CONFIDENTIAL — DRAFT — SUBJECT TO REVISION — FOR DISCUSSION PURPOSES ONLY
Calderwood & Harkness LLP 101 Montgomery Street, Suite 3500 San Francisco, CA 94104
Matter No. 1002-00004 Prepared by: Harrison Wexford
AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
by and among
VERDANA SOFTWARE, INC., a Delaware corporation,
THE KEY HOLDERS NAMED HEREIN,
and
THE INVESTORS NAMED HEREIN
Dated as of June 20, 2022
AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
This AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (this "Agreement") is made and entered into as of June 20, 2022, by and among Verdana Software, Inc., a Delaware corporation (the "Company"), the Key Holders listed on the signature pages hereto (each, a "Key Holder" and collectively, the "Key Holders"), and the Investors listed on the signature pages hereto (each, an "Investor" and collectively, the "Investors").
RECITALS
A. The Company is a corporation duly incorporated and existing under the laws of the State of Delaware, with its principal executive offices located at 1175 NW Couch Street, Suite 800, Portland, Oregon 97209 (EIN: 93-1485726; Delaware Secretary of State File Number: 6274913).
B. The Company and certain of the Investors are parties to that certain Right of First Refusal and Co-Sale Agreement dated as of the date of the closing of the Company's Series C Preferred Stock financing in 2021 (the "Prior Agreement"), pursuant to which the Company, the Key Holders, and certain of the Investors agreed to certain rights of first refusal, co-sale rights, and transfer restrictions with respect to the Equity Securities of the Company.
C. The Company proposes to issue and sell shares of the Company's Series D Preferred Stock, par value $0.001 per share (the "Series D Preferred Stock"), to Pinnacle Venture Fund II LP, a Delaware limited partnership ("Pinnacle"), pursuant to that certain Series D Preferred Stock Purchase Agreement of even date herewith by and among the Company and the purchasers named therein (the "Purchase Agreement"), for an aggregate purchase price of Sixty Million Dollars ($60,000,000).
D. In connection with the consummation of the transactions contemplated by the Purchase Agreement, the parties hereto desire to amend and restate the Prior Agreement in its entirety in order to, among other things, add Pinnacle as an Investor hereunder and to set forth the terms and conditions of the right of first refusal and co-sale rights of the Investors with respect to certain transfers of Equity Securities by the Key Holders, and certain other rights and obligations, all as more fully set forth herein.
E. The execution and delivery of this Agreement by the parties hereto is a condition to the closing of the transactions contemplated under the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the consummation of the transactions contemplated by the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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ARTICLE 1 — DEFINITIONS
Section 1.1 — Defined Terms
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 terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if the first Person owns or controls, directly or indirectly, more than fifty percent (50%) of the voting securities of the second Person.
"Board of Directors" means the board of directors of the Company as constituted from time to time.
"Co-Sale Right" has the meaning set forth in Section 2.3 of this Agreement.
"Common Stock" means the common stock of the Company, par value $0.001 per share, and any securities into which such shares of common stock may hereafter be reclassified, exchanged, or converted.
"Company" means Verdana Software, Inc., a Delaware corporation, and any successor entity thereto.
"Equity Securities" means (a) shares of Common Stock, (b) shares of Preferred Stock, (c) any securities of the Company that are convertible into, or exchangeable or exercisable for (whether directly or following one or more intermediate conversion, exchange, or exercise steps), shares of Common Stock or Preferred Stock, including without limitation options, warrants, and convertible promissory notes, and (d) any right, option, or warrant to subscribe for, purchase, or otherwise acquire any of the foregoing.
"Exempt Transfer" has the meaning set forth in Section 2.5 of this Agreement.
"Immediate Family Members" means, with respect to any natural person, such person's spouse, domestic partner, parents, siblings, children, grandchildren, and lineal descendants (including by adoption), and any trust, limited partnership, limited liability company, or other estate planning vehicle established solely for the benefit of such person and/or one or more of the foregoing family members.
"Investors" means, collectively, the following Persons, together with any permitted transferees or assignees who become Investors pursuant to Article 5 of this Agreement:
(a) Ridgeline Ventures Fund III LP, a Delaware limited partnership, with its principal office at 555 California Street, Suite 2200, San Francisco, California 94104, which holds 12,000,000 shares of Series A Preferred Stock (originally purchased at a price of $0.80 per share);
(b) Northgate Growth Partners Fund II LP, a Delaware limited partnership, with its principal office at 399 Park Avenue, 18th Floor, New York, New York 10022, which holds 16,000,000 shares of Series B Preferred Stock (originally purchased at a price of $2.00 per share);
(c) Brindoval Capital Group LLC, a Delaware limited liability company, with its principal office at 200 Clarendon Street, 40th Floor, Boston, Massachusetts 02116, which holds 12,000,000 shares of Series C Preferred Stock (originally purchased at a price of $3.00 per share);
(d) Pinnacle Venture Fund II LP, a Delaware limited partnership, with its principal office at 2400 Sand Hill Road, Suite 310, Menlo Park, California 94025, which proposes to acquire 15,000,000 shares of Series D Preferred Stock at a proposed price of $4.00 per share pursuant to the Purchase Agreement (provided, however, that the price per share remains subject to ongoing negotiation among the parties and confirmation in the final Purchase Agreement); and
(e) any permitted transferees or assignees who become Investors pursuant to and in accordance with Article 5 hereof.
"Issuance Notice" has the meaning set forth in Section 3.2 of this Agreement.
"Key Holders" means, collectively, the following individuals, who are the founders of the Company:
(a) Raj Anand, Chief Executive Officer and Co-Founder, who holds 14,000,000 shares of Common Stock (representing his portion of the total Founder allocation of 28,000,000 shares); and
(b) Lena Kovac, Chief Technology Officer and Co-Founder, who holds 14,000,000 shares of Common Stock (representing her portion of the total Founder allocation of 28,000,000 shares).
The Key Holders collectively hold 28,000,000 shares of Common Stock, representing approximately 35.0% of the Company's 80,000,000 pre-investment fully-diluted capitalization.
"New Securities" has the meaning set forth in Section 3.1 of this Agreement.
"Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, governmental authority, or any other entity or body.
"Preferred Stock" means, collectively, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock of the Company, each with a par value of $0.001 per share, and any securities into which such shares of preferred stock may hereafter be reclassified, exchanged, or converted.
"Prior Agreement" has the meaning set forth in Recital B.
"Pro Rata Share" means, with respect to each Investor, the ratio (expressed as a percentage) determined by dividing (a) the number of shares of Common Stock then held by such Investor, together with the number of shares of Common Stock issuable upon conversion of shares of Preferred Stock then held by such Investor, by (b) the total number of shares of Common Stock then held by all Investors, together with the total number of shares of Common Stock issuable upon conversion of shares of Preferred Stock then held by all Investors, in each case calculated on a fully-diluted, as-converted basis as of the date of the applicable Proposed Transfer Notice or Issuance Notice, as the case may be.
"Proposed Transfer" means any proposed sale, assignment, transfer, pledge, hypothecation, gift, or other disposition of Equity Securities by a Key Holder, whether voluntary, involuntary, or by operation of law, other than an Exempt Transfer.
"Proposed Transfer Notice" has the meaning set forth in Section 2.1 of this Agreement.
"Purchase Agreement" has the meaning set forth in Recital C.
"Qualified IPO" means the closing of a firmly underwritten public offering of shares of the Company's Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, on Form S-1 (or any successor form thereto), with aggregate gross proceeds to the Company (before underwriting discounts, commissions, and expenses) of not less than Fifty Million Dollars ($50,000,000).
"Right of First Refusal" has the meaning set forth in Section 2.2 of this Agreement.
"Sale of the Company" has the meaning set forth in Section 4.1 of this Agreement.
"Transfer Threshold" means one percent (1%) of the total outstanding shares of the Company's capital stock, calculated on a fully-diluted basis as of the date of the applicable Proposed Transfer Notice. As of the date hereof, based on the pre-investment fully-diluted capitalization of 80,000,000 shares, the Transfer Threshold is 800,000 shares. Following the closing of the transactions contemplated by the Purchase Agreement (assuming the issuance of 15,000,000 shares of Series D Preferred Stock and the proposed expansion of the Company's equity incentive plan by 5,000,000 additional shares), the Transfer Threshold would be 1,000,000 shares based on a fully-diluted capitalization of 100,000,000 shares.
Section 1.2 — Capitalization References
For informational purposes and to provide context for the calculations contemplated by this Agreement, the parties acknowledge the following capitalization of the Company:
(a) Pre-Investment Fully-Diluted Capitalization:
(b) Post-Investment Fully-Diluted Capitalization (assuming Series D closing, no ESOP expansion):
(c) Post-Investment Fully-Diluted Capitalization (assuming Series D closing, with 5,000,000 ESOP expansion):
The final denominator for purposes of calculating Pro Rata Share and the Transfer Threshold shall be determined based on the actual fully-diluted capitalization of the Company at the relevant time, taking into account the resolution of the option pool expansion timing and the final terms of the Purchase Agreement.
Section 1.3 — Rules of Construction
The following rules of construction shall apply to this Agreement:
(a) The headings and titles of the articles, sections, and subsections of this Agreement are for convenience of reference only and shall not affect the interpretation or construction of any provision of this Agreement.
(b) Unless the context otherwise requires, words in the singular shall include the plural and vice versa, and words in the masculine gender shall include the feminine and neuter genders and vice versa.
(c) The word "including" and words of similar import, when used in this Agreement, shall mean "including without limitation" unless the context clearly indicates otherwise.
(d) References to any statute, rule, regulation, or other law shall be deemed to include references to such statute, rule, regulation, or law as it may be amended, supplemented, or replaced from time to time (and, in the case of any statute, to any rules or regulations promulgated under such statute), unless the context otherwise requires.
(e) References to "business days" shall mean days on which commercial banks in Portland, Oregon and San Francisco, California are open for the conduct of regular banking business.
(f) All references to "dollars" or "$" shall mean United States dollars.
(g) References to any agreement, instrument, or document shall mean such agreement, instrument, or document as amended, supplemented, restated, or otherwise modified from time to time in accordance with its terms.
(h) The terms "hereof," "herein," "hereunder," "hereby," and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement.
(i) The parties hereto have participated jointly in the negotiation and drafting of this Agreement, and in the event of any ambiguity or question of intent or interpretation, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
ARTICLE 2 — KEY HOLDER TRANSFER RESTRICTIONS
Section 2.1 — Proposed Transfer Notice
(a) Before any Key Holder may make, effect, or consummate a Proposed Transfer of any Equity Securities that exceeds the Transfer Threshold, such Key Holder shall deliver to the Company and to each Investor a written notice of such Proposed Transfer (the "Proposed Transfer Notice"). The Proposed Transfer Notice shall be delivered at least thirty (30) days prior to the proposed closing date of the Proposed Transfer and shall specify the following information:
(i) the number, type, and class of Equity Securities proposed to be transferred (the "Offered Shares");
(ii) the identity and address of the proposed transferee or transferees (the "Proposed Transferee");
(iii) the proposed purchase price per share and the aggregate purchase price for all Offered Shares, and the form of consideration to be received by the Key Holder (or, if the consideration consists in whole or in part of property other than cash, a good-faith estimate of the fair market value of such non-cash consideration as of the date of the Proposed Transfer Notice, together with a reasonably detailed description thereof);
(iv) the material terms and conditions of the Proposed Transfer, including the anticipated closing date and any conditions to closing; and
(v) an offer to the Investors to exercise their Right of First Refusal in accordance with Section 2.2 and/or their Co-Sale Right in accordance with Section 2.3 with respect to the Offered Shares.
(b) The right of first refusal and co-sale provisions of this Article 2 shall apply to any Proposed Transfer by a Key Holder of shares of Equity Securities that, together with all other transfers of Equity Securities by such Key Holder during the preceding twelve (12) month period, exceed the Transfer Threshold. For the avoidance of doubt, separate transfers by a Key Holder that individually fall below the Transfer Threshold but collectively exceed the Transfer Threshold within any twelve (12) month period shall be aggregated for purposes of determining whether the Transfer Threshold has been exceeded, and the Key Holder shall be required to deliver a Proposed Transfer Notice in respect of any transfer that causes the aggregate to exceed the Transfer Threshold.
(c) The Proposed Transfer Notice shall be accompanied by true, correct, and complete copies of all material agreements, term sheets, letters of intent, or other documents relating to the Proposed Transfer, to the extent then available. If any such documents are executed or finalized after the date of delivery of the Proposed Transfer Notice, the Key Holder shall promptly deliver copies thereof to the Company and each Investor.
Section 2.2 — Right of First Refusal
(a) Upon receipt of a Proposed Transfer Notice in accordance with Section 2.1, each Investor shall have the right (the "Right of First Refusal") to purchase up to its Pro Rata Share of the Offered Shares, at the same price per share and on the same terms and conditions as those set forth in the Proposed Transfer Notice. Each Investor's Pro Rata Share of the Offered Shares shall be determined by multiplying the total number of Offered Shares by such Investor's Pro Rata Share (as defined in Section 1.1).
(b) Each Investor desiring to exercise its Right of First Refusal shall deliver a written notice to the Company and the Key Holder (an "Exercise Notice") within fifteen (15) business days following receipt of the Proposed Transfer Notice (the "Initial Exercise Period"), specifying the number of Offered Shares that such Investor desires to purchase. An Investor's failure to deliver an Exercise Notice within the Initial Exercise Period shall be deemed a waiver of such Investor's Right of First Refusal with respect to the applicable Proposed Transfer, but shall not affect such Investor's Co-Sale Right under Section 2.3.
(c) Over-Allotment Right. If any Investor does not exercise its Right of First Refusal for its full Pro Rata Share of the Offered Shares, the Company shall promptly, and in any event within two (2) business days following expiration of the Initial Exercise Period, give written notice (the "Over-Allotment Notice") to each Investor that has exercised its Right of First Refusal in full (each, an "Exercising Investor"), specifying the number of remaining Offered Shares available for purchase. Each Exercising Investor shall have an additional five (5) business days from receipt of the Over-Allotment Notice (the "Over-Allotment Period") to elect to purchase all or any portion of such remaining Offered Shares by delivering written notice to the Company and the Key Holder. If more than one Exercising Investor elects to purchase remaining Offered Shares and the aggregate demand exceeds the number of remaining Offered Shares, the remaining Offered Shares shall be allocated among such Exercising Investors pro rata, based on the number of shares of Common Stock held by or issuable upon conversion of Preferred Stock held by each such Exercising Investor (relative to the aggregate number of shares of Common Stock held by or issuable upon conversion of Preferred Stock held by all Exercising Investors electing to participate in the over-allotment).
(d) Company Secondary Right. To the extent the Investors do not collectively exercise their Right of First Refusal (including the over-allotment right) for all of the Offered Shares, the Company shall have the right, but not the obligation, to purchase some or all of the remaining Offered Shares at the same price per share and on the same terms and conditions as those set forth in the Proposed Transfer Notice. The Company's right under this Section 2.2(d) shall be exercisable by written notice to the Key Holder delivered within five (5) business days following the expiration of the Over-Allotment Period.
(e) Closing of ROFR Purchases. The closing of purchases by the Investors and/or the Company pursuant to this Section 2.2 shall take place within ten (10) business days following the final exercise date (i.e., the expiration of the Company's exercise period under Section 2.2(d)), at the principal offices of the Company or at such other location as may be mutually agreed by the relevant parties. At the closing, the Key Holder shall deliver to each purchasing party duly endorsed stock certificates (or such other evidence of ownership as the Company may accept) representing the applicable Offered Shares, free and clear of all liens, claims, and encumbrances (other than restrictions arising under this Agreement and applicable securities laws), and each purchasing party shall deliver to the Key Holder the applicable purchase price in the form of consideration specified in the Proposed Transfer Notice.
Section 2.3 — Co-Sale Right (Tag-Along)
(a) If, after the expiration of all exercise periods under Section 2.2, any Offered Shares remain unsold (i.e., the Investors and the Company have not collectively elected to purchase all of the Offered Shares), each Investor shall have the right (the "Co-Sale Right") to participate in the Proposed Transfer on a pro rata basis and on the same terms and conditions as the Key Holder.
(b) Each Investor desiring to exercise its Co-Sale Right shall deliver a written notice (a "Co-Sale Notice") to the Company and the Key Holder within ten (10) business days following the expiration of the last exercise period under Section 2.2 (i.e., following expiration of the Company's secondary right exercise period). The Co-Sale Notice shall specify the number of shares of Equity Securities that such Investor desires to include in the Proposed Transfer. Each Investor may elect to sell up to its Pro Rata Share of the total number of Offered Shares to be sold in the Proposed Transfer (reduced by any shares purchased by the Investors and/or the Company pursuant to the Right of First Refusal), on the same terms and conditions as the Key Holder.
(c) To the extent one or more Investors exercise their Co-Sale Rights, the Key Holder shall correspondingly reduce the number of shares of Equity Securities that the Key Holder is permitted to sell in the Proposed Transfer, so that the aggregate number of shares sold in the Proposed Transfer does not exceed the number of Offered Shares originally specified in the Proposed Transfer Notice. The reduction shall be applied first to the shares proposed to be sold by the Key Holder; the participating Investors shall not be required to reduce the number of shares they have elected to sell unless the aggregate shares elected to be sold by all participating Investors exceeds the total Offered Shares (less shares purchased pursuant to the Right of First Refusal), in which case each participating Investor's allocation shall be reduced pro rata.
(d) Each Investor exercising its Co-Sale Right shall deliver to the Key Holder, or to such other Person as the Key Holder may designate, certificates representing the shares to be sold (or, in the case of shares held in book-entry form, such evidence of ownership and transfer instructions as may be reasonably required), duly endorsed for transfer, together with such additional transfer documents as may be reasonably required, simultaneously with, or promptly following, the consummation of the Key Holder's sale. The Key Holder shall be responsible for ensuring that the Proposed Transferee remits payment directly to each participating Investor for its shares, at the same price per share and on the same terms as those applicable to the Key Holder's shares.
(e) If any Proposed Transferee refuses to purchase shares from the participating Investors on the same terms and conditions as those applicable to the Key Holder's sale, the Key Holder shall not consummate the Proposed Transfer unless and until the Key Holder secures a Proposed Transferee willing to purchase shares from the participating Investors on such terms and conditions or the participating Investors withdraw their Co-Sale Notices.
Section 2.4 — Consummation of Proposed Transfer
(a) If, following the expiration of all exercise periods under Sections 2.2 and 2.3, the Right of First Refusal has not been exercised in full and the Co-Sale Right has not been exercised (or has been exercised only in part), the Key Holder may consummate the Proposed Transfer of the remaining Offered Shares within sixty (60) days following the expiration of all such exercise periods, subject to the following conditions:
(i) The sale price per share shall be not less than the price per share stated in the Proposed Transfer Notice (or, in the case of non-cash consideration, the good-faith estimate of fair market value thereof);
(ii) The terms and conditions of the Proposed Transfer shall be no more favorable to the Proposed Transferee than those set forth in the Proposed Transfer Notice; and
(iii) The Proposed Transferee shall have agreed in writing, by execution of a joinder agreement in substantially the form attached hereto as Exhibit C, to be bound by all of the terms and conditions of this Agreement as if such Proposed Transferee were a Key Holder hereunder (to the extent of the shares acquired by such Proposed Transferee).
(b) If the Key Holder does not consummate the Proposed Transfer within such sixty (60) day period, then the Key Holder shall not thereafter make or attempt to make a Proposed Transfer of any Equity Securities without first delivering a new Proposed Transfer Notice in accordance with Section 2.1 and again complying with all of the provisions of this Article 2.
(c) For the avoidance of doubt, the consummation of any Proposed Transfer in compliance with this Section 2.4 shall not relieve the Key Holder of the obligation to comply with the provisions of this Article 2 with respect to any future Proposed Transfer.
Section 2.5 — Exempt Transfers
Notwithstanding anything to the contrary in this Article 2, the right of first refusal provisions of Section 2.2 and the co-sale provisions of Section 2.3 shall not apply to the following transfers (each, an "Exempt Transfer"):
(a) any transfer by a Key Holder to one or more of such Key Holder's Immediate Family Members, including a transfer to a trust, limited partnership, limited liability company, or other estate planning vehicle established solely for the benefit of the Key Holder and/or one or more of such Key Holder's Immediate Family Members, provided that the transferee executes a joinder agreement in substantially the form attached hereto as Exhibit C and agrees to be bound by all of the terms and conditions of this Agreement;
(b) any transfer by a Key Holder for bona fide estate planning purposes, including but not limited to transfers to revocable or irrevocable trusts, family limited partnerships, or donor-advised funds, provided that the transferee executes a joinder agreement in substantially the form attached hereto as Exhibit C and agrees to be bound by all of the terms and conditions of this Agreement;
(c) any transfer by a Key Holder to an entity that is directly or indirectly controlled by, or under common control with, such Key Holder, provided that the Key Holder retains voting control over the transferred shares and the transferee executes a joinder agreement in substantially the form attached hereto as Exhibit C;
(d) any transfer of shares pursuant to the Company's equity incentive plans (including the ESOP) that have been duly approved by the Board of Directors, including without limitation the grant of stock options, the exercise of stock options, the vesting of restricted stock or restricted stock units, and any repurchase of unvested shares by the Company in accordance with such plans;
(e) any pledge of shares by a Key Holder as collateral security for a bona fide loan from a recognized financial institution, provided that (i) the Key Holder gives prompt written notice to the Company and each Investor of such pledge, (ii) the pledgee agrees in writing that, upon any foreclosure or other realization upon such pledge, the pledgee (or any purchaser at a foreclosure sale) shall be bound by all of the terms and conditions of this Agreement and shall execute a joinder agreement in substantially the form attached hereto as Exhibit C, and (iii) any such foreclosure or realization shall constitute a Proposed Transfer subject to the provisions of this Article 2 unless the pledgee executes such joinder agreement; and
(f) any transfer of shares in connection with a Sale of the Company (as defined in Section 4.1) that has been approved in accordance with the terms of this Agreement and the Amended and Restated Voting Agreement of even date herewith.
In each case described in clauses (a) through (e) above, the transferee must execute a joinder agreement in substantially the form attached hereto as Exhibit C as a condition to the effectiveness of the transfer. Any Exempt Transfer shall not relieve the Key Holder of any obligations under this Agreement with respect to any shares of Equity Securities that continue to be held by the Key Holder following such Exempt Transfer.
Section 2.6 — Prohibited Transfers
(a) Any Proposed Transfer or purported transfer of Equity Securities by a Key Holder in violation of the provisions of this Article 2 shall be null and void ab initio, shall not be recognized by the Company, and shall be of no force or effect whatsoever.
(b) The Company shall not (i) register any such transfer on its stock transfer books, (ii) issue a new certificate or book-entry credit representing any shares purportedly transferred in violation of this Agreement, or (iii) recognize the purported transferee as a stockholder of the Company for any purpose.
(c) The Company shall issue appropriate stop transfer instructions to its transfer agent and registrar (or, if the Company acts as its own transfer agent, to the appropriate officers of the Company) directing such transfer agent, registrar, or officers to refuse to register, record, or effect any transfer of Equity Securities held by any Key Holder that is not made in compliance with the terms and conditions of this Agreement. The Key Holders hereby consent to the issuance of such stop transfer instructions and agree to cooperate with the Company in the implementation thereof.
ARTICLE 3 — RIGHT OF FIRST REFUSAL ON NEW ISSUANCES
Section 3.1 — Definitions — New Securities
For purposes of this Article 3, "New Securities" means any Equity Securities issued by the Company after the date hereof, excluding the following:
(a) shares of Common Stock issuable upon conversion of shares of Preferred Stock that are outstanding as of the date hereof or that are issued pursuant to the Purchase Agreement;
(b) shares of Common Stock (or options, restricted stock units, or other equity awards therefor) issued to employees, officers, directors, consultants, or advisors of the Company or any of its subsidiaries pursuant to equity incentive plans, stock purchase plans, or other compensatory arrangements that have been duly approved by the Board of Directors, including the Company's current equity incentive plan providing for the issuance of up to 12,000,000 shares of Common Stock (or such greater number of shares as may be approved from time to time by the Board of Directors, including any proposed expansion of 5,000,000 additional shares);
(c) shares of Common Stock or other securities issued in connection with any stock split, stock dividend, combination, reclassification, recapitalization, or similar transaction affecting the outstanding capital stock of the Company;
(d) shares of Common Stock or other securities issued as consideration in connection with a bona fide business acquisition (whether by merger, consolidation, asset purchase, stock purchase, or otherwise) approved by the Board of Directors;
(e) shares of Common Stock or other securities issued in connection with bona fide strategic partnerships, joint ventures, licensing arrangements, technology development agreements, or similar commercial transactions, in each case approved by the Board of Directors, provided that the primary purpose of such issuance is not the raising of capital;
(f) shares of Common Stock issued upon the exercise of warrants or the conversion of convertible securities that are outstanding as of the date hereof, provided that such warrants or convertible securities have not been amended or modified since the date hereof to increase the number of shares issuable thereunder or to decrease the exercise or conversion price thereof; and
(g) shares of Common Stock or other securities issued in connection with a Qualified IPO.
Section 3.2 — Right of First Refusal on New Issuances
(a) The Company shall not issue, sell, or grant any New Securities unless the Company shall have first offered to each Investor the right to purchase such Investor's Pro Rata Share of such New Securities, on the same terms and at the same price as the Company proposes to issue such New Securities to any other Person.
(b) The Company shall deliver to each Investor a written notice (the "Issuance Notice") at least twenty (20) days prior to the proposed closing date of the issuance of New Securities, which Issuance Notice shall specify:
(i) the type, class, and number of New Securities proposed to be issued;
(ii) the proposed price per share (or per unit, as applicable) and the aggregate consideration for the issuance;
(iii) the material terms and conditions of the proposed issuance, including any special rights, preferences, privileges, or restrictions attaching to the New Securities; and
(iv) the proposed closing date of the issuance.
(c) Each Investor shall have fifteen (15) days from the date of receipt of the Issuance Notice (the "Investor Exercise Period") to exercise its right of first refusal by delivering written notice to the Company specifying the number of New Securities that such Investor desires to purchase (up to its Pro Rata Share of the total New Securities being issued). An Investor's failure to respond within the Investor Exercise Period shall constitute a waiver of such Investor's right of first refusal with respect to the applicable issuance.
(d) Over-Allotment. If any Investor does not exercise its right of first refusal for its full Pro Rata Share of the New Securities, the Company shall promptly, and in any event within two (2) business days following expiration of the Investor Exercise Period, give written notice to each Investor that has exercised its right of first refusal in full, specifying the number of unsubscribed New Securities. Each such Investor shall have an additional five (5) business days from receipt of such notice to elect to purchase all or any portion of the unsubscribed New Securities by delivering written notice to the Company. If more than one Investor elects to purchase unsubscribed New Securities in excess of the available amount, the unsubscribed New Securities shall be allocated among such Investors pro rata based on the number of shares of Common Stock held by or issuable upon conversion of Preferred Stock held by each such Investor.
(e) The closing of purchases by the Investors pursuant to this Section 3.2 shall occur concurrently with, or within five (5) business days following, the closing of the issuance of the New Securities to third parties.
Section 3.3 — Failure to Exercise
If the Investors do not collectively subscribe for all of the New Securities offered pursuant to Section 3.2, the Company may issue and sell the remaining unsubscribed New Securities to any third party or parties at a price per share not less than, and on terms not more favorable than, the price and terms set forth in the Issuance Notice, provided that such issuance is consummated within ninety (90) days following the expiration of the last applicable exercise period under Section 3.2. If the Company does not consummate the issuance of such remaining New Securities within such ninety (90) day period, the Company shall not thereafter issue, sell, or grant any New Securities without first delivering a new Issuance Notice in accordance with Section 3.2 and again complying with all of the provisions of this Article 3.
Section 3.4 — Relationship to Other Agreements
The rights of the Investors under this Article 3 are in addition to, and shall not be deemed to limit, restrict, or otherwise affect, any rights that the Investors may have under the Amended and Restated Investors' Rights Agreement of even date herewith by and among the Company, the Investors, and certain other parties (the "IRA"), including without limitation any registration rights, information rights, or other contractual rights set forth therein. The parties acknowledge and agree that nothing in this Agreement shall be deemed to modify, amend, or supersede the protective provisions set forth in the Company's Amended and Restated Certificate of Incorporation (as it may be further amended and restated from time to time), which require the consent of holders of specified percentages of the outstanding Preferred Stock prior to the authorization or issuance of certain equity securities, and the Investors' right of first refusal hereunder shall be in addition to any consent rights required thereunder.
ARTICLE 4 — DRAG-ALONG RIGHTS
Section 4.1 — Drag-Along Obligation
(a) Note: This Section 4.1 is drafted in skeleton form pending resolution of the parallel provisions in the Amended and Restated Voting Agreement of even date herewith (the "Voting Agreement"). The parties anticipate that the drag-along provisions may be addressed solely in the Voting Agreement, and the final form of this Section 4.1 will be conformed accordingly. To the extent any inconsistency exists between this Section 4.1 and the corresponding provisions of the Voting Agreement, the Voting Agreement shall control.
(b) Subject to the terms and conditions of this Section 4.1, if the holders of a majority of the then-outstanding shares of Preferred Stock (voting together as a single class on an as-converted-to-Common-Stock basis) (the "Approving Holders") approve a Sale of the Company, then each stockholder of the Company (including each Key Holder and each Investor) shall be obligated to:
(i) vote all shares of capital stock of the Company held by such stockholder (whether Common Stock or Preferred Stock) in favor of, and not object to or otherwise impede, such Sale of the Company;
(ii) tender, sell, and transfer all shares of capital stock of the Company held by such stockholder in such Sale of the Company, on the same terms and conditions as the Approving Holders, subject to any applicable liquidation preferences or other preferential rights attached to the Preferred Stock as set forth in the Company's Amended and Restated Certificate of Incorporation;
(iii) execute and deliver all agreements, certificates, instruments, and other documents, and take all such other actions, as may be reasonably necessary or desirable to consummate such Sale of the Company, including executing a definitive purchase agreement, merger agreement, or similar agreement, and any ancillary documents reasonably required in connection therewith; and
(iv) refrain from exercising any appraisal rights, dissenters' rights, or similar rights under the Delaware General Corporation Law or any other applicable law in connection with such Sale of the Company.
(c) For purposes of this Agreement, "Sale of the Company" means any of the following transactions:
(i) a merger, consolidation, or other business combination of the Company with or into any other Person (other than a wholly-owned subsidiary of the Company), in which the stockholders of the Company immediately prior to such transaction hold less than a majority of the outstanding voting power of the surviving or resulting entity immediately following such transaction;
(ii) a sale, lease, license, transfer, or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, in one transaction or a series of related transactions; or
(iii) any other transaction or series of related transactions that results in a change of control of the Company, where "change of control" means the acquisition by any Person or group of Persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of beneficial ownership of securities representing more than fifty percent (50%) of the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors.
(d) Open Negotiation Point — Minimum Enterprise Value Floor: The Key Holders have proposed that the drag-along obligation set forth in this Section 4.1 shall not be triggered unless the aggregate enterprise value implied by the Sale of the Company equals or exceeds Five Hundred Million Dollars ($500,000,000) (the "Minimum EV Floor"). The Key Holders' position is that any Sale of the Company below the Minimum EV Floor should require the affirmative consent of each Key Holder, in addition to the approval of the Approving Holders. The existing Investors are currently divided on this issue: Ridgeline Ventures Fund III LP and Brindoval Capital Group LLC have expressed support for the Key Holders' proposed Minimum EV Floor, while Northgate Growth Partners Fund II LP and Pinnacle Venture Fund II LP have taken the position that the drag-along should be triggered solely by the vote of the holders of a majority of the Preferred Stock, without a minimum enterprise value threshold. Final language on this point is subject to ongoing negotiation and may be addressed solely in the Voting Agreement. The parties agree to negotiate in good faith to resolve this issue prior to the closing of the transactions contemplated by the Purchase Agreement.
Section 4.2 — Exceptions to Drag-Along
(a) Notwithstanding Section 4.1, no stockholder shall be obligated in connection with a Sale of the Company to:
(i) make any representations, warranties, or covenants with respect to any matter other than (A) such stockholder's ownership of and authority to transfer such stockholder's shares, (B) the absence of liens and encumbrances on such stockholder's shares (other than restrictions arising under this Agreement and applicable securities laws), and (C) the enforceability of the transaction documents against such stockholder;
(ii) agree to any non-competition, non-solicitation, or similar restrictive covenant in connection with such Sale of the Company, unless the Key Holder is separately compensated therefor;
(iii) be liable for any indemnification obligations in connection with such Sale of the Company in excess of the net proceeds actually received by such stockholder in the transaction (and any such indemnification obligations shall be allocated among the stockholders on a pro rata basis based on the consideration received by each stockholder); or
(iv) be liable on a several (and not joint) basis with respect to any indemnification obligations, and in no event shall any stockholder have any liability for breaches of representations, warranties, or covenants made by any other stockholder or by the Company (other than representations, warranties, or covenants that relate to the Company and are made on a joint basis by all stockholders, in which case liability shall be shared pro rata among all stockholders).
(b) The provisions of this Section 4.2 are subject to further negotiation and refinement in connection with the finalization of the Voting Agreement.
ARTICLE 5 — TRANSFER AND ASSIGNMENT
Section 5.1 — Assignment of Rights
(a) The rights of each Investor under this Agreement (including the Right of First Refusal, the Co-Sale Right, and the right of first refusal on new issuances) may be transferred or assigned, in whole or in part, to:
(i) any Affiliate of such Investor;
(ii) any transferee or assignee that acquires at least twenty-five percent (25%) of the shares of Preferred Stock originally held by such Investor (as adjusted for any stock split, stock dividend, combination, recapitalization, or similar transaction); or
(iii) any other transferee or assignee that is approved in writing by the Company (such approval not to be unreasonably withheld, conditioned, or delayed).
(b) No assignment of an Investor's rights under this Agreement shall be effective unless and until (i) the transferring Investor shall have delivered to the Company written notice of such assignment, which notice shall include the name and address of the assignee, and (ii) the assignee shall have executed and delivered to the Company a joinder agreement in substantially the form attached hereto as Exhibit C, pursuant to which the assignee agrees to be bound by, and become a party to, this Agreement as an Investor with respect to the shares of Preferred Stock acquired by such assignee.
(c) Upon compliance with the foregoing provisions, any such assignee shall be deemed an "Investor" for all purposes of this Agreement and shall be entitled to exercise all rights and be subject to all obligations of an Investor hereunder with respect to the shares of Preferred Stock acquired by such assignee.
Section 5.2 — Assignment of Key Holder Obligations
The obligations of each Key Holder under this Agreement are personal to such Key Holder and may not be transferred, assigned, or delegated, in whole or in part, to any other Person, except in connection with an Exempt Transfer described in Section 2.5 where the transferee has executed and delivered to the Company a joinder agreement in substantially the form attached hereto as Exhibit C pursuant to which the transferee agrees to be bound by, and become a party to, this Agreement as a Key Holder with respect to the shares of Equity Securities acquired by such transferee. No assignment or delegation by a Key Holder shall relieve such Key Holder of any of his or her obligations under this Agreement with respect to any shares of Equity Securities that continue to be held by such Key Holder following such assignment or delegation.
ARTICLE 6 — LEGEND
Section 6.1 — Stock Certificate Legend
All certificates representing shares of Equity Securities held by the Key Holders (and all certificates representing shares issued to any transferee of the Key Holders that becomes bound by this Agreement) shall bear the following conspicuous legend (or a legend substantially similar thereto), in addition to any legends required by applicable federal or state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, INCLUDING RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS, AS SET FORTH IN THAT CERTAIN AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT, DATED AS OF JUNE 20, 2022, BY AND AMONG VERDANA SOFTWARE, INC., CERTAIN KEY HOLDERS, AND CERTAIN INVESTORS, AS THE SAME MAY BE AMENDED, RESTATED, SUPPLEMENTED, OR OTHERWISE MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF OR ANY PROSPECTIVE TRANSFEREE BY CONTACTING THE SECRETARY OF VERDANA SOFTWARE, INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
In the event that the Company's shares are held in uncertificated book-entry form, the Company shall cause the foregoing legend (or a notation to substantially similar effect) to be placed in the share records maintained by the Company's transfer agent and registrar.
Section 6.2 — Stop Transfer Instructions
The Company shall issue appropriate stop transfer instructions to its transfer agent and registrar (or, if the Company acts as its own transfer agent, to the appropriate officers of the Company) with respect to all shares of Equity Securities held by the Key Holders (and any shares issued to transferees who become bound by this Agreement), directing such transfer agent, registrar, or officers to impose appropriate stop transfer restrictions to ensure compliance with the terms and conditions of this Agreement. The stop transfer instructions shall provide that no transfer of shares subject to this Agreement shall be registered or effected unless the Company shall have received evidence satisfactory to it (which may include an opinion of counsel) that such transfer complies with the terms of this Agreement and applicable securities laws.
ARTICLE 7 — REPRESENTATIONS AND WARRANTIES
Section 7.1 — Key Holder Representations
Each Key Holder, severally and not jointly, hereby represents and warrants to the Company and each Investor as of the date hereof as follows:
(a) Power and Authority. Such Key Holder has full legal capacity, power, and authority to execute, deliver, and perform his or her obligations under this Agreement.
(b) Valid and Binding Obligation. This Agreement has been duly executed and delivered by such Key Holder and constitutes the valid and legally binding obligation of such Key Holder, enforceable against such Key Holder in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
(c) No Conflicts. The execution, delivery, and performance by such Key Holder of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) violate any law, rule, regulation, order, judgment, or decree applicable to such Key Holder, (ii) conflict with or result in a breach of any agreement, contract, or instrument to which such Key Holder is a party or by which such Key Holder or any of his or her assets is bound, or (iii) require any consent, approval, or authorization of, or filing, registration, or qualification with, any governmental authority or other third party.
(d) Ownership of Shares. The shares of Equity Securities listed below are owned of record and beneficially by such Key Holder, free and clear of all liens, claims, pledges, security interests, mortgages, charges, encumbrances, options, and restrictions of any kind or nature whatsoever, other than (i) restrictions on transfer arising under this Agreement and the Prior Agreement (to the extent superseded hereby), (ii) restrictions imposed by applicable federal and state securities laws, and (iii) any community property interests of such Key Holder's spouse (if applicable).
(e) Schedule of Key Holder Shares. The following sets forth the Equity Securities held by each Key Holder as of the date hereof:
Section 7.2 — Investor Representations
Each Investor, severally and not jointly, hereby represents and warrants to the Company and each Key Holder as of the date hereof as follows:
(a) Power and Authority. Such Investor is a legal entity duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and has full power and authority (including all necessary limited partnership or limited liability company authority, as applicable) to execute, deliver, and perform its obligations under this Agreement.
(b) Valid and Binding Obligation. This Agreement has been duly authorized by all necessary action on the part of such Investor, and has been duly executed and delivered by such Investor, and constitutes the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
Section 7.3 — Company Representations
The Company hereby represents and warrants to each Investor and each Key Holder as of the date hereof as follows:
(a) Organization and Good Standing. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business and is in good standing in each jurisdiction where the nature of its business or the ownership, operation, or leasing of its properties requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company.
(b) Power and Authority. The Company has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
(c) Due Authorization. The execution, delivery, and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, including the approval of the Board of Directors and, to the extent required, the stockholders of the Company.
(d) Capitalization. The Company's authorized and outstanding capitalization as of the date hereof (prior to giving effect to the transactions contemplated by the Purchase Agreement) is as set forth on Exhibit A hereto, which is true, correct, and complete in all material respects.
ARTICLE 8 — MISCELLANEOUS
Section 8.1 — Termination
(a) This Agreement shall terminate and be of no further force or effect upon the earliest to occur of the following:
(i) the closing of a Qualified IPO;
(ii) the consummation of a Sale of the Company that has been approved in accordance with the terms of this Agreement (including Article 4) and the Voting Agreement;
(iii) the mutual written consent of (A) the Company, (B) the holders of a majority of the then-outstanding shares of Preferred Stock (voting together as a single class on an as-converted-to-Common-Stock basis), and (C) the Key Holders; or
(iv) the dissolution or winding up of the Company in accordance with the Delaware General Corporation Law and the Company's Amended and Restated Certificate of Incorporation.
(b) Notwithstanding Section 8.1(a), termination of this Agreement shall not relieve any party of any liability for any breach of this Agreement occurring prior to such termination. The provisions of this Article 8 (other than this Section 8.1) shall survive the termination of this Agreement to the extent necessary to give effect to the rights and obligations of the parties arising prior to or in connection with such termination.