party thereto, is in breach of or default under any Material Contract, and no event has occurred that, with or without notice or lapse of time or both, would constitute such a breach or default.
(c) The Disclosure Schedule specifically identifies the Loan and Security Agreement dated August 15, 2022, by and between Kelvantis Lending Corp. and the Company, with an outstanding principal balance of $15,000,000 and a maturity date of August 15, 2025.
Section 4.11 — Litigation
There is no action, suit, proceeding, claim, arbitration, mediation, or investigation pending or, to the Company's knowledge, threatened against the Company or any of its officers, directors, or employees (in their capacities as such), at law or in equity, or before or by any Governmental Authority, that (a) would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or (b) challenges the validity or enforceability of this Agreement, any other Transaction Document, or the transactions contemplated hereby or thereby. To the Company's knowledge, there is no judgment, decree, injunction, rule, or order of any Governmental Authority or arbitrator outstanding against the Company.
Section 4.12 — Compliance with Laws
The Company is, and at all times since its inception has been, in material compliance with all applicable laws, statutes, ordinances, rules, regulations, and orders of all Governmental Authorities, including all applicable money transmission laws, payment processing regulations, anti-money laundering laws, data privacy and security laws, and state licensing requirements. The Company holds all material licenses, permits, authorizations, registrations, and approvals of Governmental Authorities that are necessary for the conduct of its business as presently conducted, and all such licenses, permits, authorizations, registrations, and approvals are valid and in full force and effect.
Section 4.13 — Tax Matters
(a) The Company has timely filed (or caused to be filed) all federal, state, and local tax returns required to be filed by it (taking into account any extensions of time within which to file), and all such tax returns are true, complete, and correct in all material respects.
(b) The Company has timely paid (or caused to be paid) all taxes required to be paid by it, whether or not shown on any tax return, and has withheld and timely remitted all taxes required to be withheld.
(c) There are no pending or, to the Company's knowledge, threatened audits, examinations, assessments, or claims by any taxing authority with respect to any taxes of the Company. No deficiency for any tax has been assessed or proposed against the Company.
(d) The Company's federal employer identification number (EIN) is 83-2147605.
Section 4.14 — Employee Matters
(a) As of the date hereof, the Company has approximately three hundred ten (310) full-time equivalent employees.
(b) The Company is, and at all times has been, in material compliance with all applicable laws governing labor and employment, including laws relating to wages, hours, overtime, classification of workers, discrimination, harassment, workers' compensation, unemployment insurance, health and safety, immigration, and employee benefits.
(c) The Company's equity incentive plan is in good standing and has been administered in material compliance with its terms and applicable law. The Company's most recent Section 409A fair market valuation was performed by Atlas Valuation Services, Inc., dated September 15, 2023, and determined the fair market value of the Company's common stock to be $8.42 per share. All stock option grants have been made at exercise prices not less than the fair market value of the underlying common stock as of the date of grant, in compliance with Section 409A of the Internal Revenue Code.
Section 4.15 — Insurance
The Company maintains insurance policies covering directors' and officers' liability ("D&O"), errors and omissions ("E&O"), cyber liability, general commercial liability, and workers' compensation, in such types and amounts as are customary for companies of similar size, stage, and nature of business. All such policies are in full force and effect, and the Company is in material compliance with the terms of such policies. No material claim under any insurance policy is pending as of the date hereof.
Section 4.16 — Environmental Matters
The Company is in material compliance with all applicable Environmental Laws (as commonly understood) to the extent applicable to its business and operations. The Company acknowledges that its primary business operations are cloud-based software and platform services and does not involve significant environmental exposure; however, to the extent any Environmental Laws apply to the Company's leased office spaces or business operations, the Company is in material compliance therewith.
Section 4.17 — Regulatory Compliance