DRAFT — Circulated December 11, 2023 — For Discussion Purposes Only — Subject to Revision
Prepared by Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 On behalf of Skybridge Fintech Ltd. Matter No. 1009-00001
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "Agreement") is dated as of [●], 2024, by and among Skybridge Fintech Ltd., a Delaware corporation (the "Company"), having its principal executive office at 1400 Market Street, Suite 2200, Wilmington, DE 19801 (EIN: 83-2147605; Delaware File Number: 6384291), and each of the purchasers listed on Schedule 1 attached hereto (each, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, the Company is a Delaware corporation engaged in the business of operating a cloud-based payments orchestration and embedded lending platform for mid-market e-commerce companies;
WHEREAS, the Company desires to issue and sell, and the Purchasers desire to purchase, convertible promissory notes in the aggregate principal amount of Sixty Million Dollars ($60,000,000) (the "Notes"), on the terms and subject to the conditions set forth herein;
WHEREAS, the Notes will 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; and
WHEREAS, the Company and the Purchasers are entering into this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506(b) of Regulation D promulgated thereunder.
NOW, THEREFORE, in consideration of the mutual promises, covenants, representations, and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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ARTICLE 1 — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"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 "controlling," "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 the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Note Purchase Agreement, including all Schedules and Exhibits attached hereto, as amended, restated, supplemented, or otherwise modified from time to time in accordance with Section 11.7.
"Board" or "Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday, or any day on which commercial banks in New York, New York or Wilmington, Delaware are authorized or required by law to close.
"Change of Control" means (a) any merger, consolidation, or similar business combination transaction involving the Company following which the holders of the Company's outstanding voting securities immediately prior to such transaction hold, directly or indirectly, less than fifty percent (50%) of the outstanding voting securities of the surviving or resulting entity (or its parent); (b) any sale, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company; or (c) any transaction or series of related transactions in which any Person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquires beneficial ownership (as defined in Rules 13d-3 and 13d-5 of the Securities Exchange Act of 1934, as amended) of more than fifty percent (50%) of the total voting power of the outstanding voting securities of the Company.
"Closing" means the Initial Closing or the Final Closing, as the context may require, as defined in Section 2.2 and Section 2.3, respectively.
"Closing Date" means the Initial Closing Date or the Final Closing Date, as the context may require.
"Company" means Skybridge Fintech Ltd., a Delaware corporation.
"Company intellectual Property" means all intellectual Property owned by, or exclusively licensed to, the Company or any of its subsidiaries.
"Conversion discount" means twenty percent (20%).
"Conversion Price" has the meaning set forth in Section 3.1(b).
"Conversion Shares" means the shares of the Company's capital stock issuable upon conversion of the Notes in accordance with Article 3.
"DGCL" means the Delaware General Corporation Law, Title 8 of the Delaware Code, as amended from time to time.
"Disclosure Schedule" means the disclosure schedule delivered by the Company to the Purchasers concurrently with the execution and delivery of this Agreement, which Disclosure Schedule is incorporated herein by reference and forms a part of this Agreement.
"Escrow Agent" means Granite Trust Company, N.A., a national banking association, or any successor thereto appointed in accordance with the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement to be entered into among the Company, the Purchasers, and the Escrow Agent in connection with the Closing, in form and substance reasonably satisfactory to the Company and the Majority Holders.
"Event of Default" has the meaning set forth in Section 8.1.
"Existing Debt" means the Company's outstanding indebtedness under the Loan and Security Agreement, dated August 15, 2022, by and between Kelvantis Lending Corp. and the Company (the "Kelvantis Loan Agreement"), in the outstanding principal amount of Fifteen Million Dollars ($15,000,000), together with all accrued and unpaid interest, fees, and other amounts owing thereunder.
"Final Closing" has the meaning set forth in Section 2.3.
"Final Closing Date" has the meaning set forth in Section 2.3.
"Fully Diluted Capitalization" means the total number of shares of the Company's capital stock determined on a fully diluted, as-converted basis, including (a) all issued and outstanding shares of Common Stock, (b) all issued and outstanding shares of Preferred Stock (on an as-converted-to-Common-Stock basis), (c) all shares of Common Stock reserved for issuance under the Company's equity incentive plans (whether or not subject to outstanding awards), (d) all shares of Common Stock issuable upon exercise of outstanding warrants, and (e) all shares of Common Stock issuable upon conversion or exercise of other outstanding convertible securities, in each case calculated as of immediately prior to the applicable transaction giving rise to such calculation. As of the date hereof, the Fully Diluted Capitalization is approximately 48,500,000 shares.
"GAAP" means United States generally accepted accounting principles, as in effect from time to time, applied on a consistent basis.
"Governmental Authority" means any federal, state, local, municipal, or foreign government or political subdivision thereof, or any agency, authority, commission, board, bureau, court, tribunal, or instrumentality thereof, including any self-regulatory organization.
"Initial Closing" has the meaning set forth in Section 2.2.
"Initial Closing Date" has the meaning set forth in Section 2.2.
"Intellectual Property" means all worldwide rights in and to (a) patents, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof, (b) trademarks, service marks, trade names, trade dress, logos, corporate names, and all goodwill associated therewith, and registrations and applications for registration thereof, (c) copyrights, copyrightable works, and registrations and applications for registration thereof, (d) trade secrets, know-how, inventions (whether or not patentable), processes, techniques, and confidential and proprietary information, (e) domain names and social media accounts, (f) software (including source code, object code, and related documentation), and (g) all other intellectual property rights of any kind or nature.
"Investors' Rights Agreement" means the Amended and Restated Investors' Rights Agreement, dated as of July 12, 2021, among the Company and certain of its stockholders, as amended from time to time.
"Kelvantis Loan Agreement" has the meaning set forth in the definition of "Existing Debt."
"Key Person" means each of Arjun Mehta (Chief Executive Officer & Co-Founder) and Elena Vasquez (Chief Technology Officer & Co-Founder).
"Knowledge" or "to the Company's Knowledge" means the actual knowledge of Arjun Mehta (Chief Executive Officer), Elena Vasquez (Chief Technology Officer), David Lindstrom (Chief Financial Officer), and Priya Ramanathan (General Counsel), in each case after reasonable inquiry of their respective direct reports.
"Lead Investor" means Ridgeline Ventures Fund IV, L.P.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest, charge, claim, easement, encumbrance, restriction on transfer, conditional sale or other title retention agreement, or other similar restriction or encumbrance.
"Majority Holders" means, at any time, Purchasers holding Notes representing more than fifty percent (50%) of the aggregate outstanding principal amount of all Notes at such time.
"Material Adverse Effect" means any event, change, effect, development, condition, occurrence, or circumstance that, individually or in the aggregate with all other events, changes, effects, developments, conditions, occurrences, or circumstances, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, liabilities, financial condition, or results of operations of the Company, taken as a whole, or (b) the ability of the Company to consummate the transactions contemplated by this Agreement or the other Transaction Documents or to perform its obligations hereunder or thereunder; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, or shall be taken into account in determining whether there has been or would reasonably be expected to be, a Material Adverse Effect: (i) changes in general economic, business, financial, or market conditions, (ii) changes in conditions generally affecting the industry in which the Company operates, (iii) changes in applicable law or GAAP or the interpretation thereof, (iv) changes resulting from the announcement or pendency of the transactions contemplated hereby, (v) changes resulting from any action taken at the written request of the Purchasers, (vi) natural disasters, epidemics, pandemics, acts of terrorism, armed hostilities, or other force majeure events, or (vii) changes in the trading price or volume of any publicly traded securities (it being understood that the underlying cause of any such change may be taken into account in determining whether a Material Adverse Effect has occurred); except, in each case of clauses (i), (ii), (iii), and (vi), to the extent that such changes disproportionately and adversely affect the Company relative to similarly situated companies in the Company's industry.
"Maturity Date" means January 15, 2026, being twenty-four (24) months from the anticipated Initial Closing Date.
"Most Favored Nation" or "MFN" has the meaning described in Section 5.7.
"Note" or "Notes" means the convertible promissory notes issued or issuable pursuant to this Agreement, substantially in the form attached hereto as Exhibit A, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Note Purchase Agreement" has the same meaning as "Agreement."
"Permitted Liens" means (a) statutory liens for taxes, assessments, or governmental charges not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (b) mechanics', carriers', workers', repairers', and similar statutory liens arising in the ordinary course of business for amounts not yet due and payable, (c) zoning, entitlement, building, and other land use regulations imposed by Governmental Authorities, (d) pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance, and other social security legislation, (e) Liens arising under the Kelvantis Loan Agreement, and (f) other Liens that, individually or in the aggregate, do not materially impair the value of the property subject thereto or materially interfere with the use thereof in the ordinary course of business.
"Person" means any individual, corporation, partnership, limited partnership, limited liability company, joint venture, trust, association, unincorporated organization, Governmental Authority, or other entity.
"Purchaser" or "Purchasers" has the meaning set forth in the preamble, and shall include any Person who becomes a party to this Agreement as a Purchaser pursuant to a Joinder Agreement.
"Qualified Financing" means a bona fide equity financing of the Company in which the Company raises at least Eighty Million Dollars ($80,000,000) in aggregate gross proceeds (excluding the conversion of the Notes and any other convertible instruments) from the issuance of shares of its Preferred Stock (or equivalent equity securities) in a single transaction or series of related transactions, which the parties anticipate will constitute the Company's Series D financing round.
"ROFR Agreement" means the Right of First Refusal and Co-Sale Agreement, dated as of July 12, 2021, among the Company and certain of its stockholders, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Subordination Agreement" means the Subordination Agreement to be entered into among Kelvantis Lending Corp., the Purchasers, and the Company in connection with the Closing, in form and substance reasonably satisfactory to Kelvantis Lending Corp., the Company, and the Majority Holders.
"Transaction Documents" means, collectively, this Agreement, the Notes, the Subordination Agreement, the Escrow Agreement, Amendment No. 1 to the Investors' Rights Agreement, Amendment No. 1 to the ROFR Agreement, and each other agreement, certificate, instrument, or document delivered or to be delivered by any party in connection with the transactions contemplated hereby.
"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 Capitalization as of immediately prior to the applicable conversion event, which, based on the Fully Diluted Capitalization as of the date hereof of approximately 48,500,000 shares, is approximately $15.46 per share.
Section 1.2 — Interpretation
Unless the context otherwise requires, the following rules of interpretation shall apply to this Agreement:
(a) References to "Sections," "Articles," "Exhibits," and "Schedules" are references to sections and articles of, and exhibits and schedules to, this Agreement, unless otherwise specified.
(b) References to this "Agreement" include all Schedules and Exhibits hereto.
(c) Words in the singular include the plural and vice versa, and words of one gender include the other genders, as the context may require.
(d) The words "hereof," "herein," "hereunder," and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.
(e) The word "including" (and with correlative meaning, "include" and "includes") means "including, without limitation."
(f) All references to dollar amounts or "$" refer to lawful money of the United States of America.
(g) All references to time periods measured in days refer to calendar days unless "Business Days" is expressly specified.
(h) The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
(i) Each defined term used in this Agreement has a comparable meaning when used in its plural or singular form.
(j) References to any statute, rule, or regulation include any amendment, modification, or replacement thereof and any rules and regulations promulgated thereunder.
(k) References to any agreement or contract are to that agreement or contract as amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms thereof.
(l) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.
ARTICLE 2 — PURCHASE AND SALE OF NOTES
Section 2.1 — Issuance and Sale of Notes
Subject to the terms and conditions of this Agreement, the Company hereby agrees to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, hereby agrees to purchase from the Company, a Note in the principal amount set forth opposite such Purchaser's name on Schedule 1 attached hereto. The aggregate principal amount of all Notes to be issued and sold pursuant to this Agreement shall be Sixty Million Dollars ($60,000,000). Each Note shall be substantially in the form attached hereto as Exhibit A.
Each Note shall bear simple interest on the outstanding principal amount thereof at a rate of six percent (6.00%) per annum (600 basis points), computed on the basis of a 365-day year and the actual number of days elapsed, from and including the applicable Closing Date to but excluding the date on which such Note is converted or repaid in full. For the avoidance of doubt, the annual interest accrual on the aggregate principal amount of Sixty Million Dollars ($60,000,000) at a rate of 6.00% per annum shall be Three Million Six Hundred Thousand Dollars ($3,600,000). Interest shall not be compounded and shall accrue and be payable only as provided in the Notes and this Agreement.
Unless earlier converted in accordance with Article 3, the outstanding principal balance of each Note, together with all accrued and unpaid interest thereon, shall be due and payable on the Maturity Date, which is January 15, 2026.
Section 2.2 — Initial Closing
(a) The initial closing of the purchase and sale of the Notes (the "Initial Closing") shall take place remotely via the electronic exchange of documents and signatures on [●], 2024 (the "Initial Closing Date"), or at such other time, date, and place as the Company and the Majority Holders may mutually agree in writing.
(b) At the Initial Closing, an aggregate of Forty-Five Million Dollars ($45,000,000) shall be funded by the following Purchasers, in the principal amounts set forth below:
(c) At or prior to the Initial Closing, each Purchaser participating in the Initial Closing shall deliver its applicable purchase price in immediately available funds by wire transfer to the escrow account maintained by the Escrow Agent (Granite Trust Company, N.A., Escrow Account No. 4401-7829-SBF), in accordance with the wire transfer instructions set forth in the Escrow Agreement.
(d) Upon the satisfaction or waiver of the conditions set forth in Article 6, the Company shall deliver to each such Purchaser a Note, duly executed by an authorized officer of the Company, in the principal amount set forth opposite such Purchaser's name in Section 2.2(b) above.
Section 2.3 — Final Closing
(a) An additional closing (the "Final Closing") shall take place no later than thirty (30) days following the Initial Closing Date (the "Final Closing Date"), or at such other time, date, and place as the Company and the Majority Holders may mutually agree in writing.
(b) At the Final Closing, the remaining Fifteen Million Dollars ($15,000,000) in aggregate principal amount of Notes shall be funded by the following Purchasers, in the principal amounts set forth below:
For the avoidance of doubt, following the Final Closing, Beacon Hill Capital Partners, LLC shall hold Notes in an aggregate principal amount of Fifteen Million Dollars ($15,000,000).
(c) Northstar Innovation Fund II, L.P. shall execute and deliver a Joinder Agreement substantially in the form attached hereto as Exhibit B at or prior to the Final Closing, pursuant to which Northstar Innovation Fund II, L.P. shall become a party to this Agreement and each other Transaction Document as a Purchaser hereunder and thereunder, with the same force and effect as if it were an original signatory hereto and thereto.
(d) At or prior to the Final Closing, each Purchaser participating in the Final Closing shall deliver its applicable purchase price in immediately available funds by wire transfer to the Escrow Agent in accordance with the Escrow Agreement and the wire transfer instructions set forth therein.
(e) The conditions to the Final Closing shall be the same as those applicable to the Initial Closing as set forth in Article 6, mutatis mutandis, except as otherwise expressly provided herein. Upon the satisfaction or waiver of such conditions, the Company shall deliver to each Purchaser participating in the Final Closing a Note, duly executed by an authorized officer of the Company, in the principal amount set forth opposite such Purchaser's name in Section 2.3(b) above.
Section 2.4 — Escrow
(a) All purchase price amounts payable by the Purchasers in connection with the Initial Closing and the Final Closing shall be deposited into the escrow account maintained by Granite Trust Company, N.A. as Escrow Agent, in accordance with the terms and conditions of the Escrow Agreement.
(b) The Escrow Agent shall hold and disburse the escrowed funds in accordance with the Escrow Agreement. Escrow funds shall be released to the Company upon joint written instruction of the Company and the Majority Holders (or, in the case of the Final Closing, the applicable Purchaser(s) participating therein) upon the satisfaction or waiver of the applicable closing conditions set forth in Article 6.
(c) In the event that the applicable closing conditions are not satisfied or waived on or prior to the applicable Closing Date (or any extension thereof agreed to in writing by the Company and the applicable Purchasers), the Escrow Agent shall return all escrowed funds to the applicable Purchasers, without deduction, in accordance with the terms of the Escrow Agreement.
(d) The Escrow Agent's fee of Seven Thousand Five Hundred Dollars ($7,500) (flat fee) in connection with the services to be rendered under the Escrow Agreement shall be borne solely by the Company.
Section 2.5 — Use of Proceeds
The Company shall use the proceeds from the sale of the Notes for general corporate purposes, working capital, and product development, in each case in the ordinary course of the Company's business.
ARTICLE 3 — CONVERSION OF NOTES
Section 3.1 — Automatic Conversion upon Qualified Financing
(a) Trigger. Upon the closing of a Qualified Financing (i.e., an equity financing in which the Company raises at least Eighty Million Dollars ($80,000,000) in aggregate gross proceeds from the issuance of shares of Preferred Stock or equivalent equity securities in a single transaction or series of related transactions), all outstanding principal under each Note, together with all accrued and unpaid interest thereon as of the date of such closing, shall automatically convert, without any further action on the part of the Company or any Purchaser, into shares of the same class and series of Preferred Stock (or equivalent equity securities) issued and sold in the Qualified Financing (the "Conversion Shares"). Such automatic conversion shall occur simultaneously with the closing of the Qualified Financing.
(b) Conversion Price. The number of Conversion Shares issuable upon conversion of each Note shall be determined by dividing the aggregate of outstanding principal and accrued and unpaid interest under such Note by the Conversion Price. The "Conversion Price" shall be the lower of:
(i) eighty percent (80%) of the price per share paid by investors in the Qualified Financing (reflecting the twenty percent (20%) Conversion discount); or
(ii) the Valuation Cap Price, which is the price per share equal to the Valuation Cap of Seven Hundred Fifty Million Dollars ($750,000,000) divided by the Fully Diluted Capitalization as of immediately prior to the closing of the Qualified Financing (which, based on the current Fully Diluted Capitalization of approximately 48,500,000 shares, is approximately $15.46 per share).
The Conversion Price shall be appropriately adjusted for any stock splits, stock dividends, combinations, reorganizations, recapitalizations, or similar events occurring between the date of this Agreement and the date of conversion.
(c) Mechanics. Upon automatic conversion pursuant to this Section 3.1, each Purchaser's Note shall be deemed canceled and of no further force or effect (except as to any rights that by their terms survive cancellation), and the Company shall promptly issue and deliver to such Purchaser a number of Conversion Shares equal to the quotient obtained by dividing (x) all outstanding principal and accrued and unpaid interest under such Note, by (y) the Conversion Price, with any fractional shares rounded down to the nearest whole share in accordance with Section 3.5. The Company shall deliver to each Purchaser a stock certificate or evidence of book-entry representing the applicable number of Conversion Shares, together with such other instruments and documents as may be reasonably necessary to evidence such Purchaser's ownership of the Conversion Shares.
(d) Conversion Documents. In connection with the Qualified Financing, each Purchaser shall execute and deliver such documents and instruments as may be reasonably required by the Company, including any stock purchase agreement, investors' rights agreement, voting agreement, right of first refusal and co-sale agreement, or equivalent documentation customarily entered into by investors in such equity financing round, provided that such documents are consistent with the terms and conditions of this Agreement and the other Transaction Documents. The Purchasers shall receive the same contractual rights (including registration rights, information rights, and protective provisions) as the other investors participating in the Qualified Financing, on terms no less favorable than those provided to such other investors.
Section 3.2 — Optional Conversion at Maturity
If no Qualified Financing has occurred on or prior to the Maturity Date (January 15, 2026), each Purchaser may elect, by delivering written notice to the Company not less than fifteen (15) Business Days prior to the Maturity Date, one of the following:
(a) to convert all outstanding principal and accrued and unpaid interest under such Purchaser's Note into shares of the Company's Common Stock (or such other class of capital stock as shall be agreed upon by the Company and the Majority Holders) at a price per share equal to the Valuation Cap Price (which, based on the current Fully Diluted Capitalization of approximately 48,500,000 shares, is approximately $15.46 per share), subject to appropriate adjustment for any stock splits, stock dividends, combinations, reorganizations, recapitalizations, or similar events occurring between the date of this Agreement and the date of conversion; or
(b) to demand repayment in full of all outstanding principal and accrued and unpaid interest under such Purchaser's Note in cash, which repayment shall be made by the Company on the Maturity Date by wire transfer of immediately available funds to an account designated in writing by such Purchaser; provided that any such repayment shall be subject to the terms and conditions of the Subordination Agreement and the prior payment in full of the Existing Debt.
If any Purchaser fails to deliver a timely election notice to the Company in accordance with this Section 3.2, such Purchaser shall be conclusively deemed to have elected conversion under clause (a) above. The mechanics of any conversion pursuant to this Section 3.2 shall be substantially the same as those set forth in Section 3.1(c), mutatis mutandis.
Section 3.3 — Change of Control
(a) If a Change of Control occurs at any time prior to the conversion or repayment of the Notes in full, each Purchaser shall receive, at such Purchaser's election (exercised by written notice to the Company delivered within ten (10) Business Days after receipt of the notice described in Section 3.3(c) below), the greater of:
(i) two times (2.0x) the sum of outstanding principal plus all accrued and unpaid interest under such Purchaser's Note as of the date of the closing of the Change of Control transaction (for the avoidance of doubt, assuming no accrued interest and assuming all $60,000,000 in aggregate principal amount of Notes remain outstanding, the maximum aggregate payment under this clause (i) would be Two Hundred Forty Million Dollars ($240,000,000) on an interest-inclusive basis, or One Hundred Twenty Million Dollars ($120,000,000) based solely on principal); or
(ii) the amount that would be payable to such Purchaser if all outstanding principal and accrued and unpaid interest under such Purchaser's Note were converted into Conversion Shares at the Valuation Cap Price immediately prior to such Change of Control, and such Conversion Shares participated in the proceeds of the Change of Control transaction on the same terms and conditions as the other holders of shares of the same class and series of capital stock into which the Notes were deemed converted, including any applicable liquidation preferences.
(b) Payment of the amounts due under this Section 3.3 shall be made concurrently with, and as a condition to, the closing of the Change of Control transaction, by wire transfer of immediately available funds to accounts designated in writing by the Purchasers.
(c) The Company shall provide not less than fifteen (15) Business Days' prior written notice to each Purchaser of any proposed Change of Control, which notice shall describe in reasonable detail the material terms and conditions of the proposed Change of Control, the anticipated closing date thereof, and the amount that would be payable to such Purchaser under each of clauses (i) and (ii) of Section 3.3(a). If a Purchaser fails to deliver a timely election notice within such fifteen (15) Business Day period, such Purchaser shall be deemed to have elected the option under clause (i) of Section 3.3(a).
Section 3.4 — Anti-Dilution and Adjustments
The Conversion Price and the Valuation Cap Price shall be appropriately and proportionally adjusted in the event of any stock split, reverse stock split, stock dividend, combination, reorganization, recapitalization, reclassification, or other similar event affecting the outstanding shares of the Company's capital stock. In the event of any such adjustment, the Company shall promptly deliver to each Purchaser a written notice setting forth the adjusted Conversion Price or Valuation Cap Price and the computation thereof. Notwithstanding the foregoing, no adjustment shall be made for (a) issuances of shares of Common Stock or options to purchase shares of Common Stock to employees, officers, directors, or consultants of the Company pursuant to equity incentive plans approved by the Board of Directors, or (b) the issuance of the Notes or the Conversion Shares issuable upon conversion thereof.
Section 3.5 — No Fractional Shares
No fractional shares of the Company's capital stock shall be issued upon conversion of any Note. In lieu of any fractional share to which a Purchaser would otherwise be entitled upon conversion, the Company shall pay to such Purchaser an amount in cash (rounded to the nearest cent) equal to the product of (a) such fractional share, multiplied by (b) the applicable Conversion Price or Valuation Cap Price, as the case may be. Any fractional share resulting from a conversion calculation shall be rounded down to the nearest whole share for purposes of determining the number of Conversion Shares to be issued.
ARTICLE 4 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company concurrently with the execution and delivery of this Agreement (the "Disclosure Schedule," the sections of which are numbered to correspond to the section numbers of this Article 4, and each of which shall qualify only the correspondingly numbered representation and warranty and any other representation and warranty to the extent the applicability of such disclosure to such other representation and warranty is reasonably apparent on its face), the Company hereby represents and warrants to each Purchaser as of the date hereof and as of each Closing Date as follows:
Section 4.1 — Organization, Good Standing, and Qualification
The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware (Delaware File Number 6384291). The Company has all requisite 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 nature of its business or the ownership, leasing, or operation of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed or in good standing would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. True, correct, and complete copies of the Company's Amended and Restated Certificate of Incorporation, as currently in effect, and the Company's Bylaws, as currently in effect, have been delivered to the Purchasers or their counsel prior to the date hereof.
Section 4.2 — Authorization
All corporate action on the part of the Company, its Board of Directors, officers, and stockholders necessary for the authorization, execution, and delivery of this Agreement and each other Transaction Document to which the Company is a party, the issuance of the Notes pursuant hereto, the reservation and issuance of the Conversion Shares issuable upon conversion of the Notes, and the performance of all obligations of the Company hereunder and thereunder, has been taken or will be taken prior to the applicable Closing Date. This Agreement, when executed and delivered by the Company, constitutes, and each other Transaction Document to which the Company is a party, when executed and delivered by the Company, will constitute, a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other similar laws relating to or affecting the enforcement of creditors' rights generally, and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
Section 4.3 — No Conflicts
The execution, delivery, and performance by the Company of this Agreement and each other Transaction Document to which the Company is a party, the issuance of the Notes, the reservation and issuance of the Conversion Shares, and compliance with the provisions hereof and thereof, will not: (a) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with notice or lapse of time, or both, would constitute a default) under, the Company's Amended and Restated Certificate of Incorporation or Bylaws; (b) violate, conflict with, or result in a breach of, or constitute a default under, any judgment, order, writ, injunction, or decree of any Governmental Authority applicable to the Company or any of its properties or assets; (c) result in a violation of, conflict with, constitute a default under, or give rise to any right of termination, cancellation, modification, or acceleration under, any material agreement, contract, lease, license, instrument, note, indenture, or obligation to which the Company is a party or by which the Company or any of its properties or assets is bound, including the Kelvantis Loan Agreement, subject to the consent and waiver to be obtained thereunder as a condition to Closing; or (d) result in the creation or imposition of any Lien on any assets or properties of the Company, other than Permitted Liens. No consent, approval, authorization, order, registration, qualification, or filing with any Governmental Authority is required on the part of the Company for the valid execution, delivery, and performance of this Agreement or any other Transaction Document or the issuance of the Notes or the Conversion Shares, except for (i) any notices required to be filed with the Securities and Exchange Commission and any state securities authorities pursuant to Regulation D under the Securities Act and applicable state securities laws, and (ii) any consents that have been obtained or will be obtained prior to the applicable Closing Date.
Section 4.4 — Capitalization
(a) As of the date hereof, the Fully Diluted Capitalization of the Company is approximately 48,500,000 shares, consisting of the following:
(i) outstanding shares of Common Stock;
(ii) outstanding shares of Series A Preferred Stock (held by Crestpoint Seed Partners, L.P.);
(iii) outstanding shares of Series B Preferred Stock (held by Halcyon Growth Equity, L.P.);
(iv) outstanding shares of Series C Preferred Stock (held by Ridgeline Ventures Fund III, L.P. and Beacon Hill Capital Partners, LLC; the Series C financing closed in July 2021 at a Six Hundred Twenty Million Dollar ($620,000,000) post-money valuation);
(v) shares of Common Stock reserved for issuance under the Company's equity incentive plan(s), whether or not subject to outstanding awards; and
(vi) shares of Common Stock issuable upon exercise of outstanding warrants and other convertible securities.
(b) Schedule 4.4 of the Disclosure Schedule sets forth a complete and accurate capitalization table of the Company as of the date hereof, showing the number of authorized shares of each class and series of capital stock, the number of shares of each class and series issued and outstanding, the number of shares reserved for issuance under the Company's equity incentive plan(s), the number of shares subject to outstanding options and the weighted-average exercise price thereof, and the number of shares issuable upon exercise of outstanding warrants and other convertible securities.
(c) Except as set forth in Schedule 4.4, there are no outstanding options, warrants, rights, agreements, convertible or exchangeable securities, or other commitments or arrangements pursuant to which the Company is or may become obligated to issue, sell, or otherwise transfer any shares of its capital stock or other equity interests, and no anti-dilution adjustments have been triggered under any outstanding securities of the Company.
(d) All outstanding shares of the Company's capital stock have been duly authorized, validly issued, fully paid, and non-assessable, and were issued in compliance with all applicable federal and state securities laws. The Company's most recent Section 409A fair market value determination was $8.42 per share of Common Stock, as set forth in a valuation report prepared by Atlas Valuation Services, Inc., dated September 15, 2023.
Section 4.5 — Subsidiaries
Except as set forth in Schedule 4.5 of the Disclosure Schedule, the Company does not own, directly or indirectly, any equity interest in, or any interest convertible into or exchangeable or exercisable for any equity interest in, any corporation, partnership, limited liability company, joint venture, or other business entity.
Section 4.6 — Financial Statements
(a) The Company has delivered to the Purchasers the following financial statements (collectively, the "Financial Statements"):
(i) the audited consolidated balance sheet of the Company as of December 31, 2022, and the related audited consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the fiscal year then ended, together with the notes thereto and the report of Pinnacle Audit Group LLP (engagement partner: Lisa Johannsen) thereon; and
(ii) the unaudited (reviewed) consolidated balance sheet of the Company as of September 30, 2023, and the related unaudited (reviewed) consolidated statements of operations and cash flows for the nine-month period then ended.
(b) The Financial Statements (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except, in the case of unaudited financial statements, for the absence of footnotes and normal year-end audit adjustments, none of which, individually or in the aggregate, would be material), and (ii) present fairly, in all material respects, the financial condition of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods indicated.
(c) As of September 30, 2023, the Company's key financial and operating metrics were as follows: annualized recurring revenue ("ARR") of approximately Seventy-Eight Million Dollars ($78,000,000); annualized gross payment volume ("GPV") of approximately Four Billion Two Hundred Million Dollars ($4,200,000,000); net revenue retention of approximately one hundred twenty-eight percent (128%); and cash and cash equivalents on hand of approximately Eighteen Million Five Hundred Thousand Dollars ($18,500,000).
Section 4.7 — Absence of Changes
Since September 30, 2023:
(a) there has been no event, change, effect, development, condition, occurrence, or circumstance that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; and
(b) the Company has conducted its business in the ordinary course of business, consistent with past practice in all material respects, and has not taken any action that, if taken after the date of this Agreement, would require the consent of the Majority Holders under Section 5.6.
Section 4.8 — Litigation
Except as set forth in Schedule 4.8 of the Disclosure Schedule, there is no action, suit, claim, proceeding, arbitration, mediation, or investigation pending or, to the Company's Knowledge, threatened against the Company, any of its directors or officers (in their capacity as such), or any of its properties or assets, before any Governmental Authority, that (a) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (b) challenges or seeks to prevent, enjoin, alter, or materially delay the transactions contemplated by this Agreement or any other Transaction Document. To the Company's Knowledge, there are no facts or circumstances that would reasonably be expected to give rise to any such action, suit, claim, proceeding, arbitration, mediation, or investigation.
Section 4.9 — Intellectual Property
(a) The Company owns, or has valid and enforceable rights to use (pursuant to written license agreements or otherwise), all intellectual Property that is necessary for the conduct of its business as currently conducted and as proposed to be conducted, free and clear of all Liens other than Permitted Liens.
(b) Schedule 4.9 of the Disclosure Schedule sets forth a complete and accurate list of all patents, patent applications, registered trademarks, trademark applications, registered copyrights, copyright applications, and domain names owned by or registered in the name of the Company.
(c) To the Company's Knowledge, neither the operation of the Company's business nor any of the Company's products or services, including the Company's cloud-based payments orchestration and embedded lending platform, infringes upon, misappropriates, or otherwise violates the intellectual Property rights of any third party. The Company has not received any written notice from any third party alleging any such infringement, misappropriation, or violation. No claim, action, or proceeding is pending or, to the Company's Knowledge, threatened against the Company challenging the Company's ownership or use of any Company intellectual Property.
(d) All current and former employees, officers, consultants, contractors, and other Persons who have contributed to the creation or development of any Company intellectual Property have executed written proprietary information and invention assignment agreements in favor of the Company, substantially in the Company's standard form.
(e) The Company's platform processes approximately Four Billion Two Hundred Million Dollars ($4,200,000,000) in annualized gross payment volume. The Company has taken commercially reasonable steps to protect the confidentiality and security of its trade secrets, proprietary information, and other confidential intellectual Property.
Section 4.10 — Compliance with Laws
(a) The Company is, and since its inception has been, in material compliance with all applicable federal, state, local, and foreign laws, rules, regulations, ordinances, orders, judgments, and decrees applicable to the Company and the conduct of its business, including all applicable money transmission laws, state licensing requirements, consumer financial protection laws, and anti-money laundering regulations.
(b) The Company holds all material permits, licenses, authorizations, approvals, franchises, and certifications of all Governmental Authorities necessary for the lawful conduct of its business as currently conducted. All such permits, licenses, authorizations, approvals, franchises, and certifications are valid and in full force and effect, and no proceeding is pending or, to the Company's Knowledge, threatened to revoke or limit any such permit, license, authorization, approval, franchise, or certification.
(c) Schedule 4.10 of the Disclosure Schedule sets forth a complete and accurate list of all money transmission licenses and related regulatory authorizations held by the Company, including the issuing jurisdiction, license number, and date of issuance or most recent renewal.
Section 4.11 — Tax Matters
(a) The Company has timely filed (taking into account any applicable extensions) all income tax returns and all other material tax returns required to be filed by it with any Governmental Authority. All such tax returns are true, correct, and complete in all material respects. The Company has timely paid all taxes (whether or not reflected on any tax return) due and owing by it to any Governmental Authority.
(b) There are no pending or, to the Company's Knowledge, threatened audits, examinations, investigations, assessments, deficiency notices, or other claims by any Governmental Authority with respect to any taxes of the Company. No written claim has been made by any Governmental Authority in a jurisdiction where the Company does not file tax returns that the Company is or may be subject to taxation by that jurisdiction.
(c) The Company's federal employer identification number is 83-2147605. The Company has complied with all applicable laws relating to the withholding and remittance of taxes, including the withholding and reporting requirements under Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049 of the Internal Revenue Code and similar provisions under any applicable state, local, and foreign laws.
Section 4.12 — Employee Matters
(a) As of the date hereof, the Company has approximately three hundred ten (310) full-time equivalent employees.
(b) The Company is in material compliance with all applicable federal, state, local, and foreign laws relating to employment and employment practices, including laws relating to wages, hours, overtime, worker classification, discrimination, harassment, retaliation, immigration, workers' compensation, occupational safety and health, family and medical leave, and the collection and payment of withholding and/or social security taxes.
(c) Schedule 4.12 of the Disclosure Schedule sets forth a complete and accurate list of all (i) employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended), (ii) equity incentive plans, (iii) bonus, commission, and incentive compensation arrangements, and (iv) material employment, consulting, severance, change-in-control, or retention agreements, in each case maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, or consultant of the Company.
(d) The Company has maintained its equity incentive plans, and all awards granted thereunder, in compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, based on fair market value determinations prepared by Atlas Valuation Services, Inc.
Section 4.13 — Insurance
The Company maintains insurance policies of the types and in the amounts customary for companies of similar size, stage, and industry, including directors' and officers' liability insurance, errors and omissions insurance, cyber liability insurance, and general commercial liability insurance. All such insurance policies are in full force and effect, and no claim has been made under any such policy that is pending and would reasonably be expected to have a Material Adverse Effect. The Company is not in default with respect to any provision of any such insurance policy.
Section 4.14 — Material Contracts
(a) Schedule 4.14 of the Disclosure Schedule sets forth a complete and accurate list of all contracts, agreements, and commitments that are material to the Company's business ("Material Contracts"), including all contracts involving aggregate consideration in excess of Five Hundred Thousand Dollars ($500,000) per annum, all contracts with Key Persons, all contracts with any Affiliate, and all contracts that contain non-competition, exclusivity, most-favored-nation, or similar restrictive provisions.
(b) Each Material Contract is valid, binding, and in full force and effect and enforceable against the Company and, to the Company's Knowledge, against each other party thereto, in accordance with its terms, subject to customary enforceability exceptions. The Company is not in material breach or default under any Material Contract, and no event has occurred that, with notice or lapse of time, or both, would constitute a material breach or default by the Company under any Material Contract. To the Company's Knowledge, no other party to any Material Contract is in material breach or default thereunder.
(c) The Material Contracts include the Kelvantis Loan Agreement (Loan and Security Agreement, dated August 15, 2022, by and between Kelvantis Lending Corp. and the Company, with outstanding principal of Fifteen Million Dollars ($15,000,000), maturing August 15, 2025).
Section 4.15 — Existing Indebtedness
Except for (a) the Existing Debt (outstanding principal of Fifteen Million Dollars ($15,000,000) under the Kelvantis Loan Agreement, maturing August 15, 2025) and (b) the indebtedness set forth in Schedule 4.15 of the Disclosure Schedule, the Company has no outstanding indebtedness for borrowed money, whether secured or unsecured, and has not guaranteed any indebtedness of any other Person. The Kelvantis venture debt facility bears interest at a rate and on terms set forth in the Kelvantis Loan Agreement, a true, correct, and complete copy of which has been delivered to the Purchasers.
Section 4.16 — Offering Valid
Assuming the accuracy of the representations and warranties of the Purchasers set forth in Article 7, the offer, sale, and issuance of the Notes as contemplated by this Agreement, and the issuance of the Conversion Shares upon conversion of the Notes, are and will be exempt from the registration requirements of the Securities Act by reason of Section 4(a)(2) thereof and Rule 506(b) of Regulation D promulgated thereunder, and are and will be exempt from the registration and qualification requirements of applicable state securities laws. Neither the Company nor any Person acting on its behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Notes. The Company has not sold or issued any securities that would be aggregated with the offer and sale of the Notes for purposes of the Securities Act or Regulation D. The Company shall file a Form D with the Securities and Exchange Commission within fifteen (15) days after the Initial Closing Date and shall file an amendment to Form D following the Final Closing, in each case as required by Regulation D.
Section 4.17 — No Brokers
The Company has not engaged, and is not obligated to pay any fee or commission to, any broker, finder, investment banker, financial advisor, or other intermediary in connection with the transactions contemplated by this Agreement.
Section 4.18 — Data Privacy and Security
(a) The Company is in material compliance with all applicable federal, state, local, and foreign data privacy and data security laws, rules, and regulations, including the California Consumer Privacy Act (as amended by the California Privacy Rights Act), the Gramm-Leach-Bliley Act, and, to the extent applicable, the General Data Protection Regulation, and with the Company's own published privacy policies and data processing agreements.
(b) The Company has implemented and maintains commercially reasonable administrative, technical, and physical safeguards designed to protect the security, confidentiality, and integrity of personal data and other confidential information in its possession or control.
(c) To the Company's Knowledge, no unauthorized access to, or breach of security of, any systems, networks, or data maintained by or on behalf of the Company has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has not been required to provide any notice to any Person or Governmental Authority under any applicable data breach notification law.
Section 4.19 — Anti-Corruption
The Company, its directors, officers, employees, and, to the Company's Knowledge, its agents and representatives, are and have been in compliance with all applicable anti-corruption and anti-bribery laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended. Neither the Company nor, to the Company's Knowledge, any of its directors, officers, employees, agents, or representatives has, directly or indirectly, made, offered, promised, or authorized any payment, gift, or transfer of anything of value to any government official, political party, or political candidate for the purpose of (a) influencing any act or decision of any such person in an official capacity, (b) inducing any such person to do or omit to do any act in violation of a lawful duty, or (c) obtaining any improper advantage.
Section 4.20 — Full Disclosure
No representation or warranty of the Company contained in this Agreement or any other Transaction Document, and no information contained in the Disclosure Schedule or any certificate, document, or instrument delivered or to be delivered by or on behalf of the Company in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.
ARTICLE 5 — COVENANTS OF THE COMPANY
The Company hereby covenants and agrees with each Purchaser as follows:
Section 5.1 — Reservation of Shares