SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Skybridge Fintech Ltd.
July 18, 2022
Execution Version
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SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (this "Agreement") is made and entered into as of July 18, 2022, by and among:
Skybridge Fintech Ltd., a Delaware corporation (the "Company"), with its principal office at 1600 Market Street, Suite 2200, Wilmington, DE 19801; and
Each of the Purchasers listed on Schedule A attached hereto (collectively, the "Purchasers" and each individually, a "Purchaser").
RECITALS
WHEREAS, the Company desires to issue and sell, and the Purchasers desire to purchase, an aggregate of 7,500,000 shares of the Company's Series B Preferred Stock, par value $0.0001 per share (the "Shares"), at a purchase price of $6.00 per share, for aggregate proceeds of $45,000,000, on the terms and conditions set forth herein; and
WHEREAS, the rights, preferences, privileges, and restrictions of the Series B Preferred Stock are as set forth in the Company's Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate").
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1 — PURCHASE AND SALE OF SERIES B PREFERRED STOCK
Section 1.1 — Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file the Restated Certificate with the Secretary of State of the State of Delaware on or before the Closing (as defined below), which Restated Certificate shall authorize the issuance of up to 7,500,000 shares of Series B Preferred Stock, having the rights, preferences, privileges, and restrictions set forth therein. The filing of the Restated Certificate shall amend and restate in its entirety the Company's existing Certificate of Incorporation, as heretofore amended, and shall set forth the relative rights, preferences, and privileges of the Company's Common Stock, Series Seed Preferred Stock, Series A Preferred Stock, and Series B Preferred Stock.
(b) Subject to the terms and conditions of this Agreement, each Purchaser agrees, severally and not jointly, to purchase at the Closing, and the Company agrees to sell and issue to each Purchaser at the Closing, the number of Shares set forth opposite such Purchaser's name on Schedule A hereto at a per share purchase price of $6.00 (the "Purchase Price"). The aggregate number of Shares to be sold and issued to all Purchasers hereunder shall not exceed 7,500,000 shares of Series B Preferred Stock.
Section 1.2 — Closing; Delivery.
(a) Closing Date. The closing of the purchase and sale of the Shares (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement on July 18, 2022 (the "Closing Date"), remotely via the electronic exchange of documents and signatures, or at such other time and place as the Company and the Purchasers holding a majority of the Shares to be purchased hereunder mutually agree. For the avoidance of doubt, the Closing shall be deemed to have occurred upon the execution and delivery of this Agreement and the other Transaction Documents by all parties hereto and thereto, the delivery by each Purchaser of the applicable purchase price to the Escrow Agent (as defined below), and the satisfaction or waiver of the conditions set forth in Article 5 hereof.
(b) Payment of Purchase Price. At the Closing, each Purchaser shall deliver to Pinnacle National Bank, N.A. (the "Escrow Agent"), as escrow agent pursuant to the Escrow Agreement (as defined below), by wire transfer of immediately available funds to the account designated by the Escrow Agent, the aggregate purchase price for the Shares being purchased by such Purchaser as set forth on Schedule A hereto. The aggregate funds held in escrow shall equal $45,000,000. Each Purchaser shall initiate its wire transfer promptly following execution of this Agreement, and in any event no later than one (1) business day after the Closing Date. Wire transfer instructions for the Escrow Agent shall be provided to each Purchaser by the Escrow Agent prior to the Closing Date.
(c) Delivery of Shares. Subject to satisfaction of the conditions set forth in Section 1.2(d) below, on July 29, 2022 (the "Funding Date"), the Escrow Agent shall release the escrowed funds to the Company, and the Company shall deliver to each Purchaser either (i) a stock certificate representing the number of Shares purchased by such Purchaser, registered in such Purchaser's name, or (ii) evidence of a book-entry notation in the records of Ledgermark Transfer Services, Inc. (the "Transfer Agent") reflecting the issuance of such Shares to such Purchaser. Each stock certificate, if issued in certificated form, shall bear the legends required by applicable securities laws and the Transaction Documents. The Company shall cause the Transfer Agent to deliver evidence of book-entry registration or stock certificates, as applicable, to each Purchaser within five (5) business days following the Funding Date.
(d) Conditions to Fund Release. Funds shall be released from escrow on the Funding Date only upon written confirmation delivered jointly by the Company and the Purchasers (or their respective counsel) to the Escrow Agent that (i) the Restated Certificate has been filed with and accepted by the Secretary of State of the State of Delaware, as evidenced by a file-stamped copy thereof, and (ii) all conditions to closing set forth in Article 5 of this Agreement have been satisfied or waived in accordance with the terms hereof. In the event that such conditions are not satisfied or waived by the Funding Date, the Escrow Agent shall hold the escrowed funds pending further joint written instructions from the Company and the Purchasers (or their respective counsel), provided that if such conditions are not satisfied within thirty (30) days following the Closing Date, the Escrow Agent shall return all escrowed funds to the respective Purchasers, without interest but less any escrow fees due, and this Agreement shall terminate.
Section 1.3 — Use of Proceeds.
The Company shall use the proceeds from the sale of the Shares for general corporate purposes, including working capital, product development, and expansion of the Company's cloud-based payments-orchestration and treasury-management platform. Without limiting the generality of the foregoing, the Company intends to allocate the net proceeds (after deduction of the placement agent fee, investors' counsel reimbursement, and other transaction costs) substantially as follows: approximately forty percent (40%) for engineering and product development initiatives related to the Company's SaaS platform; approximately thirty percent (30%) for sales, marketing, and go-to-market expansion; approximately twenty percent (20%) for general working capital and operational purposes; and approximately ten percent (10%) for strategic initiatives and potential acquisitions. The foregoing allocation is indicative and non-binding, and the Company retains full discretion to deploy the proceeds as its Board of Directors determines to be in the best interests of the Company and its stockholders.
ARTICLE 2 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company to the Purchasers concurrently herewith (the "Disclosure Schedule"), which Disclosure Schedule shall be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedule, the Company hereby represents and warrants to each Purchaser as follows, as of the Closing Date:
Section 2.1 — Organization, Good Standing, and Qualification.
The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with Employer Identification Number 84-3291057. The Company was incorporated on March 14, 2018 under the laws of the State of Delaware, and its principal executive offices are located at 1600 Market Street, Suite 2200, Wilmington, DE 19801. The Company has all requisite corporate power and authority to own and operate its properties and assets, to carry on its business as presently conducted, and to execute, deliver, and perform its obligations under this Agreement and the other Transaction Documents. The Company's business as presently conducted consists primarily of the development, operation, marketing, and sale of a cloud-based payments-orchestration and treasury-management software-as-a-service (SaaS) platform designed to serve mid-market enterprises. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases, or operates requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect. A list of the jurisdictions in which the Company is qualified to transact business has been provided to the Purchasers in the Disclosure Schedule.
Section 2.2 — Capitalization.
(a) Authorized Capital Stock. The authorized capital stock of the Company, immediately prior to the Closing, consists of:
(i) 30,000,000 shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of which 12,400,000 shares are issued and outstanding as of the date hereof; and
(ii) 8,000,000 shares of Preferred Stock, par value $0.0001 per share (the "Preferred Stock"), consisting of (A) 3,000,000 shares designated as Series Seed Preferred Stock, all of which are issued and outstanding, and (B) 5,000,000 shares designated as Series A Preferred Stock, all of which are issued and outstanding.
(b) Post-Closing Capital Stock. Immediately following the Closing and the filing of the Restated Certificate with the Secretary of State of the State of Delaware, the authorized capital stock of the Company will consist of:
(i) 30,000,000 shares of Common Stock, par value $0.0001 per share; and
(ii) 15,500,000 shares of Preferred Stock, par value $0.0001 per share, consisting of (A) 3,000,000 shares designated as Series Seed Preferred Stock, all of which shall be issued and outstanding, (B) 5,000,000 shares designated as Series A Preferred Stock, all of which shall be issued and outstanding, and (C) 7,500,000 shares designated as Series B Preferred Stock, all of which shall be issued and outstanding upon consummation of the transactions contemplated hereby.
(c) Option Pool. Under the Company's 2018 Equity Incentive Plan (the "Plan"), as of the date hereof, 2,100,000 options to purchase shares of Common Stock are outstanding at a weighted-average exercise price of $1.15 per share, and 900,000 shares of Common Stock remain available for future grant under the Plan. At or prior to the Closing, the Company shall have increased the share reserve under the Plan by 1,635,000 shares, for a total plan reserve of 4,635,000 shares (representing 15% of 30,900,000 post-closing fully diluted shares), with 2,535,000 shares of Common Stock available for future grant under the Plan after accounting for the 2,100,000 options currently outstanding. The terms and conditions of all outstanding options granted under the Plan, including the vesting schedules, exercise prices, and expiration dates thereof, are as set forth in the Disclosure Schedule.
(d) Fully Diluted Shares. The pre-money fully diluted share count of the Company is 23,400,000 shares, consisting of:
(i) 12,400,000 shares of Common Stock outstanding;
(ii) 3,000,000 shares of Series Seed Preferred Stock outstanding (on an as-converted to Common Stock basis);
(iii) 5,000,000 shares of Series A Preferred Stock outstanding (on an as-converted to Common Stock basis); and
(iv) 3,000,000 shares reserved under the Plan (consisting of 2,100,000 options outstanding and 900,000 shares available for future grant).
The post-money fully diluted share count, after giving effect to the transactions contemplated by this Agreement and the increase in the Plan share reserve, will be 30,900,000 shares. On a pre-money basis, the implied pre-money valuation of the Company is $140,400,000 (23,400,000 pre-money fully diluted shares multiplied by $6.00 per share). The implied post-money valuation is $185,400,000 (30,900,000 post-money fully diluted shares multiplied by $6.00 per share).
(e) Holders. The outstanding shares of Common Stock are held by the following persons and entities:
(i) Naveen Raghavan — 4,200,000 shares;
(ii) Claire Whitmore — 3,800,000 shares;
(iii) David Okonkwo — 600,000 shares, subject to a four-year vesting schedule with twenty-five percent (25%) cliff vesting on the first anniversary of Mr. Okonkwo's employment commencement date, with the remaining seventy-five percent (75%) vesting monthly in equal installments over the subsequent thirty-six (36) months; and
(iv) Other employees, advisors, and early holders — an aggregate of 3,800,000 shares (as further detailed in the Disclosure Schedule).
The outstanding shares of Series Seed Preferred Stock are held by Harborview Seed Investors LLC (3,000,000 shares). The outstanding shares of Series A Preferred Stock are held by Ridgeline Capital Partners, LLC (3,750,000 shares) and other Series A holders (1,250,000 shares in the aggregate, as further detailed in the Disclosure Schedule).
(f) Transfer Agent. The Company's transfer agent and registrar is Ledgermark Transfer Services, Inc., located at 250 Royall Street, Canton, MA 02021. The Company has provided the Purchasers with true and complete copies of the Company's transfer agent agreement with Ledgermark Transfer Services, Inc.
(g) Validity of Outstanding Stock. All outstanding shares of capital stock of the Company have been duly authorized, validly issued, fully paid, and are non-assessable, and were issued in compliance with all applicable federal and state securities laws. None of the outstanding shares of capital stock were issued in violation of any preemptive rights or similar rights of any person.
(h) No Other Rights. Except as set forth in the Disclosure Schedule (Section 2.2), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights), proxy or stockholder agreements, or agreements, arrangements, or commitments of any character for the purchase or acquisition from the Company of any shares of its capital stock or securities convertible into, exchangeable for, or evidencing the right to subscribe for any shares of such capital stock, other than (i) the options granted under the Plan as described in Section 2.2(c) above, (ii) the conversion privileges of the Series Seed Preferred Stock, the Series A Preferred Stock, and the Series B Preferred Stock, (iii) the rights provided in the Investors' Rights Agreement, and (iv) the rights provided in the ROFR Agreement. The Company is not a party to or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between or among any persons, that affects or relates to the voting or giving of written consents with respect to any security of the Company, other than the Voting Agreement.
Section 2.3 — Subsidiaries.
The Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, limited liability company, association, joint venture, or other business entity, except as set forth in Section 2.3 of the Disclosure Schedule. The Company is not a participant in any joint venture, partnership, or similar arrangement with any other person or entity. There are no outstanding contractual obligations of the Company to provide funds to, or make any investment (in the form of a loan, capital contribution, or otherwise) in, any other person or entity.
Section 2.4 — Authorization.
All corporate action necessary for the authorization, execution, and delivery of this Agreement and each of the other Transaction Documents to which the Company is a party, and the performance of all obligations of the Company hereunder and thereunder, including the authorization and reservation for issuance of the Shares and the Common Stock issuable upon conversion thereof, has been taken or will be taken prior to the Closing. This Agreement and each of the other Transaction Documents, when executed and delivered by the Company, shall constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its respective terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) the effect of rules of law governing the availability of equitable remedies, including specific performance and injunctive relief (collectively, the "Enforceability Exceptions"). The execution, delivery, and performance by the Company of this Agreement and the other Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, do not and will not (A) violate or conflict with, or result in a breach of, any provision of the Company's Certificate of Incorporation or Bylaws, each as currently in effect, (B) violate, conflict with, result in a breach of, or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under any material contract or agreement to which the Company is a party, or (C) result in the creation of any lien, charge, or encumbrance upon any of the properties or assets of the Company.
Section 2.5 — Valid Issuance of Shares.
The Shares, when issued, sold, and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be duly authorized, validly issued, fully paid, and non-assessable, free and clear of all liens, encumbrances, and restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement, the Right of First Refusal and Co-Sale Agreement, applicable state and federal securities laws, and liens or encumbrances created by or imposed by acts of the Purchasers. The Common Stock issuable upon conversion of the Shares has been duly reserved for issuance and, when issued in compliance with the provisions of the Restated Certificate and applicable law, will be duly authorized, validly issued, fully paid, and non-assessable. The Company has reserved from its duly authorized capital stock a sufficient number of shares of Common Stock to effect conversion of all of the Shares. Assuming the accuracy of the representations of the Purchasers in Article 3 of this Agreement, the Shares will be issued in compliance with all applicable federal and state securities laws.
Section 2.6 — Governmental Consents and Filings.
No consent, approval, order, or authorization of, or registration, qualification, designation, declaration, or filing with, any federal, state, or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for (a) the filing of the Restated Certificate with the Secretary of State of the State of Delaware, (b) filings required under applicable state securities or "blue sky" laws, which filings will be effected within fifteen (15) days of the sale of the Shares, and (c) any filings required under applicable federal securities laws, including any Form D filings required under Regulation D of the Securities Act and any filings required under the Securities Exchange Act of 1934, as amended. The Company has not engaged in any activity that would require registration under the Investment Company Act of 1940, as amended.
Section 2.7 — Litigation.
Except as set forth in Section 2.7 of the Disclosure Schedule, there is no action, suit, proceeding, claim, arbitration, or investigation (collectively, "Proceedings") pending or, to the Company's knowledge, currently threatened in writing against the Company or any of its officers or directors (in their capacities as such) that (a) questions the validity of this Agreement or any of the other Transaction Documents, or the right of the Company to enter into such agreements or to consummate the transactions contemplated hereby or thereby, or (b) might result, individually or in the aggregate, in a Material Adverse Effect or any change in the current equity ownership of the Company. The Company is not a party or subject to, and none of its assets is bound by, the provisions of any order, writ, injunction, judgment, or decree of any court or governmental agency or instrumentality. There is no Proceeding by the Company pending or that the Company intends to initiate. The foregoing includes, without limitation, Proceedings pending or threatened in writing involving the prior employment of any of the Company's employees, their services provided in connection with the Company's business, any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.
Section 2.8 — Intellectual Property.
The Company owns or possesses sufficient legal rights to all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright registrations, trade secrets, licenses, domain names, mask works, information, and proprietary rights and processes, and other intellectual property rights (collectively, "Intellectual Property") necessary for its business as presently conducted and as presently proposed to be conducted, without any known conflict with, or infringement of, the rights of others, except as set forth in Section 2.8 of the Disclosure Schedule. The Company has not received any written communication alleging that the Company has violated, or by conducting its business, would violate, any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, mask works, or other proprietary rights or processes of any other person or entity. A list of the Company's registered intellectual Property, including patents, patent applications, trademark registrations, trademark applications, copyright registrations, and domain name registrations, is set forth in Section 2.8 of the Disclosure Schedule. The Company has taken reasonable steps to protect and preserve the confidentiality of all trade secrets and other confidential information included in the Company's intellectual Property. Each employee, consultant, and contractor of the Company who has had access to material confidential information or trade secrets of the Company has executed a proprietary information and inventions assignment agreement in a form substantially similar to the form provided to the Purchasers, and no current or former employee, consultant, or contractor has, to the Company's knowledge, breached any such agreement.
Section 2.9 — Compliance with Other Instruments.
The Company is not in violation or default of (i) any provision of its Certificate of Incorporation or Bylaws, each as currently in effect, (ii) any judgment, order, writ, or decree of any court or governmental entity applicable to the Company, or (iii) any provision of any material agreement, contract, or instrument to which it is a party or by which it or any of its properties or assets are bound, except, in the case of clause (iii), as set forth in Section 2.9 of the Disclosure Schedule and except where such violation or default would not have a Material Adverse Effect. The execution, delivery, and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, will not result in any such violation or default or be in conflict with, or constitute, with or without the passage of time and giving of notice, a default under any such provision, judgment, order, writ, decree, agreement, contract, or instrument, or result in the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets of the Company, except as would not, individually or in the aggregate, have a Material Adverse Effect.
Section 2.10 — Agreements; Actions.
Except for the Transaction Documents, there are no material agreements, understandings, instruments, contracts, or proposed transactions to which the Company is a party or by which it is bound that involve (a) obligations of, or payments to, the Company in excess of $250,000 individually in any twelve-month period, (b) the license of any patent, copyright, trademark, trade secret, or other proprietary right to or from the Company (other than licenses in the ordinary course of business for off-the-shelf software), (c) the grant of rights to manufacture, produce, assemble, license, market, or sell the Company's products to any other person, (d) indemnification by the Company with respect to infringements of proprietary rights, or (e) provisions restricting the development, manufacture, or distribution of the Company's products or services, except in each case as set forth in Section 2.10 of the Disclosure Schedule. The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000 or in the aggregate in excess of $250,000, (iii) made any loans or advances to any person, other than ordinary advances for travel and business expenses, or (iv) sold, exchanged, or otherwise disposed of any of its assets or rights, other than the sale of its products and services in the ordinary course of business.
Section 2.11 — Related-Party Transactions.
No employee, officer, director, or stockholder of the Company (or any member of his or her immediate family), or any entity in which any such person owns a beneficial interest (other than publicly traded securities constituting less than one percent (1%) of the outstanding shares of such entity), is indebted to the Company or has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except as set forth in Section 2.11 of the Disclosure Schedule. No employee, officer, director, or stockholder of the Company (or any member of his or her immediate family) is, directly or indirectly, interested in any material contract with the Company, except as set forth in Section 2.11 of the Disclosure Schedule. The Company is not guarantor or indemnitor of any indebtedness of any other person, firm, or corporation.
Section 2.12 — Financial Statements.
The Company has delivered to the Purchasers (a) the Company's audited balance sheet as of December 31, 2021, and the related audited statements of income, stockholders' equity, and cash flows for the fiscal year then ended (collectively, the "Audited Financial Statements"), together with the report thereon of Whitfield & Hesse CPAs LLP, the Company's independent registered public accounting firm, and (b) the Company's unaudited balance sheet as of March 31, 2022, and the related unaudited statements of income and cash flows for the three-month period then ended (collectively, the "Interim Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, except that the Interim Financial Statements may not contain all footnotes required by GAAP and are subject to normal year-end audit adjustments, which are not expected to be material. The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. The Company's auditors are Whitfield & Hesse CPAs LLP, located at 300 Delaware Avenue, Suite 900, Wilmington, DE 19801. The Company's last twelve months annualized recurring revenue ("ARR") as of March 31, 2022 was $18,600,000. Since December 31, 2021, the Company has not incurred any liabilities or obligations of any nature (whether accrued, absolute, contingent, or otherwise) outside the ordinary course of business that, individually or in the aggregate, would have a Material Adverse Effect.
Section 2.13 — Changes.
Since March 31, 2022, there has been no Material Adverse Effect and no event, circumstance, or condition has occurred that would reasonably be expected to result in a Material Adverse Effect. Without limiting the generality of the foregoing, since March 31, 2022, the Company has not (a) sold, assigned, transferred, or otherwise disposed of any of its material assets, or canceled any material debts or claims, except in the ordinary course of business, (b) suffered any substantial losses or waived any rights of substantial value, (c) made any material change to its accounting methods, principles, or practices, (d) declared, set aside, or paid any dividend or distribution with respect to any shares of capital stock, or redeemed, purchased, or otherwise acquired any of its capital stock, (e) entered into any transaction with any director, officer, or affiliate other than at arm's length and in the ordinary course of business, (f) materially increased the compensation of any officer or key employee other than in the ordinary course of business consistent with past practices, or (g) experienced any material damage, destruction, or loss (whether or not covered by insurance) of any material property or asset.
Section 2.14 — Tax Matters.
The Company has filed all federal, state, county, and local income and franchise tax returns required to be filed by it through the date hereof and has paid all taxes shown to be due and payable on such returns, except as set forth in Section 2.14 of the Disclosure Schedule. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction. The Company has withheld and paid to the appropriate governmental authority, or is holding for payment to such authority, all taxes required by law to be withheld from amounts paid or owing to any employee, creditor, independent contractor, or other third party. No examination of any tax return of the Company is currently in progress, and the Company has not been notified of any request for such an examination. No tax liens have been filed against the Company, and the Company is not subject to any tax sharing agreement or arrangement with any other party.
Section 2.15 — Employee Matters.
The Company is in compliance in all material respects with all applicable laws relating to labor, employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, and occupational safety and health, except where the failure to be in compliance would not have a Material Adverse Effect. The Company is not a party to or bound by any collective bargaining agreement, and no petition has been filed or proceedings instituted by an employee or group of employees with any labor relations board seeking recognition of a bargaining representative. There are no pending or, to the Company's knowledge, threatened in writing complaints, charges, or claims against the Company filed with any governmental agency or court based upon the employment or termination of employment by the Company of any individual. The 2018 Equity Incentive Plan has been duly adopted by the Board of Directors of the Company and approved by the Company's stockholders, and all grants of options under the Plan have been duly authorized and made in compliance with the terms of the Plan. Detailed information regarding the Plan, outstanding grants, and employee benefit plans maintained by the Company is set forth in Section 2.15 of the Disclosure Schedule.
Section 2.16 — Insurance.
The Company maintains insurance policies with reputable insurance companies covering its properties, operations, personnel, and financial risks in amounts and on terms customary for companies of similar size, stage of development, and industry sector as the Company. A true and complete schedule of all insurance policies maintained by the Company, including policy types, carriers, coverage amounts, and expiration dates, is set forth in Section 2.16 of the Disclosure Schedule. Upon the Closing, the Company shall have obtained and shall maintain directors' and officers' liability insurance in the amounts and on the terms set forth in Section 5.1(h) hereof. All insurance policies maintained by the Company are in full force and effect, all premiums due and payable thereon as of the date hereof have been duly paid, and the Company is in compliance in all material respects with the terms thereof.
Section 2.17 — Environmental and Safety Laws.
The Company is not in violation of any applicable statute, law, ordinance, rule, regulation, order, or requirement relating to the environment or occupational health and safety, and to the Company's knowledge, no material expenditure is required in order to comply with any such statute, law, ordinance, rule, regulation, order, or requirement. The Company has not received any written communication from any governmental authority or any other person asserting that the Company is in violation of any such environmental or health and safety statute, law, or regulation.
Section 2.18 — Disclosure.
The Company has made available to the Purchasers all information reasonably available to the Company that the Purchasers have requested for deciding whether to acquire the Shares, including certain projections, budgets, and business plans (collectively, the "Projections"), which Projections were prepared in good faith; provided, however, that the Company makes no representation or warranty with respect to any Projections and the Purchasers acknowledge that there is no assurance that any Projections will be achieved. No representation or warranty of the Company contained in this Agreement, and no statement in the Disclosure Schedule or any certificate furnished or to be furnished by or on behalf of the Company to the Purchasers pursuant to this Agreement, 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 not misleading in light of the circumstances under which they were made.
Section 2.19 — ERISA Compliance.
The Company has not maintained or contributed to, and does not maintain or contribute to, any employee benefit plan that is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). Each employee benefit plan maintained by the Company that is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter from the Internal Revenue Service, or the Company has adopted a pre-approved plan for which such a letter has been obtained by the plan's sponsor, and, to the Company's knowledge, nothing has occurred that would reasonably be expected to adversely affect the qualified status of any such plan. The Company has not engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to any employee benefit plan.
Section 2.20 — Real Property.
The Company does not own any real property. The Company leases its headquarters premises at 1600 Market Street, Suite 2200, Wilmington, DE 19801, pursuant to a lease agreement that is in full force and effect, and the Company is not in default (nor has any event occurred which with notice or lapse of time or both would constitute a default) under such lease. The Company enjoys peaceful and undisturbed possession of the premises subject to such lease. A true and complete copy of such lease has been delivered to the Purchasers.
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company, severally and not jointly, as of the Closing Date, as follows:
Section 3.1 — Authorization.
The Purchaser has full power and authority to enter into this Agreement and each of the other Transaction Documents to which it is or will be a party. This Agreement and each such other Transaction Document, when executed and delivered by the Purchaser, will constitute the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as limited by the Enforceability Exceptions. If the Purchaser is a corporation, partnership, limited liability company, trust, or other entity, the execution, delivery, and performance of this Agreement and the other Transaction Documents by or on behalf of the Purchaser have been duly authorized by all necessary corporate, partnership, limited liability company, or trust action, as applicable. The person signing this Agreement on behalf of the Purchaser has been duly authorized to execute this Agreement.
Section 3.2 — Purchase Entirely for Own Account.
The Shares to be purchased by the Purchaser hereunder will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"), and the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act. The Purchaser does not presently have any contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any of the Shares. If the Purchaser is a partnership, limited liability company, or other entity, it was not formed for the specific purpose of acquiring the Shares.
Section 3.3 — Disclosure of Information.
The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs, and the terms and conditions of the offering of the Shares with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser has had the opportunity to ask questions of, and receive answers from, the Company's officers and directors concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares, and the Company has made available to the Purchaser all documents, records, and other information that the Purchaser has requested. The foregoing, however, does not limit or modify the representations and warranties of the Company contained in Article 2 of this Agreement or the right of the Purchaser to rely thereon.
Section 3.4 — Restricted Securities.
The Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Shares, or the Common Stock into which they may be converted, for resale, except as set forth in the Investors' Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements, including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company that are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
Section 3.5 — Accredited Investor.
The Purchaser is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, as presently in effect. The Purchaser is financially sophisticated, is able to fend for itself in the transactions contemplated by this Agreement, and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Shares.
Section 3.6 — No General Solicitation.
Neither the Purchaser, nor any of its officers, directors, employees, agents, stockholders, or partners has either directly or indirectly, including through a broker or finder, been offered or sold the Shares by any form of general solicitation or general advertising, including but not limited to (a) any advertisement, article, notice, or other communication published in any newspaper, magazine, internet website, or similar media, or broadcast over television, radio, or the internet, or (b) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
Section 3.7 — Residence.
If the Purchaser is an individual, the Purchaser's principal place of residence is in the state identified in the address of such Purchaser set forth on Schedule A hereto. If the Purchaser is an entity, the Purchaser's principal place of business is in the state identified in the address of such Purchaser set forth on Schedule A hereto. The principal offices of the Purchasers are as follows:
Granite Peak Ventures, LP — 350 Sand Hill Road, Suite 180, Menlo Park, CA 94025
Ridgeline Capital Partners, LLC — 200 Clarendon Street, 40th Floor, Boston, MA 02116
Solstice Growth Fund I, LP — 600 Travis Street, Suite 3100, Houston, TX 77002
Section 3.8 — Exculpation Among Purchasers.
Each Purchaser acknowledges that it is not relying upon any other Purchaser, or any officer, director, employee, agent, partner, or affiliate of any other Purchaser, in making its investment or decision to invest in the Company. Each Purchaser agrees that no other Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any other Purchaser shall be liable to such Purchaser for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Shares.
ARTICLE 4 — COVENANTS OF THE COMPANY
Section 4.1 — Filing of Restated Certificate.
The Company shall file the Restated Certificate with the Secretary of State of the State of Delaware on or prior to the Funding Date. The Company shall provide each Purchaser (or its counsel) with evidence of the filing and acceptance of the Restated Certificate by the Secretary of State of the State of Delaware promptly upon receipt thereof. The Restated Certificate, when filed, shall set forth the designation, rights, preferences, privileges, and restrictions of the Series B Preferred Stock as agreed upon by the Company and the Purchasers.
Section 4.2 — Option Pool Increase.
Simultaneously with the Closing, the Company's Board of Directors shall have approved, and the Company shall have effectuated, an increase of 1,635,000 shares of Common Stock reserved for issuance under the 2018 Equity Incentive Plan, bringing the total plan reserve to 4,635,000 shares, representing fifteen percent (15%) of 30,900,000 post-closing fully diluted shares. After accounting for the 2,100,000 options currently outstanding under the Plan, 2,535,000 shares of Common Stock shall be available for future grant under the Plan immediately following the Closing. The Company acknowledges and agrees that the increase in the option pool was reflected in the pre-money valuation and fully diluted share count used to determine the Purchase Price, and that the Purchasers relied upon the availability of the increased option pool in agreeing to the Purchase Price.
Section 4.3 — Board of Directors.
Effective as of the Closing, the Board of Directors of the Company shall be reconstituted in accordance with the provisions of the Voting Agreement such that the Board shall consist of the following five (5) members:
(1) Naveen Raghavan — designee of the holders of Common Stock;
(2) Claire Whitmore — designee of the holders of Common Stock;
(3) Thomas Brennan — designee of the holders of Series A Preferred Stock, nominated by Ridgeline Capital Partners, LLC;
(4) Priya Deshmukh — designee of the holders of Series B Preferred Stock, nominated by Granite Peak Ventures, LP; and
(5) An independent director to be mutually agreed upon by the holders of Common Stock and the holders of a majority of the Preferred Stock within ninety (90) days of the Closing (i.e., by October 27, 2022). Until such independent director is appointed, the Board shall consist of the four (4) members identified in clauses (1) through (4) above.
The Company shall use commercially reasonable efforts to identify and appoint the independent director within the time period set forth above. The composition of the Board shall at all times comply with the provisions of the Voting Agreement.
Section 4.4 — D&O Insurance.
The Company shall obtain and maintain, commencing no later than the Closing Date and continuing for so long as any Preferred Stock remains outstanding, directors' and officers' liability insurance from Ironclad Specialty Insurance Co. (or another nationally recognized insurance carrier reasonably acceptable to the Purchasers holding a majority of the then-outstanding Shares) with coverage limits of not less than $5,000,000 per occurrence and $10,000,000 in the aggregate, with six (6) years of tail coverage, and at an annual premium not to exceed $38,500 per year (subject to customary premium adjustments upon renewal). Such policy shall be in form and substance reasonably satisfactory to the Purchasers and shall name the Company's directors and officers as insureds. The Company shall provide copies of such insurance policy to any Purchaser upon request.
Section 4.5 — Fees and Expenses.
(a) Investors' Counsel Fees. The Company shall pay or reimburse the reasonable and documented fees and expenses of Fenwick, Pratt & Howell LLP, counsel to Granite Peak Ventures, LP, the lead investor, incurred in connection with the negotiation, drafting, and closing of the transactions contemplated by this Agreement and the other Transaction Documents, in an amount not to exceed $75,000, plus reasonable out-of-pocket disbursements, at or promptly after the Closing. Payment shall be made by the Company directly to Fenwick, Pratt & Howell LLP upon receipt of an invoice therefor, and may be deducted from the proceeds otherwise payable to the Company at the Closing.
(b) Placement Agent Fee. The Company shall pay to Compass Bridge Advisory Group LLC, as the Company's exclusive placement agent in connection with the offering and sale of the Shares, a fee of $900,000, which amount equals two percent (2.0%) of the aggregate gross proceeds of $45,000,000 raised in the offering, at the Closing from the proceeds of the offering. The Company represents and warrants that it has entered into an engagement letter with Compass Bridge Advisory Group LLC and that the fee described in this Section 4.5(b) represents the entirety of the compensation payable to Compass Bridge Advisory Group LLC in connection with the transactions contemplated hereby.
(c) Company's Counsel Fees. The Company shall be solely responsible for the fees and expenses of its own counsel, Calderwood & Harkness LLP, incurred in connection with the transactions contemplated by this Agreement and the other Transaction Documents.
Section 4.6 — Qualified Small Business Stock (QSBS).
The Company shall use commercially reasonable efforts to ensure that the Shares qualify as "qualified small business stock" as defined in Section 1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"). Without limiting the generality of the foregoing, the Company shall (a) use commercially reasonable efforts to ensure that at least eighty percent (80%) of the value of the assets of the Company is used in the active conduct of one or more qualified trades or businesses (as defined in Section 1202(e) of the Code), (b) upon request of any Purchaser, promptly provide to such Purchaser a written statement that the Shares were issued by the Company and were original issue stock (within the meaning of Section 1202(c) of the Code) on the date of issuance, and (c) comply with any applicable reporting obligations under the Code and the Treasury Regulations with respect to the Shares.
ARTICLE 5 — CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT CLOSING
Section 5.1 — Conditions to Obligations of the Purchasers.
The obligations of each Purchaser to purchase the Shares at the Closing are subject to the fulfillment, on or before the Closing Date (or, where applicable, the Funding Date), of each of the following conditions, unless waived in writing by the Purchasers holding a majority of the Shares to be purchased hereunder:
(a) Representations and Warranties. The representations and warranties of the Company contained in Article 2 of this Agreement shall be true and correct in all material respects as of the Closing Date (except for representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects, and except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such date).
(b) Performance. The Company shall have performed and complied in all material respects with all covenants, agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by the Company on or before the Closing Date or the Funding Date, as applicable.
(c) Restated Certificate. The Restated Certificate, in the form attached hereto as Exhibit A, shall have been duly authorized by the Company's Board of Directors and stockholders, and shall have been filed with and accepted by the Secretary of State of the State of Delaware on or prior to the Funding Date. The Company shall deliver to the Purchasers a file-stamped copy of the Restated Certificate as evidence of such filing and acceptance.
(d) Transaction Documents. The Company and each applicable party shall have duly executed and delivered the following documents (collectively, the "Transaction Documents"):
(i) This Agreement (the "Stock Purchase Agreement" or "SPA");
(ii) The Amended and Restated Investors' Rights Agreement, dated as of the Closing Date, by and among the Company, the Purchasers, and the other investors party thereto (the "Investors' Rights Agreement"), in the form attached hereto as Exhibit B;
(iii) The Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of the Closing Date, by and among the Company, the Key Holders (as defined herein), and the Investors party thereto (the "ROFR Agreement"), in the form attached hereto as Exhibit C;
(iv) The Amended and Restated Voting Agreement, dated as of the Closing Date, by and among the Company, the Key Holders, and the Investors party thereto (the "Voting Agreement"), in the form attached hereto as Exhibit D; and
(v) The Management Rights Letter from the Company to Granite Peak Ventures, LP, in the form attached hereto as Exhibit E (the "Management Rights Letter").
(e) Legal Opinion. The Purchasers shall have received from Calderwood & Harkness LLP, counsel to the Company, a legal opinion letter dated as of the Closing Date, in form and substance reasonably satisfactory to the Purchasers and their counsel, Fenwick, Pratt & Howell LLP, addressing (A) the due incorporation and good standing of the Company under the laws of the State of Delaware, (B) the due authorization by the Company of the execution, delivery, and performance of this Agreement and each of the other Transaction Documents, (C) the valid issuance of the Shares (fully paid and non-assessable), (D) no conflicts with the Company's organizational documents or applicable law, and (E) such other matters as are customarily opined upon in transactions of this nature and as may be reasonably requested by the Purchasers and their counsel. Such opinion shall be signed by Miriam Calloway, Partner, Calderwood & Harkness LLP.
(f) Officer's Certificate. The Company shall have delivered to the Purchasers an Officer's Certificate, executed by David Okonkwo, Chief Financial Officer of the Company, dated as of the Closing Date, certifying (i) the truth and correctness in all material respects of the Company's representations and warranties contained in Article 2 as of the Closing Date, (ii) the satisfaction or waiver of all conditions to the Closing set forth in this Section 5.1, and (iii) that no Material Adverse Effect has occurred since March 31, 2022.
(g) Secretary's Certificate. The Company shall have delivered to the Purchasers a Secretary's Certificate, executed by Claire Whitmore, acting in her capacity as Secretary of the Company, dated as of the Closing Date, attaching and certifying as true and complete the following: (i) the Restated Certificate, as filed with the Secretary of State of the State of Delaware (or, if not yet filed as of the Closing Date, the form thereof duly adopted by the Company's Board of Directors and stockholders), (ii) the Company's Bylaws, as amended and restated and in effect as of the Closing Date, (iii) the resolutions of the Board of Directors of the Company (adopted by unanimous written consent dated July 18, 2022) authorizing the execution, delivery, and performance of this Agreement and the other Transaction Documents, the issuance and sale of the Shares, the filing of the Restated Certificate, the increase in the option pool under the Plan, the reconstitution of the Board, and the consummation of all other transactions contemplated hereby, and (iv) the incumbency and specimen signatures of all officers authorized to execute this Agreement and the other Transaction Documents on behalf of the Company. The Secretary's Certificate shall also attach a Certificate of Good Standing for the Company issued by the Secretary of State of the State of Delaware, dated within five (5) business days of the Closing Date.
(h) D&O Insurance. The Company shall have obtained directors' and officers' liability insurance from Ironclad Specialty Insurance Co. (or another nationally recognized insurance carrier reasonably acceptable to the Purchasers) with coverage limits of not less than $5,000,000 per occurrence and $10,000,000 in the aggregate, with tail coverage of six (6) years, at an annual premium of $38,500 per year, in form and substance reasonably satisfactory to the Purchasers. The Company shall deliver to the Purchasers a certificate of insurance or binder evidencing such coverage on or before the Closing Date.
(i) Escrow Agreement. The Company and the Purchasers shall have entered into an Escrow Agreement with Pinnacle National Bank, N.A. (the "Escrow Agent"), with respect to the deposit, maintenance, and release of the aggregate purchase price funds, in form and substance reasonably satisfactory to the parties (the "Escrow Agreement"). The Escrow Agent's designated contact for purposes of the Escrow Agreement shall be Richard Halloran, Vice President, Escrow Services, Pinnacle National Bank, N.A., 100 Federal Street, Boston, MA 02110.
(j) Board Reconstitution. The Board of Directors of the Company shall have been reconstituted in the manner set forth in Section 4.3 hereof, effective as of the Closing, and the Company shall have delivered evidence thereof to the Purchasers.
(k) Option Pool Increase. The Board of Directors of the Company shall have approved the increase in the share reserve under the 2018 Equity Incentive Plan as set forth in Section 4.2 hereof, and the Company shall have delivered evidence of such Board approval (by unanimous written consent or duly convened meeting) to the Purchasers.
(l) Compliance Certificate. The Company shall have delivered to the Purchasers a compliance certificate, executed by the Chief Executive Officer or the Chief Financial Officer of the Company, dated as of the Closing Date, confirming the Company's compliance with all conditions set forth in this Section 5.1 and certifying that no default or event of default has occurred under any material agreement to which the Company is a party.
(m) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing, and all documents incident thereto, shall be reasonably satisfactory in form and substance to the Purchasers and their counsel, Fenwick, Pratt & Howell LLP, and the Purchasers and their counsel shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.
Section 5.2 — Conditions to Obligations of the Company.
The obligations of the Company to issue and sell the Shares at the Closing are subject to the fulfillment, on or before the Closing Date, of each of the following conditions, unless waived in writing by the Company:
(a) Representations and Warranties. The representations and warranties of each Purchaser contained in Article 3 of this Agreement shall be true and correct in all material respects as of the Closing Date.
(b) Performance. Each Purchaser shall have performed and complied in all material respects with all covenants, agreements, and conditions contained in this Agreement that are required to be performed or complied with by such Purchaser on or before the Closing Date.
(c) Payment of Purchase Price. Each Purchaser shall have delivered to the Escrow Agent, by wire transfer of immediately available funds, the full aggregate purchase price for the Shares to be purchased by such Purchaser as set forth on Schedule A hereto.
(d) Transaction Documents. Each Purchaser shall have duly executed and delivered the Investors' Rights Agreement, the ROFR Agreement, and the Voting Agreement, each in the form attached as an exhibit hereto.
(e) Qualifications. All authorizations, approvals, permits, or orders of any governmental authority that are required in connection with the lawful issuance and sale of the Shares pursuant to this Agreement shall have been duly obtained and shall be effective as of the Closing Date.
ARTICLE 6 — MISCELLANEOUS
Section 6.1 — Survival of Warranties.
The representations and warranties of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of two (2) years following the Closing Date; provided, however, that the representations and warranties set forth in Section 2.1 (Organization, Good Standing, and Qualification), Section 2.2 (Capitalization), Section 2.4 (Authorization), and Section 2.5 (Valid Issuance of Shares) shall survive the Closing indefinitely. No claim for breac