AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
Dated as of ____, 2022
among
VERDANA SOFTWARE, INC.
a Delaware corporation
PINNACLE VENTURE FUND II LP
a Delaware limited partnership
RIDGELINE VENTURES FUND III LP
a Delaware limited partnership
NORTHGATE GROWTH PARTNERS FUND II LP
a Delaware limited partnership
BRINDOVAL CAPITAL GROUP LLC
a Delaware limited liability company
and
THE KEY HOLDERS LISTED ON EXHIBIT A HERETO
Prepared by: Calderwood & Harkness LLP, 101 Montgomery Street, Suite 3500, San Francisco, CA 94104
Draft Date:
[DRAFT — FOR DISCUSSION PURPOSES ONLY]
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AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made and entered into as of ____, 2022, by and among:
(i) Verdana Software, Inc., a Delaware corporation (the "Company");
(ii) Pinnacle Venture Fund II LP, a Delaware limited partnership (the "Series D Investor");
(iii) Ridgeline Ventures Fund III LP, a Delaware limited partnership (the "Series A Investor");
(iv) Northgate Growth Partners Fund II LP, a Delaware limited partnership (the "Series B Investor");
(v) Brindoval Capital Group LLC, a Delaware limited liability company (the "Series C Investor"); and
(vi) the founders and other stockholders of the Company listed on Exhibit A attached hereto (collectively, the "Key Holders").
The Company, the Series D Investor, the Series A Investor, the Series B Investor, the Series C Investor, and the Key Holders are referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, the Company, the Series A Investor, the Series B Investor, and the Series C Investor are parties to that certain Investors' Rights Agreement dated as of ____, 2021 (the "Prior Agreement"), entered into in connection with the issuance and sale of shares of Series C Preferred Stock of the Company;
WHEREAS, the Company is entering into a Series D Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement") with the Series D Investor, pursuant to which the Series D Investor will purchase 15,000,000 shares of Series D Preferred Stock of the Company at a price per share of $4.00 for an aggregate purchase price of
WHEREAS, as a condition to the closing of the transactions contemplated by the Purchase Agreement, the Parties desire to amend and restate the Prior Agreement in its entirety to set forth the rights and obligations of the Investors and the Company following the closing of the Series D Preferred Stock financing;
WHEREAS, this Agreement amends and restates the Prior Agreement in its entirety and, upon effectiveness, shall supersede all prior investors' rights agreements among any of the Parties relating to the subject matter hereof; and
WHEREAS, the execution and delivery of this Agreement is a condition to the obligations of the Series D Investor under the Purchase Agreement, and the Parties desire to enter into this Agreement to induce the Series D Investor to consummate the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
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 specified Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such specified Person. For purposes of this definition, "control" (including the correlative 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. Without limiting the generality of the foregoing, for purposes of this Agreement, (a) any general partner, managing member, fund manager, or investment adviser of an Investor shall be deemed an Affiliate of such Investor, and (b) any fund or investment vehicle managed by the same management company or investment adviser as an Investor shall be deemed an Affiliate of such Investor.
"Board" or "Board of Directors" means the board of directors of the Company, as constituted from time to time.
"Common Stock" means the shares of common stock of the Company, par value $0.0001 per share.
"Company" means Verdana Software, Inc., a Delaware corporation (EIN 93-1485726), with its principal executive offices at 1175 NW Couch Street, Suite 800, Portland, OR 97209, and its registered agent at Cascade Systems, 1209 Orange Street, Wilmington, DE 19801.
"Damages" means any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses and costs of investigation), whether or not arising from a third-party claim.
"Deemed Liquidation Event" has the meaning ascribed to such term in the Certificate of Incorporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Existing Credit Facility" has the meaning set forth in Section 4.3.
"Form S-3" means Form S-3 promulgated under the Securities Act, or any substantially similar or successor form then in effect.
"Founder" means each of Raj Anand and Lena Kovac.
"GAAP" means United States generally accepted accounting principles, consistently applied.
"Holder" means any Investor or any permitted transferee of an Investor who holds Registrable Securities and who has agreed to be bound by the terms of this Agreement.
"Initiating Holders" means one or more Holders who hold, in the aggregate, at least of the then-outstanding Registrable Securities.
"Investors" means, collectively, the Series A Investor, the Series B Investor, the Series C Investor, and the Series D Investor, and "Investor" means any one of them, individually.
"IPO" means the Company's first underwritten public offering of shares of Common Stock pursuant to an effective registration statement under the Securities Act.
"Key Holders" means the Founders and any other stockholders of the Company listed on Exhibit A attached hereto, together with any permitted transferees thereof who agree to be bound by this Agreement.
"Major Investor" means any Investor that holds at least shares of Preferred Stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations, and similar events occurring after the date hereof), or the equivalent number of shares of Common Stock issuable upon conversion thereof. As of the date of this Agreement, each of the four Investors qualifies as a Major Investor.
"New Securities" has the meaning set forth in Section 10.1.
"Original Issue Price" means (a) with respect to the Series A Preferred Stock, $0.80 per share; (b) with respect to the Series B Preferred Stock, $2.00 per share; (c) with respect to the Series C Preferred Stock, $3.00 per share; and (d) with respect to the Series D Preferred Stock, $4.00 per in each case as adjusted from time to time in accordance with the Certificate of Incorporation.
"Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, governmental authority, or other entity.
"Preferred Stock" means, collectively, the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, and the Series D Preferred Stock.
"Prior Agreement" means the Investors' Rights Agreement dated as of ____, 2021, by and among the Company, the Series A Investor, the Series B Investor, the Series C Investor, and the Key Holders.
"Pro Rata Share" has the meaning set forth in Section 10.1.
"Purchase Agreement" means the Series D Preferred Stock Purchase Agreement dated as of ____, 2022, by and between the Company and the Series D Investor.
"Qualified Financing" has the meaning set forth in Section 8.1.
"Registrable Securities" means (a) the shares of Common Stock issuable or issued upon conversion of the Preferred Stock held by the Investors, (b) any shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Preferred Stock, and (c) any shares of Common Stock held by any permitted transferee of an Investor to whom registration rights have been transferred in accordance with Section 2.9 of this Agreement; provided, however, that shares of Common Stock shall cease to be Registrable Securities upon the earliest of (i) the effective date of a registration statement with respect to such shares and the sale of such shares pursuant thereto, (ii) the sale of such shares pursuant to Rule 144 under the Securities Act, or (iii) the date on which such shares are no longer outstanding.
"Registration Expenses" has the meaning set forth in Section 2.5.
"Requisite Holders" means the holders of at least a majority of the then-outstanding shares of Preferred Stock, voting together as a single class on an as-converted to Common Stock basis.
"SEC" means the United States Securities and Exchange Commission, or any successor agency thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Series A Investor" means Ridgeline Ventures Fund III LP, a Delaware limited partnership, having its principal office at 555 California Street, Suite 2200, San Francisco, CA 94104, together with any successors and permitted assigns thereof.
"Series A Preferred Stock" means the Series A Preferred Stock of the Company, as authorized by the Certificate of Incorporation.
"Series B Investor" means Northgate Growth Partners Fund II LP, a Delaware limited partnership, having its principal office at 399 Park Avenue, 18th Floor, New York, NY 10022, together with any successors and permitted assigns thereof.
"Series B Preferred Stock" means the Series B Preferred Stock of the Company, as authorized by the Certificate of Incorporation.
"Series C Investor" means Brindoval Capital Group LLC, a Delaware limited liability company, having its principal office at 200 Clarendon Street, 40th Floor, Boston, MA 02116, together with any successors and permitted assigns thereof.
"Series C Preferred Stock" means the Series C Preferred Stock of the Company, as authorized by the Certificate of Incorporation.
"Series D Investor" means Pinnacle Venture Fund II LP , a Delaware limited partnership, having its principal office at 2400 Sand Hill Road, Suite 310, Menlo Park, CA 94025 (general partner: Pinnacle Capital Management LLC), together with any successors and permitted assigns thereof.
"Series D Liquidation Preference" has the meaning set forth in Section 6.1.
"Series D Preferred Stock" means the Series D Preferred Stock of the Company, as authorized by the Amended and Restated Certificate of Incorporation filed in connection with the Series D financing.
"Voting Agreement" means the Amended and Restated Voting Agreement of even date herewith, by and among the Company, the Investors, and the Key Holders.
Section 1.2 Rules of Construction
Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement; (d) the terms "Article," "Section," "Exhibit," and "Schedule" refer to the specified Article, Section, Exhibit, or Schedule of or to this Agreement unless otherwise specified; (e) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified; (f) the word "or" shall not be exclusive; (g) references to agreements and other documents shall be deemed to include all subsequent amendments, restatements, extensions, supplements, and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements, and other modifications are not prohibited by the terms of this Agreement or any other Transaction Document; (h) references to statutes and regulations shall be deemed to include all statutory and regulatory provisions amending, replacing, supplementing, or interpreting such statutes or regulations; (i) all accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP; and (j) headings and captions in this Agreement are included for convenience of reference only and shall not be given any substantive effect.
ARTICLE 2 — REGISTRATION RIGHTS
Section 2.1 Demand Registration
(a) Demand Right. Subject to the conditions of this Section 2.1, at any time after the earlier of (i) the date that is five (5) years from the date of this Agreement, or (ii) the date that is one hundred eighty (180) days following the effective date of the first registration statement filed by the Company covering an underwritten initial public offering of Common Stock (the "IPO"), the Initiating Holders may request in writing that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities with an anticipated aggregate offering price (net of underwriting discounts and commissions) in excess of (each, a "Demand Registration"). Each such request shall specify the approximate number of Registrable Securities to be registered and the intended method(s) of disposition thereof.
(b) Number of Demand Registrations. The Company shall be obligated to effect no more than two (2) Demand Registrations in the aggregate under this Section 2.1. A registration shall not count as one of the permitted Demand Registrations unless and until it has been declared effective by the SEC and the Holders have been able to sell at least fifty percent (50%) of the Registrable Securities requested to be included therein; provided, however, that if the Company withdraws such registration statement at the request of the Initiating Holders, such withdrawn registration shall count as one of the permitted Demand Registrations unless the Initiating Holders reimburse the Company for all Registration Expenses incurred in connection therewith.
(c) Company Obligations. Upon receipt of a valid demand from the Initiating Holders pursuant to this Section 2.1, the Company shall use commercially reasonable efforts to (i) file a registration statement on the appropriate form under the Securities Act with the SEC within sixty (60) days after receipt of such demand, and (ii) cause such registration statement to become effective as promptly as practicable thereafter. The Company shall keep such registration statement effective until the earlier of (A) the date on which all Registrable Securities included therein have been sold, (B) the date on which the Holders may sell all of their remaining Registrable Securities under Rule 144 without volume or manner of sale limitations, or (C) one hundred twenty (120) days after the effective date of such registration statement.
(d) Deferral Rights. Notwithstanding the foregoing, the Company may defer a Demand Registration for a period not to exceed days (a "Deferral Period") if the Board of Directors determines in good faith that the filing of such registration statement would require disclosure of material non-public information that the Board has determined in good faith would be materially detrimental to the Company and its stockholders; provided, however, that (i) the Company may exercise such deferral right no more than once in any twelve (12)-month period, (ii) the Company shall promptly notify the Initiating Holders in writing of its decision to defer (without being required to disclose the nature of the material non-public information), and (iii) the Company shall file such registration statement as soon as reasonably practicable after the expiration of the Deferral Period.
(e) Underwriting. If the Initiating Holders intend for the Demand Registration to be an underwritten offering, they shall so advise the Company in their written demand, and the Company shall include such information in the written notice to all Holders. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting, and the inclusion of such Holder's Registrable Securities in the underwriting shall be limited to the extent that the managing underwriter(s) determine in good faith that marketing factors require a limitation on the number of shares to be underwritten. In the event of such cutback, the number of shares that may be included in the underwriting shall be allocated among the Holders requesting inclusion on a pro rata basis according to the number of Registrable Securities each such Holder has requested to be included. No Registrable Securities excluded from the underwriting by reason of the managing underwriter's marketing limitation shall be included in such registration.
(f) Selection of Underwriter. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten Demand Registration, subject to the approval of the Company, which approval shall not be unreasonably withheld, conditioned, or delayed.
Section 2.2 Piggyback Registration
(a) Company Notice. If at any time after the date of this Agreement the Company proposes to register any of its equity securities under the Securities Act (whether for the Company's own account or for the account of any other Person), on a form that would permit the registration of Registrable Securities, the Company shall give prompt written notice (each, a "Piggyback Notice") to all Holders of Registrable Securities of its intention to effect such a registration, which notice shall be given at least days prior to the anticipated filing date of such registration statement. Such notice shall offer each Holder the opportunity to include in such registration such number of Registrable Securities as each such Holder may request.
(b) Inclusion Right. Each Holder shall have fifteen (15) days from receipt of the Piggyback Notice to deliver a written request to the Company specifying the number of Registrable Securities that such Holder desires to include in such registration. Upon timely receipt of such request, the Company shall use commercially reasonable efforts to include in such registration all Registrable Securities so requested to be included, subject to the cutback provisions set forth in Section 2.2(c) below.
(c) Cutback Priority. In an underwritten offering, if the managing underwriter(s) advise the Company in writing that the total number of securities requested to be included in such registration exceeds the maximum number of securities that can be sold in such offering without materially and adversely affecting the price, timing, or distribution of the securities offered or the market for the securities offered, then:
(i) In a registration initiated by the Company for its own account (a "Company Registration"), the securities to be included in such registration shall be allocated in the following order of priority: (A) first, all securities the Company proposes to sell for its own account; (B) second, all Registrable Securities requested to be included by the Holders, allocated pro rata among such Holders based on the number of Registrable Securities each has requested to be included;
(ii) In a registration initiated by stockholders pursuant to a Demand Registration under Section 2.1 (a "Demand Registration"), the securities to be included in such registration shall be allocated in the following order of priority: (A) first, all Registrable Securities requested to be included by the Initiating Holders; (B) second, all Registrable Securities requested to be included by other Holders, allocated pro rata among such other Holders based on the number of Registrable Securities each has requested to be included; and (C) third, any securities the Company proposes to sell for its own account, and any securities requested to be included by other selling stockholders.
(d) Withdrawal. Any Holder may withdraw from a Piggyback Registration at any time prior to the effective date of the applicable registration statement by giving written notice to the Company.
(e) Exclusions. The piggyback registration rights granted under this Section 2.2 shall not apply to any registration by the Company (i) on Form S-4, Form S-8, or any successor or similar form relating to the issuance of securities in connection with a merger, consolidation, acquisition, exchange offer, or any employee benefit plan, equity incentive plan, or dividend reinvestment plan, or (ii) in connection with the registration of securities issuable upon exercise of outstanding warrants or conversion of outstanding securities, if such registration relates solely to a transaction under Rule 145 of the Securities Act. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration, and the Company shall have no obligation to register any Registrable Securities in connection with such terminated or withdrawn registration.
Section 2.3 Form S-3 Registration
(a) S-3 Right. At such time as the Company becomes eligible to use Form S-3 (or any successor form) for the registration of its securities under the Securities Act, any Major Investor may request in writing that the Company file a registration statement on Form S-3 covering the registration and sale of Registrable Securities having an anticipated aggregate offering price (net of underwriting discounts and commissions) of at least (an "S-3 Registration").
(b) Company Obligations. Upon receipt of a valid request under Section 2.3(a), the Company shall use commercially reasonable efforts to file a registration statement on Form S-3 as promptly as practicable and to cause such registration statement to become effective.
(c) Frequency. The Holders shall be entitled to unlimited S-3 Registrations under this Section 2.3; provided, however, that the Company shall not be required to effect more than two (2) S-3 Registrations in any twelve (12)-month period.
(d) Deferral. The Company's right of deferral set forth in Section 2.1(d) shall apply to S-3 Registrations, mutatis mutandis.
(e) Shelf Registration. If the Company is then eligible to file a shelf registration statement on Form S-3 (including pursuant to Rule 415 under the Securities Act), the Company shall use commercially reasonable efforts to file and maintain an effective shelf registration statement on Form S-3, and any Major Investor may, subject to the frequency limitation in Section 2.3(c), request a takedown of Registrable Securities from such shelf registration statement.
(f) Counting. S-3 Registrations shall not be counted as Demand Registrations for purposes of Section 2.1(b).
Section 2.4 Registration Procedures
In connection with any registration effected pursuant to this Article 2, the Company shall:
(a) prepare and file with the SEC a registration statement with respect to the Registrable Securities to be registered and use commercially reasonable efforts to cause such registration statement to become effective as soon as practicable, and prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
(b) furnish to each selling Holder, without charge, such number of copies of the registration statement and each amendment and supplement thereto (including each preliminary prospectus and final prospectus and any exhibits thereto) as such selling Holder may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities covered by such registration statement;
(c) use commercially reasonable efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as any selling Holder or the managing underwriter(s) may reasonably request, and do any and all other acts and things that may be reasonably necessary or advisable to enable such selling Holder to consummate the disposition of the Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify, (ii) subject itself to taxation in any jurisdiction where it is not then so subject, or (iii) consent to general service of process in any jurisdiction where it is not then so subject;
(d) use commercially reasonable efforts to cause the Registrable Securities covered by such registration statement to be listed on each national securities exchange or automated quotation system, if any, on which the Common Stock is then listed or quoted;
(e) enter into customary agreements (including an underwriting agreement in customary form, if applicable) and take such other actions as may be reasonably requested by the selling Holders or the managing underwriter(s), if any, to facilitate the disposition of the Registrable Securities, including participation by the Company's senior management in customary road show presentations;
(f) cooperate with the selling Holders and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates (or book-entry transfers) representing Registrable Securities to be sold, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter(s) or selling Holders may reasonably request;
(g) coordinate with the Company's transfer agent and registrar with respect to all matters relating to the issuance and registration of Registrable Securities;
(h) use commercially reasonable efforts to cause the Company's independent certified public accounting firm (currently to provide customary comfort letters to the underwriter(s) in connection with any underwritten offering;
(i) furnish, at the request of any selling Holder or underwriter, an opinion of counsel for the Company (and, if applicable, a negative assurance letter), dated as of the effective date of the registration statement (or, if the offering is underwritten, as of the closing date of the offering), addressed to the selling Holders and the underwriter(s), in customary form;
(j) promptly notify each selling Holder in writing of (i) the effectiveness of such registration statement, (ii) the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or any order by the SEC or any other regulatory authority preventing or suspending the use of any prospectus relating thereto, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction, and (iv) the existence of any material fact or circumstance that makes any statement of a material fact made in such registration statement, prospectus, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in such registration statement or prospectus in order to make the statements therein not misleading; and
(k) use commercially reasonable efforts to prevent the issuance of or obtain the withdrawal of any order suspending the effectiveness of such registration statement.
Section 2.5 Registration Expenses
All expenses incident to the Company's performance of or compliance with this Article 2 (collectively, "Registration Expenses") shall be borne by the Company, regardless of whether the registration statement becomes effective. Registration Expenses shall include, without limitation: (a) all SEC, stock exchange, and Financial Industry Regulatory Authority registration and filing fees; (b) all fees and expenses of compliance with state securities or "blue sky" laws; (c) all printing and distribution expenses; (d) all internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal or accounting duties); (e) the fees and disbursements of counsel for the Company and the fees and disbursements of the Company's independent certified public accountants; and (f) the reasonable fees and disbursements of one counsel to the selling Holders, selected by the Holders of a majority of the Registrable Securities included in such registration (such fees not to exceed $50,000 per registration). Notwithstanding the foregoing, the Company shall not be required to bear (i) any underwriting discounts or commissions attributable to the sale of Registrable Securities, or (ii) any transfer taxes incurred by individual selling Holders in connection with the sale of their Registrable Securities, all of which shall be borne by the selling Holders pro rata based on the number of Registrable Securities sold by each such Holder.
Section 2.6 Indemnification in Connection with Registration
(a) Company Indemnification of Holders. To the extent permitted by law, the Company shall indemnify and hold harmless each selling Holder, and each of its officers, directors, partners, members, managers, employees, agents, and counsel, and each Person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Holder Indemnified Party"), against any and all Damages, joint or several, to which any such Holder Indemnified Party may become subject under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld, conditioned, or delayed), insofar as such Damages (or actions in respect thereof as contemplated below) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company shall not be liable to a Holder Indemnified Party in any such case to the extent that any such Damages arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary prospectus, final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of such selling Holder specifically for use therein.
(b) Holder Indemnification of Company. To the extent permitted by law, each selling Holder shall, severally and not jointly, indemnify and hold harmless the Company, and each of its officers and directors, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Company Indemnified Party"), against any and all Damages, joint or several, to which any such Company Indemnified Party may become subject under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise, insofar as such Damages (or actions in respect thereof as contemplated below) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in such registration statement, preliminary prospectus, final prospectus, or amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of such selling Holder specifically for use therein. Notwithstanding the foregoing, the liability of each selling Holder under this Section 2.6(b) shall not exceed the net proceeds received by such selling Holder from the sale of Registrable Securities pursuant to such registration statement.
(c) Contribution. If the indemnification provided for in Sections 2.6(a) or 2.6(b) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any Damages referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. In no event shall the contribution obligation of any selling Holder be greater in amount than the dollar amount of the net proceeds received by such Holder from the sale of Registrable Securities giving rise to such contribution obligation.
(d) Procedure. Promptly after receipt by an indemnified party under this Section 2.6 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 2.6, notify the indemnifying party in writing of the commencement thereof. The failure to notify the indemnifying party shall not relieve the indemnifying party from any liability hereunder, except to the extent that it shall have been materially prejudiced by such failure. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel selected by the indemnifying party and reasonably satisfactory to the indemnified party.
Section 2.7 Rule 144 Reporting
With a view to making available to the Holders the benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable Securities to the public without registration, the Company shall use commercially reasonable efforts, upon becoming a reporting company under the Exchange Act, to:
(a) make and keep available adequate current public information with respect to the Company as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public;
(b) timely file with the SEC all reports and other documents required of the Company under the Exchange Act; and
(c) furnish to any Holder, upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as such Holder may reasonably request to avail itself of any rule or regulation of the SEC allowing it to sell any Registrable Securities without registration.
Section 2.8 Lockup Agreement
Each Holder agrees that, upon the request of the Company or the managing underwriter(s) in connection with the IPO, such Holder shall enter into a customary lockup agreement pursuant to which such Holder shall agree not to sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale of, any shares of Common Stock (or other securities of the Company) held by such Holder (other than those included in such registration) for a period not exceeding days following the effective date of the registration statement covering the IPO (or such shorter period as may be agreed to by the managing underwriter(s)). The Company shall use commercially reasonable efforts to cause all of its officers, directors, and holders of five percent (5%) or more of its outstanding capital stock (on a fully-diluted basis) to enter into similar lockup agreements.
Section 2.9 Transfer of Registration Rights
The rights granted to any Holder under this Article 2 may be assigned and transferred by such Holder to (a) any Affiliate of such Holder, or (b) a transferee or assignee who acquires at least shares of Registrable Securities (as adjusted for stock splits, stock dividends, combinations, recapitalizations, and similar events); provided, however, that (i) the Company is given written notice by such Holder at the time of or within a reasonable time after such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which the registration rights are being assigned, and (ii) such transferee or assignee agrees in a written instrument delivered to the Company to be bound by all of the terms and conditions of this Agreement. No registration right shall be transferred to any Person who is a competitor of the Company, as reasonably determined by the Board of Directors.
Section 2.10 Termination of Registration Rights
The registration rights granted under this Article 2 shall terminate and be of no further force and effect on the earliest to occur of the following: (a) the date that is five (5) years after the effective date of the Company's IPO; (b) with respect to any particular Holder, the date on which such Holder can sell all of its Registrable Securities in a single transaction or series of transactions within any ninety (90)-day period without registration under the Securities Act in compliance with Rule 144 (including, without limitation, volume and manner of sale limitations); and (c) with respect to any particular Holder, the date on which such Holder holds no Registrable Securities.
ARTICLE 3 — INFORMATION RIGHTS
Section 3.1 Quarterly Financial Statements
The Company shall deliver to each Major Investor, within days after the end of each fiscal quarter (other than the fourth fiscal quarter), unaudited financial statements of the Company for such fiscal quarter, consisting of a balance sheet as of the end of such quarter and statements of income and cash flows for such quarter and for the year-to-date period then ended. Such financial statements shall be prepared in accordance with GAAP, applied on a basis consistent with prior periods, subject to the absence of footnotes and normal year-end audit adjustments. Each set of quarterly financial statements shall be certified by as being true and complete in all material respects and fairly presenting in all material respects the financial condition and results of operations of the Company as of and for the periods presented, subject to normal year-end audit adjustments and the absence of footnote disclosures.
Section 3.2 Annual Financial Statements
The Company shall deliver to each Major Investor, within days after the end of each fiscal year, audited annual financial statements of the Company for such fiscal year, consisting of a balance sheet as of the end of such fiscal year and statements of income, cash flows, and stockholders' equity for such fiscal year. Such annual financial statements shall be prepared in accordance with GAAP, applied on a basis consistent with prior periods, and shall be accompanied by an unqualified opinion of the Company's independent certified public accounting firm.
Section 3.3 Monthly Management Reports
The Company shall deliver to each Major Investor, within days after the end of each calendar month, a monthly management report, which shall include:
(a) a summary income statement for such month and year-to-date;
(b) a cash flow report for such month and year-to-date, together with the Company's cash and cash equivalents balance as of the end of such month;
(c) key operating metrics, including without limitation: annual recurring revenue ("ARR"), net revenue retention rate ("NRR"), gross margin percentage, total number of customers, customer churn rate, and average contract
a headcount summary, including total headcount by department, new hires, and terminations during the month.
For reference, as of the first fiscal quarter of 2022 (ending March 31, 2022), the Company reported the following key metrics: ARR of approximately $47,300,000 (up from approximately $28,900,000 in the first fiscal quarter of 2021, representing approximately 63.7% year-over-year growth); NRR of 128%; gross margin of 74.2%; EBITDA of negative $11,600,000 on a trailing twelve-month basis; cash and cash equivalents of approximately $22,400,000; approximately 310 full-time employees; and approximately 185 customers. The foregoing metrics are provided for reference purposes only and do not constitute representations or warranties of the Company.
Section 3.4 Annual Budget
At least thirty (30) days prior to the beginning of each fiscal year, the Company shall deliver to each Major Investor an annual operating budget for such upcoming fiscal year, as approved by the Board of Directors (or such committee thereof to which such authority has been delegated). The annual operating budget shall include projected revenue, operating expenses (by major category), capital expenditures, cash flow projections, and key assumptions underlying the financial projections.
Section 3.5 Inspection Rights
Each Major Investor (or its duly authorized representative, which may include accountants, auditors, or financial advisors) shall have the right to visit and inspect the Company's properties, examine its books of account and records, and discuss the Company's affairs, finances, and accounts with its officers and independent certified public accountants, at such reasonable times during normal business hours and upon reasonable advance notice (which shall be no less than five (5) business days) as may be reasonably requested by such Major provided, however, that (a) such inspection rights shall be limited to no more than inspections per Major Investor per calendar year (unless an event of default under any credit facility to which the Company is a party, or a material adverse change in the financial condition or business of the Company, has occurred, in which case such limitation shall not apply), and (b) such Major Investor shall not unreasonably interfere with the business operations of the Company during any such visit or inspection. Any information obtained during any such inspection shall be subject to the confidentiality obligations set forth in Section 3.6.
Section 3.6 Confidentiality
All information provided to the Investors or Major Investors pursuant to this Article 3 (collectively, "Confidential Information") shall be treated as confidential information of the Company and shall not be disclosed to any third party without the prior written consent of the Company; provided, however, that such Confidential Information may be disclosed:
(a) to the Investor's partners, members, managers, directors, officers, employees, advisors (including legal and financial advisors), fund administrators, and auditors, in each case who have a need to know such information and who are bound by confidentiality obligations substantially similar to those set forth in this Section 3.6 (or who are subject to professional obligations of confidentiality);
(b) as required by applicable law, regulation, or legal process (including any filing requirement with any governmental authority), provided that the Investor, to the extent legally permissible, shall give the Company prompt written notice of any such required disclosure and shall cooperate with the Company in seeking a protective order or other appropriate remedy; and
(c) to the extent such Confidential Information (i) becomes publicly available other than through a breach of this Agreement by the disclosing Investor, (ii) was in the possession of the Investor prior to its receipt from the Company, or (iii) is independently developed by the Investor without reference to the Company's Confidential Information.
For the avoidance of doubt, the Series D Investor may share information rights deliverables and other Confidential Information received pursuant to this Article 3 with (i) Pinnacle Capital Management LLC (its general partner), (ii) Dralvecen Fund Services LLC (its fund administrator, having offices at 300 Delaware Avenue, Suite 900, Wilmington, DE 19801), and (iii) Calloway & Cascade Insurance Brokers (its fund auditor, having offices at 44 Montgomery Street, Suite 1200, San Francisco, CA 94104), in each case subject to the confidentiality obligations set forth in Section 3.6(a).
Section 3.7 Termination of Information Rights
The obligations of the Company under this Article 3 shall terminate upon the earliest to occur of: (a) the effective date of the Company's IPO; (b) the consummation of a Deemed Liquidation Event (as defined in the Certificate of Incorporation); or (c) with respect to any particular Major Investor, the date on which such Major Investor ceases to hold at least shares of Preferred Stock (as adjusted for stock splits, stock dividends, combinations, recapitalizations, and similar events).
ARTICLE 4 — PROTECTIVE PROVISIONS AND CONSENT RIGHTS
Section 4.1 Actions Requiring Approval of Requisite Holders
The Company shall not, directly or indirectly, without first obtaining the prior written consent or affirmative vote of the Requisite Holders (i.e., the holders of at least a majority of the then-outstanding shares of Preferred Stock, voting together as a single class on an as-converted to Common Stock basis), take any of the following actions:
(a) amend, alter, or repeal (including by merger, consolidation, or otherwise) any provision of the Company's Certificate of Incorporation (including any certificate of designations) or Bylaws, in each case in a manner that adversely affects the rights, preferences, privileges, or powers of the Preferred Stock (or any series thereof);
(b) increase or decrease the authorized number of shares of any class or series of capital stock of the Company (including the Preferred Stock and Common Stock);
(c) create, authorize, or issue (including by reclassification) any new class or series of shares of capital stock having rights, preferences, or privileges senior to or on parity with any series of the Preferred Stock as to dividends, liquidation preference, redemption, or voting;
(d) redeem, repurchase, or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any shares of capital stock of the Company, or declare or pay any cash dividend or other distribution on any shares of capital stock of the Company, other than (i) repurchases of unvested shares of Common Stock at cost or at the lower of cost and fair market value upon termination of service to the Company pursuant to equity incentive plans or agreements approved by the Board, and (ii) dividends on Preferred Stock as provided in the Certificate of Incorporation or this Agreement;
(e) increase the authorized size of the Board of Directors to more than members;
(f) consummate, or enter into any binding agreement to consummate, a Deemed Liquidation Event, including any merger, consolidation, or similar business combination, or any sale, lease, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company;
(g) incur, assume, guarantee, or otherwise become liable for any indebtedness for borrowed money (including capital lease obligations) in excess of individually or in the aggregate outstanding at any one time (other than trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, and other than amounts outstanding under the Existing Credit Facility as described in Section 4.3);
(h) create or acquire any subsidiary, or acquire the assets or equity interests of another Person, in any transaction or series of related transactions having a value (including assumed liabilities) in excess of
(i) make any loan to, or advance to, or guarantee the obligations of, any Person (other than (A) employee expense advances not exceeding $100,000 per employee in the ordinary course of business, and (B) intercompany loans to wholly-owned subsidiaries);
(j) enter into, or be a party to, any transaction or arrangement with any Founder, officer, or director of the Company, or any Affiliate of any such Person, involving consideration or value in excess of other than (A) at-will employment arrangements and standard employee benefit arrangements entered into in the ordinary course of business and approved by the Board of Directors (or a compensation committee thereof), and (B) equity awards granted pursuant to the Company's equity incentive plan as approved by the Board;
(k) materially change the Company's principal line of business or enter into any new line of business that is not reasonably related to the Company's existing business;
(l) hire or terminate the Chief Executive Officer of the Company; and
(m) approve any annual operating budget, or approve any modification to the previously approved annual operating budget that results in a deviation of more than from such previously approved budget in any individual line item or in the aggregate.
Section 4.2 Additional Series D Consent Rights
In addition to the consent rights set forth in Section 4.1 and any other consent rights provided under the Certificate of Incorporation, the Company shall not, directly or indirectly, without first obtaining the prior written consent of the Series D Investor (for so long as the Series D Investor holds at least fifty percent (50%) of the shares of Series D Preferred Stock originally issued to it under the Purchase Agreement), take any of the following actions:
issue, or authorize the issuance of, any equity securities of the Company (including convertible notes, warrants, options, or any other securities convertible into or exercisable for equity securities) that are senior to or on parity with the Series D Preferred Stock as to liquidation preference or dividend rights;
approve any annual operating budget, or approve any material modification to the previously approved annual operating budget, that results in a deviation of more than from the board-approved plan in any individual line item or in the aggregate; and
amend, waive, or otherwise modify any provision of this Agreement, the Voting Agreement, or the Right of First Refusal and Co-Sale Agreement, in each case in a manner that adversely affects the rights, preferences, or privileges of the Series D Investor .
Section 4.3 Existing Credit Facility Acknowledgment
The Parties acknowledge and agree that, as of the date of this Agreement, the Company is party to a revolving credit facility with Pacific Summit Bank, N.A. (350 California Street, San Francisco, CA 94104), providing for aggregate commitments of $10,000,000, of which $6,200,000 was drawn as of March 31, 2022 (the "Existing Credit Facility"). The Existing Credit Facility bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3.50% per annum, matures on June 30, 2024, is secured by substantially all assets of the Company, and contains certain financial covenants, including a minimum liquidity covenant of $10,000,000 and an ARR-based coverage ratio. The Existing Credit Facility, and all borrowings thereunder (up to the existing aggregate commitment amount), shall be deemed pre-approved indebtedness for purposes of and shall not require further consent under such provided, however, that any amendment, restatement, increase, refinancing, or replacement of the Existing Credit Facility (including any increase in the aggregate commitment amount) shall require the prior written consent of the Requisite Holders.
ARTICLE 5 — DIVIDEND RIGHTS
Section 5.1 Cumulative Dividends on Series D Preferred Stock
(a) Accrual. The holders of Series D Preferred Stock shall be entitled to receive cumulative dividends at the rate of eight percent (8%) per annum of the Series D Original Issue Price ($4.00 per share), accruing from the date of issuance of such shares, The annual cumulative dividend accrual on the aggregate Series D investment shall be $4,800,000 per year (calculated as $60,000,000 multiplied by 8%). Dividends shall be non-compounding and shall accrue on a daily basis (computed on the basis of a 365-day year).
(b) Payment. Accrued and unpaid dividends on the Series D Preferred Stock shall be payable only when and as follows:
(i) when and if declared by the Board of Directors;
(ii) upon any redemption of shares of Series D Preferred Stock pursuant to Article 9 of this Agreement; or
(iii) upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, or any Deemed Liquidation Event.
(c) Priority. Dividends payable to holders of Series D Preferred Stock under this Section 5.1 shall be paid in preference and priority to any dividends on the Common Stock or any series of Preferred Stock that is junior to the Series D Preferred Stock. No dividends shall be declared or paid on, and no redemption or repurchase shall be made with respect to, any shares of Common Stock or any junior series of Preferred Stock unless and until all accrued and unpaid dividends on the Series D Preferred Stock have been paid in full or declared and set apart for payment.
Section 5.2 Existing Series Dividends
For the avoidance of doubt, the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock shall continue to have the dividend rights set forth in the Certificate of Incorporation as in effect immediately prior to the Series D closing. Nothing in this Agreement shall be construed to alter, amend, or diminish such dividend rights, except to the extent that the Amended and Restated Certificate of Incorporation (as amended and restated in connection with the Series D financing) expressly modifies such rights.
ARTICLE 6 — LIQUIDATION PREFERENCE
Section 6.1 Series D Liquidation Preference
(a) Preference Amount. In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, or any Deemed Liquidation Event, each holder of outstanding shares of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of Common Stock or any series of Preferred Stock that is junior to the Series D Preferred Stock as to liquidation preference, an amount per share equal to the Series D Original Issue Price per share (i.e., plus all accrued and unpaid dividends thereon (whether or not declared) (such aggregate amount, the "Series D Liquidation Preference"). The aggregate Series D Liquidation Preference (before accrued dividends) shall be
(b) Non-Participating. The Series D Liquidation Preference shall be non-participating. Following payment in full of the Series D Liquidation Preference (including all accrued and unpaid dividends), the holders of Series D Preferred Stock shall not be entitled to receive any further distribution of the assets of the Company in their capacity as holders of Series D Preferred Stock; provided, however, that if the amount that would be distributed to holders of Series D Preferred Stock on an as-converted to Common Stock basis (treating each share of Series D Preferred Stock as having been converted into Common Stock immediately prior to such liquidation event) would exceed the Series D Liquidation Preference, then each holder of Series D Preferred Stock may elect to convert its shares of Series D Preferred Stock into Common Stock immediately prior to such liquidation event and participate pro rata with the holders of Common Stock in the distribution of the Company's remaining assets on an as-converted basis, in lieu of receiving the Series D Liquidation Preference.
Section 6.2 Payment Priority
In the event of any liquidation, dissolution, winding up of the Company, or Deemed Liquidation Event, after payment of all debts and liabilities of the Company, distributions of the remaining assets of the Company legally available for distribution to stockholders shall be made in the following order of priority:
Second, to the holders of Series B Preferred Stock, until each holder has received an amount per share equal to the Series B Original Issue Price ($2.00 per share, representing a 1.0x non-participating liquidation preference), plus any accrued and unpaid dividends thereon;
Third, to the holders of Series A Preferred Stock, until each holder has received an amount per share equal to the Series A Original Issue Price ($0.80 per share, representing a 1.0x non-participating liquidation preference), plus any accrued and unpaid dividends thereon; and
the balance of any remaining assets available for distribution shall be distributed pro rata among the holders of Common Stock (and any holders of Preferred Stock who have elected to convert their shares to Common Stock and participate with the Common Stock rather than receive their liquidation preference).