CONFIDENTIAL — ATTORNEY WORK PRODUCT — SUBJECT TO FURTHER NEGOTIATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
by and between
VERDANA SOFTWARE, INC.
a Delaware corporation
and
PINNACLE VENTURE FUND II LP
a Delaware limited partnership
Dated as of June 8, 2022
INITIAL DRAFT — Prepared by Calderwood & Harkness LLP Attorney Work Product — Subject to Further Negotiation — Not an Executed Agreement
Calderwood & Harkness LLP Matter No. 1002-00004
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of June 8, 2022, by and between VERDANA SOFTWARE, INC., a Delaware corporation (the "Company"), and PINNACLE VENTURE FUND II LP, a Delaware limited partnership (the "Purchaser").
RECITALS
WHEREAS, the Company desires to issue and sell, and the Purchaser desires to purchase, shares of the Company's Series D Preferred Stock, par value $0.0001 per share, on the terms and subject to the conditions set forth herein;
WHEREAS, the Company and the Purchaser desire to set forth the terms and conditions upon which the Purchaser will make an investment of Sixty Million Dollars ($60,000,000) in the Company in exchange for shares of Series D Preferred Stock;
WHEREAS, in connection with the purchase and sale of the Series D Preferred Stock, the parties desire to enter into certain ancillary agreements, including an Amended and Restated Investors' Rights Agreement, an Amended and Restated Right of First Refusal and Co-Sale Agreement, an Amended and Restated Voting Agreement, a Management Rights Letter, and an Indemnification Agreement, each in substantially the forms attached hereto;
WHEREAS, the Company's Board of Directors has approved, subject to stockholder approval, an Amended and Restated Certificate of Incorporation authorizing the creation, issuance, and sale of the Series D Preferred Stock with the rights, preferences, privileges, and restrictions set forth therein; and
WHEREAS, the Company and the Purchaser desire to set forth certain representations, warranties, covenants, and indemnification obligations in connection with the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows:
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 Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through 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 such first Person owns or holds, directly or indirectly, more than fifty percent (50%) of the equity interests or voting power of such other Person.
"Agreement" means this Series D Preferred Stock Purchase Agreement, including all Exhibits, Schedules, and Disclosure Schedules attached hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with Section 9.6 hereof.
"Aggregate Purchase Price" has the meaning set forth in Section 2.1.
"Amended Certificate" means the Amended and Restated Certificate of Incorporation of the Company, in substantially the form attached hereto as Exhibit A, which shall authorize the Series D Preferred Stock and set forth the rights, preferences, privileges, and restrictions thereof, and which shall be filed with the Secretary of State of the State of Delaware on or prior to the Closing Date.
"Board" or "Board of Directors" means the board of directors of the Company, as constituted from time to time in accordance with the Company's Certificate of Incorporation, bylaws, and the Voting Agreement.
"Business Day" means any day other than a Saturday, Sunday, or any other day on which commercial banking institutions in San Francisco, California or Portland, Oregon are authorized or required by applicable law, regulation, or executive order to close.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto, together with all regulations, rulings, and interpretations promulgated thereunder or with respect thereto.
"Common Stock" means the common stock, par value $0.0001 per share, of the Company.
"Company" means Verdana Software, Inc., a Delaware corporation, Employer Identification Number 93-1485726, with its principal executive office located at 1175 NW Couch Street, Suite 800, Portland, OR 97209, and its registered agent for service of process at c/o Cascade Systems, 1209 Orange Street, Wilmington, DE 19801 (Delaware Secretary of State File Number 6274913).
"Company intellectual Property" means all intellectual Property owned by, licensed to, or otherwise held or used by the Company in the conduct of its business as currently conducted, including all rights in and to the Verdana SCX platform (the Company's AI-powered supply chain optimization SaaS platform), all related software code (source code and object code), algorithms, machine learning models, training data, databases, user interfaces, documentation, and all derivative works, improvements, and enhancements thereof.
"Deductible" has the meaning set forth in Section 7.4(a).
"DGCL" means the Delaware General Corporation Law, Title 8, Chapter 1 of the Delaware Code, as amended from time to time.
"Disclosure Schedules" means the disclosure schedules delivered by the Company to the Purchaser concurrently with the execution and delivery of this Agreement, as referenced in Article 3 and the applicable Sections thereof, which Disclosure Schedules are incorporated herein by reference and form a part of this Agreement.
"Encumbrance" means any lien, pledge, hypothecation, mortgage, deed of trust, security interest, charge, claim, community property interest, equitable interest, option, right of first refusal, right of first offer, preemptive right, restriction on transfer (including any buy-sell agreement, right of first refusal agreement, or co-sale agreement, other than the Transaction Documents), restrictive covenant, easement, encroachment, or other similar restriction or encumbrance of any kind or nature whatsoever.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute thereto, together with all regulations and interpretations promulgated thereunder.
"ESOP" or "Equity Incentive Plan" means the Company's 2016 Equity Incentive Plan, as amended, and any successor plan thereto, under which shares of Common Stock are currently reserved for issuance to employees, directors, consultants, and other service providers of the
"Existing Credit Facility" means that certain Revolving Credit Agreement dated as of July 1, 2021, by and between the Company, as borrower, and Pacific Summit Bank, N.A., as lender, providing for a revolving credit facility with a maximum facility limit of $10,000,000, of which $6,200,000 was drawn and outstanding as of March 31, 2022, bearing interest at a rate per annum equal to the Secured Overnight Financing Rate (SOFR) plus a maturity date of June 30, 2024, as such agreement has been amended, restated, supplemented, or otherwise modified from time to time prior to the date hereof.
"Existing Investors" means, collectively, Ridgeline Ventures Fund III LP (holder of Series A Preferred Stock), Northgate Growth Partners Fund II LP (holder of Series B Preferred Stock), and Brindoval Capital Group LLC (holder of Series C Preferred Stock).
"Founders" means, collectively, Raj Anand and Lena Kovac, each in his or her individual capacity as a stockholder of the Company.
"Fully Diluted Capitalization" means, as of any date of determination, the total number of shares of Common Stock of the Company outstanding or deemed outstanding, calculated on a fully diluted basis, including: (a) all shares of Common Stock then outstanding; (b) all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock (including all shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock); (c) all shares of Common Stock reserved for issuance under the ESOP (whether or not subject to outstanding options, restricted stock units, or other awards, and whether vested or unvested); and (d) all shares of Series D Preferred Stock to be issued to the Purchaser hereunder (on an as-converted to Common Stock basis). For the avoidance of doubt, the Fully Diluted Capitalization as of the date hereof, after giving effect to the issuance of the Shares, is shares.
"Fundamental Representations" means the representations and warranties of the Company set forth in Section 3.1 (Organization, Good Standing, and Qualification), Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 3.11 (Tax Matters), and Section 3.17 (Brokers and Finders).
"GAAP" means United States generally accepted accounting principles, consistently applied throughout the periods involved.
"Governmental Authority" means any federal, state, local, municipal, or foreign government, or any department, commission, board, bureau, agency, authority, instrumentality, regulatory body, court, tribunal, arbitrator, or other judicial or quasi-judicial body of any such government, including the United States Securities and Exchange Commission, the Internal Revenue Service, the Federal Trade Commission, and the Delaware Secretary of State.
"Indemnified Party" has the meaning set forth in Section 7.5.
"Indemnifying Party" has the meaning set forth in Section 7.5.
"intellectual Property" means all intellectual property rights of any kind or nature, including: (a) patents, patent applications, and patent disclosures; (b) trademarks, service marks, trade names, trade dress, logos, and domain names, together with all goodwill associated therewith; (c) copyrights, copyrightable works, and rights in databases; (d) trade secrets, know-how, inventions (whether or not patentable), algorithms, processes, techniques, and confidential business information; (e) software (including source code and object code), firmware, and documentation; and (f) all registrations, applications, renewals, extensions, and similar protections relating to any of the foregoing, in each case in any jurisdiction worldwide.
"Investors' Rights Agreement" means the Amended and Restated Investors' Rights Agreement to be entered into at Closing by and among the Company, the Purchaser, the Existing Investors, and the Founders, in substantially the form attached hereto as Exhibit B.
"Key Employee" means each of Raj Anand (Chief Executive Officer and Co-Founder), Lena Kovac (Chief Technology Officer and Co-Founder), and Thomas Brightwell (Chief Financial Officer).
"Knowledge of the Company" or "to the Company's Knowledge" means the actual knowledge of Raj Anand (Chief Executive Officer and Co-Founder), Lena Kovac (Chief Technology Officer and Co-Founder), Thomas Brightwell (Chief Financial Officer), and Sandra Mikkelsen (General Counsel), in each case after
"Lien" means any mortgage, deed of trust, pledge, hypothecation, security interest, encumbrance, lien, charge, or other similar restriction or interest of any kind, whether voluntarily incurred or arising by operation of law or otherwise.
"Losses" has the meaning set forth in Section 7.2.
"Management Rights Letter" means the Management Rights Letter to be delivered by the Company to the Purchaser at Closing, in substantially the form attached hereto as Exhibit E.
"Material Adverse Effect" means any change, event, occurrence, circumstance, condition, development, or effect that, individually or in the aggregate with all other changes, events, occurrences, circumstances, conditions, developments, or effects, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, properties, financial condition, or results of operations of the Company, or (b) the ability of the Company to consummate the transactions contemplated by this Agreement and the other Transaction Documents; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, or shall be taken into account in determining whether there has been or would reasonably be expected to be, a Material Adverse Effect: (i) changes in general economic, financial, or market conditions affecting the United States or global economy generally; (ii) changes in conditions generally affecting the industry or markets in which the Company operates, including the enterprise software, supply chain technology, and software-as-a-service industries; (iii) changes in applicable law, regulation, or GAAP (or the interpretation or enforcement thereof); (iv) acts of war, armed hostility, sabotage, terrorism, or military action, or any escalation or worsening thereof; (v) epidemics, pandemics, or disease outbreaks (including COVID-19 and any related variants or mutations); (vi) earthquakes, hurricanes, floods, or other natural disasters; (vii) any failure by the Company to meet internal or published industry analyst projections or forecasts of revenue, earnings, or other financial metrics for any period (it being understood that the underlying causes of any such failure may be taken into account in determining whether a Material Adverse Effect has provided further, that with respect to clauses (i), (ii), (iii), (iv), (v), (vi), such changes, events, or conditions may be taken into account in determining whether a Material Adverse Effect has occurred to the extent they have a disproportionate adverse effect on the Company relative to other similarly situated companies in the same industry and markets.
"Outside Date" has the meaning set forth in Section 8.1(b).
"Pacific Summit Consent" means the written consent, waiver, or confirmation of Pacific Summit Bank, N.A. (or its successors or assigns), in form and substance reasonably satisfactory to the Purchaser, that the transactions contemplated by this Agreement, including the issuance and sale of the Shares, do not violate any covenant, trigger any default or event of default, accelerate any obligation, or constitute a "Change of Control" (as defined in the Existing Credit Facility) under the Existing Credit Facility.
"Permitted Encumbrances" means (a) statutory liens for current Taxes not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (b) mechanics', carriers', workers', repairers', and other similar liens arising or incurred in the ordinary course of business; (c) zoning, entitlement, building, and other land use regulations imposed by any Governmental Authority having jurisdiction over the Company's leased real property, which are not violated by the current use or occupancy of such real property; (d) covenants, conditions, restrictions, easements, and other similar matters of record affecting title to the Company's leased real property that do not materially impair the occupancy or use of such real property; and (e) Encumbrances securing obligations under the Existing Credit Facility.
"Person" means any individual, corporation, partnership, limited partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or other legal entity.
"Pre-Money Valuation" means
"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.
"Purchase Price" means per share of Series D Preferred Stock, reflecting the Pre-Money Valuation of divided by the pre-investment Fully Diluted Capitalization of 80,000,000 shares, resulting in a per-share price of
"Purchaser" means Pinnacle Venture Fund II LP, a Delaware limited partnership, Employer Identification Number 84-3921057, with its principal office at 2400 Sand Hill Road, Suite 310, Menlo Park, CA 94025, acting through its duly authorized general partner, Pinnacle Capital Management LLC, a Delaware limited liability company, Employer Identification Number 84-2817634.
"Purchaser Indemnified Parties" has the meaning set forth in Section 7.2.
"Registration Rights Agreement" means the registration rights provisions set forth in the Investors' Rights Agreement.
"Right of First Refusal and Co-Sale Agreement" means the Amended and Restated Right of First Refusal and Co-Sale Agreement to be entered into at Closing by and among the Company, the Purchaser, the Existing Investors, and the Founders, in substantially the form attached hereto as Exhibit C.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the 12,000,000 shares of Series A Preferred Stock, par value $0.0001 per share, of the Company, issued to Ridgeline Ventures Fund III LP at a price of $0.80 per share for an aggregate purchase price of $9,600,000 in 2018.
"Series B Preferred Stock" means the 16,000,000 shares of Series B Preferred Stock, par value $0.0001 per share, of the Company, issued to Northgate Growth Partners Fund II LP at a price of $2.00 per share for an aggregate purchase price of $32,000,000 in 2019.
"Series C Preferred Stock" means the 12,000,000 shares of Series C Preferred Stock, par value $0.0001 per share, of the Company, issued to Brindoval Capital Group LLC at a price of $3.00 per share for an aggregate purchase price of $36,000,000 in 2021.
"Series D Preferred Stock" means the shares of Series D Preferred Stock, par value $0.0001 per share, of the Company to be authorized pursuant to the Amended Certificate and issued to the Purchaser pursuant to this Agreement, consisting of
"Shares" means the shares of Series D Preferred Stock to be issued and sold by the Company to the Purchaser pursuant to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, joint venture, association, or other entity of which such Person (a) beneficially owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities or equity interests, or (b) otherwise has the power to vote, directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.
"Transaction Documents" means, collectively, this Agreement, the Amended Certificate, the Investors' Rights Agreement, the Right of First Refusal and Co-Sale Agreement, the Voting Agreement, the Management Rights Letter, the Indemnification Agreement (Pinnacle Board Designee), and each other agreement, document, instrument, or certificate contemplated by or delivered in connection with this Agreement and the transactions contemplated hereby.
"Voting Agreement" means the Amended and Restated Voting Agreement to be entered into at Closing by and among the Company, the Purchaser, the Existing Investors, and the Founders, in substantially the form attached hereto as Exhibit D.
Section 1.2 — Interpretation
(a) Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement; (iv) the terms "Article," "Section," "Schedule," "Exhibit," and "Disclosure Schedule" refer to the specified Article, Section, Schedule, Exhibit, or Disclosure Schedule of or to this Agreement, unless otherwise specified; and (v) the term "or" is not exclusive and shall have the inclusive meaning represented by the phrase "and/or."
(b) The word "including" (and with correlative meaning, "include" and "includes") means including without limiting the generality of any description preceding or following such term, and shall be deemed in each case to be followed by the words "without limitation."
(c) All references to statutes, laws, rules, and regulations shall be deemed to refer to such statutes, laws, rules, and regulations as they may be amended, supplemented, or otherwise modified from time to time, and shall include all rules and regulations promulgated thereunder, unless the context otherwise requires.
(d) All references to dollars or "$" shall mean the lawful currency of the United States of America.
(e) The recitals set forth above and all Exhibits, Schedules, and Disclosure Schedules attached hereto are hereby incorporated into and made a part of this Agreement.
(f) The headings and captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement, and shall not be referred to in connection with the construction or interpretation of this Agreement.
(g) All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP, consistently applied.
(h) When calculating the period of time before which, within which, or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day.
ARTICLE 2 — PURCHASE AND SALE OF SERIES D PREFERRED STOCK
Section 2.1 — Sale and Issuance of Series D Preferred Stock
Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, shares of Series D Preferred Stock (the "Shares") at a purchase price of per share (the "Purchase Price"), for an aggregate purchase price of Sixty Million Dollars ($60,000,000) (the "Aggregate Purchase Price").
The Shares shall have the rights, preferences, privileges, and restrictions set forth in the Amended Certificate, including those described in Exhibit A hereto. Without limiting the foregoing, the key economic and governance terms of the Series D Preferred Stock, as set forth in the Amended Certificate, include a 1.5x non-participating liquidation preference, full-ratchet anti-dilution protection, 8% cumulative non-compounding dividends, optional conversion to Common Stock, voting rights on an as-converted basis, protective provisions, and redemption rights after five (5) years from the date of original issuance.
Section 2.2 — Closing; Delivery
(a) Closing Date. The closing of the purchase and sale of the Shares (the "Closing") shall take place remotely via the electronic exchange of documents and signatures on a date mutually agreed upon by the Company and the Purchaser in writing, but in no event later than five (5) Business Days after the satisfaction or written waiver of all conditions precedent set forth in Article 5 (other than those conditions which by their nature are to be satisfied at the Closing itself, but subject to the satisfaction or waiver of such conditions) (the "Closing Date"), or at such other time, date, and place as the Company and the Purchaser may mutually agree in writing.
(b) Deliveries by the Company. At the Closing, the Company shall deliver (or cause to be delivered) to the Purchaser the following:
(i) a stock certificate or evidence of book-entry issuance, duly executed by the Company, representing shares of Series D Preferred Stock, registered in the name of Pinnacle Venture Fund II LP, free and clear of all Encumbrances (other than restrictions on transfer under the Securities Act and the Transaction Documents);
(ii) a certified copy of the Amended Certificate, as filed with and accepted by the Delaware Secretary of State, bearing evidence of such filing, and a confirmation that the Amended Certificate is in full force and effect;
(iii) executed counterparts of each of the following Transaction Documents, duly executed by the Company and, to the extent applicable, by the Existing Investors and the Founders: (A) the Investors' Rights Agreement, (B) the Right of First Refusal and Co-Sale Agreement, (C) the Voting Agreement, (D) the Management Rights Letter, and (E) the Indemnification Agreement for the Purchaser's board designee (Marcus Trejo or his designee);
(iv) an opinion of the Company's counsel, Langford Price & Associates LLP (Attn: Jonathan Hale), dated as of the Closing Date, addressed to the Purchaser and its counsel, in substantially the form attached hereto as Exhibit G, covering such matters as the Purchaser and its counsel, Calderwood & Harkness LLP, may reasonably request, including due authorization, valid issuance, no conflicts, enforceability, and compliance with applicable Delaware
(v) the compliance certificates described in Section 5.1(j);
(vi) the Pacific Summit
(vii) the completed Disclosure Schedules referenced in Article 3, in form and substance reasonably satisfactory to the Purchaser;
(viii) a certificate of good standing (or equivalent) for the Company issued by the Delaware Secretary of State, dated not more than five (5) Business Days prior to the Closing Date, and a certificate of good standing (or equivalent) for the Company issued by the Oregon Secretary of State, dated not more than five (5) Business Days prior to the Closing Date;
(ix) a certificate of the Secretary (or an Assistant Secretary) of the Company, dated as of the Closing Date, certifying as to (A) the Amended Certificate, as in effect on the Closing Date, (B) the bylaws of the Company, as in effect on the Closing Date, and (C) the resolutions of the Board of Directors and the stockholders of the Company authorizing the execution, delivery, and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, including the issuance and sale of the Shares; and
(x) such other documents, instruments, or certificates as the Purchaser may reasonably request in connection with the Closing.
(c) Deliveries by the Purchaser. At the Closing, the Purchaser shall deliver (or cause to be delivered) to the Company the following:
(i) the Aggregate Purchase Price of Sixty Million Dollars ($60,000,000), by wire transfer of immediately available funds in United States dollars to one or more bank accounts designated by the Company in writing to the Purchaser not less than two (2) Business Days prior to the Closing Date; and
(ii) executed counterparts of each of the Transaction Documents to which the Purchaser is a party, including the Investors' Rights Agreement, the Right of First Refusal and Co-Sale Agreement, the Voting Agreement, and the Management Rights Letter.
Section 2.3 — Use of Proceeds
The Company shall use the proceeds of the investment contemplated by this Agreement for general corporate purposes, including product development and engineering (including further development and enhancement of the Verdana SCX platform), sales and marketing expansion, hiring and headcount growth, and working capital The Company acknowledges that the Purchaser is making this investment based on the Company's business plan as presented to the Purchaser, and the Company shall use the proceeds in a manner consistent with such business plan and the board-approved annual operating budget.
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding section of the Disclosure Schedules (it being understood and agreed that any disclosure in any section or subsection of the Disclosure Schedules shall be deemed to be disclosed with respect to each other section or subsection of this Article 3 to the extent the relevance of such disclosure to such other section or subsection is reasonably apparent on the face of such disclosure), the Company hereby represents and warrants to the Purchaser as of the date hereof and as of the Closing Date as follows:
Section 3.1 — Organization, Good Standing, and Qualification
The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, Delaware Secretary of State File Number 6274913. The Company was incorporated in 2016 and has the corporate power and authority to own, lease, and operate its properties and to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the character or location of the properties owned, leased, or operated by it makes such qualification necessary, including the State of Oregon, where the Company maintains its principal executive office at 1175 NW Couch Street, Suite 800, Portland, OR 97209. The Company's registered agent for service of process in the State of Delaware is Cascade Systems, 1209 Orange Street, Wilmington, DE 19801. The failure of the Company to be so qualified or in good standing in any other jurisdiction has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has delivered to the Purchaser true, correct, and complete copies of the Company's Certificate of Incorporation (as currently in effect) and bylaws (as currently in effect), and the Company is not in violation of any provision thereof.
Section 3.2 — Authorization
The Company has full corporate power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby, including the issuance and sale of the Shares. The execution, delivery, and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby (including the filing of the Amended Certificate and the issuance and sale of the Shares), have been duly authorized by all necessary corporate action on the part of the Company, including approval by the Board of Directors and, to the extent required under the DGCL or the Company's Certificate of Incorporation, the requisite vote or written consent of the stockholders of the Company. No other corporate proceeding on the part of the Company is necessary to authorize this Agreement or the other Transaction Documents or the transactions contemplated hereby and thereby. This Agreement has been, and at the Closing each of the other Transaction Documents will be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution, and delivery by the Purchaser and the other parties thereto, constitutes, or will constitute, a legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the rights and remedies of creditors generally, and (b) general principles of equity, whether applied in a proceeding at law or in equity (collectively, the "Enforceability Exceptions").
The execution, delivery, and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) conflict with, violate, or result in a breach of any provision of the Company's Certificate of Incorporation (as amended by the Amended Certificate) or bylaws, (ii) conflict with, violate, or result in a breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or give rise to any right of termination, cancellation, or acceleration under, any Material Contract to which the Company is a party or by which any of its properties or assets are bound, except as would not reasonably be expected to have a Material Adverse Effect, (iii) result in the creation or imposition of any Encumbrance upon any of the properties or assets of the Company, except for Permitted Encumbrances, or (iv) violate any order, writ, injunction, decree, statute, rule, or regulation applicable to the Company or any of its properties or assets, except as would not reasonably be expected to have a Material Adverse Effect.
Section 3.3 — Capitalization
(a) Authorized Capital Stock. The Company's authorized capital stock, as set forth in the Certificate of Incorporation as currently in effect (and as will be amended by the Amended Certificate at or prior to the Closing), consists of (i) 150,000,000 shares of Common Stock, par value $0.0001 per share, and (ii) 75,000,000 shares of Preferred Stock, par value $0.0001 per share, of which 12,000,000 shares are designated as Series A Preferred Stock, 16,000,000 shares are designated as Series B Preferred Stock, 12,000,000 shares are designated as Series C Preferred Stock, and shares are designated (or will be designated pursuant to the Amended Certificate) as Series D Preferred Stock.
(b) Issued and Outstanding Shares. As of the date hereof, on a fully diluted basis and immediately prior to giving effect to the transactions contemplated by this Agreement, the Company's capitalization consists of shares, as follows:
(c) Except as set forth in Schedule 3.3(c), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights), proxy or stockholder agreements, or agreements, arrangements, or commitments of any character relating to the issued or unissued capital stock of the Company or obligating the Company to issue or sell any shares of capital stock of, or any other equity interest in, the Company.
(d) Of the shares reserved under the Schedule 3.3(d) sets forth, as of the date hereof: (i) the number of shares subject to outstanding options (including the name of the optionholder, date of grant, number of shares subject to each option, exercise price, and vesting schedule), (ii) the number of shares of restricted stock or restricted stock units outstanding, (iii) the number of shares that have been exercised or settled, and (iv) the number of shares remaining available for future grants. All grants under the ESOP have been made in compliance with all applicable laws and the terms of the ESOP.
(e) No preemptive rights, rights of first refusal, co-sale rights, or similar rights exist with respect to the Company's capital stock, except as set forth in the existing Investors' Rights Agreement dated as of September 15, 2021, and the existing Right of First Refusal and Co-Sale Agreement dated as of September 15, 2021, each of which will be amended and restated at Closing in connection with the transactions contemplated
(f) All outstanding shares of Common Stock and Preferred Stock of the Company have been duly authorized, validly issued, fully paid, and nonassessable and were issued in compliance with (i) the Company's Certificate of Incorporation and bylaws, (ii) all applicable federal and state securities laws, and (iii) all requirements set forth in any applicable agreements or instruments. No shares of Common Stock or Preferred Stock are subject to, or have been issued in violation of, any purchase option, call option, right of first refusal, preemptive right, subscription right, or similar right under the DGCL, the Company's Certificate of Incorporation or bylaws, or any agreement to which the Company is a party or by which it is bound.
(g) The Shares, when issued, sold, and delivered in accordance with the terms and for the consideration set forth in this Agreement and the Amended Certificate, will be duly authorized, validly issued, fully paid, and nonassessable, free and clear of all Encumbrances (other than restrictions on transfer under the Securities Act and applicable state securities laws and as otherwise set forth in the Transaction Documents). The shares of Common Stock issuable upon conversion of the Shares have been duly reserved for issuance and, when issued in accordance with the terms of the Amended Certificate, will be validly issued, fully paid, and nonassessable, free and clear of all Encumbrances (other than restrictions on transfer under the Securities Act and applicable state securities laws and as otherwise set forth in the Transaction Documents).
Section 3.4 — Subsidiaries
Except as set forth in Schedule 3.4, the Company does not own, directly or indirectly, any equity interest, membership interest, partnership interest, joint venture interest, or other ownership interest in, and is not a member, partner, or participant in, any corporation, partnership, limited liability company, joint venture, association, or other entity. For each Subsidiary disclosed in Schedule 3.4, the Company has indicated the jurisdiction of organization, the percentage of equity owned by the Company, and the nature of the Subsidiary's business.
Section 3.5 — Financial Statements
(a) The Company has delivered to the Purchaser true, correct, and complete copies of: (i) the audited consolidated balance sheet and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows of the Company for the fiscal year ended December 31, 2021, together with the notes thereto and the report thereon of the Company's independent registered public accounting firm, Whitfield & Greer LLP (engagement partner: Gerald Whitfield) (the "Annual Financial Statements"); and (ii) the unaudited consolidated balance sheet and the related consolidated statements of income of the Company for the fiscal quarter ended March 31, 2022 (the "Interim Financial Statements" and, together with the Annual Financial Statements, the "Financial Statements").
(b) The Financial Statements (i) were prepared in accordance with GAAP, applied on a consistent basis throughout the periods indicated (subject, in the case of the Interim Financial Statements, to the absence of footnotes and normal year-end audit adjustments, none of which are expected to be material), and (ii) present fairly, in all material respects, the consolidated financial position of the Company as of the respective dates indicated and the consolidated results of operations, changes in stockholders' equity, and cash flows of the Company for the respective periods
(c) As of March 31, 2022, the Company's key performance metrics were as follows:
(i) Annual Recurring Revenue ("ARR"): $47,300,000 (up from $28,900,000 as of March 31, 2021, representing approximately 63.7% year-over-year growth);
(ii) Net Revenue Retention ("NRR"): 128%;
(iii) Gross Margin: 74.2%;
(iv) EBITDA (trailing twelve months ended March 31, 2022): negative $11,600,000;
(v) Cash and cash equivalents on the balance sheet: $22,400,000; and
(vi) Total headcount: approximately 310 employees.
(d) Since March 31, 2022, there has been no Material Adverse
Section 3.6 — Absence of Changes
Since March 31, 2022, the Company has conducted its business only in the ordinary course of business consistent with past practice and, except as expressly contemplated by this Agreement, there has not been:
(a) any Material Adverse Effect;
(b) any incurrence, assumption, or guarantee of any indebtedness for borrowed money by the Company, other than borrowings in the ordinary course under the Existing Credit Facility;
(c) any declaration, setting aside, or payment of any dividend or other distribution (whether in cash, stock, property, or otherwise) with respect to any shares of capital stock of the Company, or any repurchase, redemption, or other acquisition of any shares of capital stock of the Company;
(d) any change in the Company's methods of accounting or accounting practices, except as required by changes in GAAP;
(e) any material damage, destruction, or loss (whether or not covered by insurance) affecting the properties, assets, or business of the Company;
(f) any increase in the compensation or benefits payable to any Key Employee, or the grant of any severance, retention, or termination pay to any employee, officer, director, or consultant, other than in the ordinary course of business consistent with past practice;
(g) any sale, transfer, license, or disposition of any material assets or properties of the Company, other than in the ordinary course of business;
(h) any amendment to the Company's Certificate of Incorporation or bylaws;
(i) any capital expenditure or commitment therefor in excess of $500,000 individually or $2,000,000 in the aggregate; or
(j) any agreement, commitment, or arrangement to do any of the foregoing.
Section 3.7 — Indebtedness
(a) Schedule 3.7 sets forth a true, correct, and complete list of all indebtedness for borrowed money of the Company as of the date hereof, including the principal amount, interest rate, maturity date, lender, security or collateral, and any financial covenants or material restrictive covenants applicable thereto.
(b) Without limiting the generality of the foregoing, the Company's indebtedness includes the Existing Credit Facility with Pacific Summit Bank, N.A., with the following material terms:
(i) Maximum facility limit: $10,000,000;
(ii) Amount drawn and outstanding as of March 31, 2022: $6,200,000;
(iii) Interest rate: SOFR plus 3.50% per annum;
(iv) Maturity date: June 30, 2024;
(v) Security: All assets of the Company, subject to a first-priority blanket lien in favor of Pacific Summit Bank, N.A.;
(vi) Financial covenants: (A) maintenance of minimum liquidity (unrestricted cash and cash equivalents plus available undrawn commitment under the Existing Credit Facility) of not less than $10,000,000 at all times, and (B) an ARR-based coverage ratio (as defined in the Existing Credit Facility) of not less than 3.0x, tested quarterly;
(vii) Change of control provision: The Existing Credit Facility contains a "Change of Control" provision that may be triggered by certain equity issuances and changes in the composition of the Company's stockholder base or board of directors.
(c)
(d)
Section 3.8 — Material Contracts
(a) Schedule 3.8 sets forth a true, correct, and complete list of all Material Contracts (as defined below) to which the Company is a party or by which the Company or any of its assets or properties are bound as of the date hereof. For purposes of this Agreement, "Material Contract" means any contract, agreement, lease, instrument, commitment, or other arrangement (whether written or oral) to which the Company is a party or by which any of its assets or properties is bound and which:
(i) involves aggregate payments or consideration to or from the Company in excess of $500,000 in any twelve (12)-month period;
(ii) is a customer agreement, license agreement, or subscription agreement generating annual recurring revenue in excess of $500,000;
(iii) relates to the borrowing of money or the guarantee of any obligation in excess of $250,000;
(iv) is a lease or sublease of real property;
(v) contains any non-competition, exclusivity, most-favored-nation, or similar restrictive covenant binding upon the Company;
(vi) involves any joint venture, partnership, strategic alliance, or similar arrangement;
(vii) relates to the acquisition or disposition of any business, assets, or properties (by merger, purchase of stock or assets, or otherwise) involving consideration in excess of $500,000; or
(viii) is otherwise material to the business, assets, financial condition, or results of operations of the Company.
(b) The Company's material customer agreements include, without limitation, the following:
(c) Schedule 3.8 also includes the Existing Credit Facility, all lease agreements (including the Company's lease for its principal office), all vendor and supplier agreements meeting the threshold described above, and the engagement letter with Hargrove Securities LLC (placement agent; 1.5% placement fee on capital raised, which, based on an aggregate raise of $60,000,000, will equal $900,000, payable solely by the Company).
(d) Each Material Contract listed or required to be listed on Schedule 3.8 is valid, binding, and in full force and effect and enforceable in accordance with its terms (subject to the Enforceability Exceptions). The Company has not received any written notice of termination, cancellation, non-renewal, or material dispute with respect to any Material Contract.
Section 3.9 — Litigation
Except as set forth in Schedule 3.9, there is no action, suit, proceeding, claim, arbitration, mediation, investigation, or inquiry pending or, to the Knowledge of the Company, threatened in writing against or affecting the Company, any of its properties or assets, or any of its officers, directors, or employees in their capacity as such, before any Governmental Authority or The Company is not subject to any outstanding order, judgment, injunction, ruling, writ, or decree of any Governmental Authority. There is no action, suit, proceeding, or investigation pending or, to the Knowledge of the Company, threatened in writing that questions the validity of this Agreement, the other Transaction Documents, or any action taken or to be taken by the Company in connection with the transactions contemplated hereby or thereby.
Section 3.10 — Intellectual Property
(a) The Company owns, or has valid and enforceable licenses or other rights to use, all intellectual Property necessary to conduct its business as currently conducted and as proposed to be conducted, including all rights in and to the Verdana SCX platform, which is the Company's proprietary AI-powered supply chain optimization software-as-a-service platform. All Company intellectual Property that is owned by the Company is owned free and clear of all Encumbrances (other than Permitted Encumbrances).
(b) Schedule 3.10(b) sets forth a true, correct, and complete list of all intellectual Property owned by the Company that is the subject of a registration, application for registration, or filing with any Governmental Authority or domain name registrar (including patents, patent applications, trademark registrations, trademark applications, copyright registrations, and domain names), specifying in each case (i) the nature of the right, (ii) the jurisdiction, (iii) the registration or application number, and (iv) the date of registration, application, or filing.
(c)
(d) Each current and former employee, consultant, independent contractor, and other Person who has contributed to the creation or development of any Company intellectual Property on behalf of the Company has executed a written agreement containing (i) an assignment to the Company of all rights in and to any intellectual Property created in the course of such Person's engagement with the Company, and (ii) confidentiality and non-disclosure obligations protecting the Company's confidential information and trade secrets. To the Knowledge of the Company, no current or former employee, consultant, or independent contractor is in violation of any such agreement.
(e) The Company has disclosed to the Purchaser its use of open-source software in connection with the Verdana SCX platform and its other products and services. The Company is in compliance in all material respects with all applicable open-source licenses, and no open-source software has been used in a manner that would require the Company to disclose, distribute, or
Section 3.11 — Tax Matters
(a) The Company has timely filed (or has caused to be timely filed), taking into account any applicable extensions, all income Tax returns and all other material Tax returns required to be filed by it. All such Tax returns are true, correct, and complete in all material respects. The Company has paid (or has caused to be paid) all Taxes due and payable (whether or not shown on any Tax return), except for Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. The Company's Employer Identification Number is 93-1485726.
(b) There are no audits, examinations, investigations, assessments, deficiencies, claims, or other proceedings pending or, to the Knowledge of the Company, threatened in writing with respect to any Taxes of the Company. No written claim has been received from any Governmental Authority in a jurisdiction in which the Company does not file Tax returns that the Company is or may be subject to taxation in such jurisdiction.
(c) There are no Liens for Taxes on any of the properties or assets of the Company, other than Permitted Encumbrances.
(d) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other Person, and has complied with all reporting and record-keeping requirements with respect thereto.
(e) The Company has not been a member of an affiliated group of corporations filing a consolidated federal income Tax return (other than a group the common parent of which is the Company).
Section 3.12 — Employee Matters
(a) As of the date hereof, the Company has approximately 310 employees, substantially all of whom are employed on a full-time basis. The Company's key employees include Raj Anand (Chief Executive Officer and Co-Founder), Lena Kovac (Chief Technology Officer and Co-Founder), Thomas Brightwell (Chief Financial Officer, hired 2021), and Sandra Mikkelsen (General Counsel).
(b) Schedule 3.12(b) sets forth a true, correct, and complete list of all executive employment agreements, offer letters, and similar arrangements between the Company and each Key Employee and each other officer of the Company, including the terms of compensation, bonus, severance, non-competition, non-solicitation, and confidentiality provisions thereof. Each Key Employee is employed on an at-will basis under Oregon law.
(c) The Company maintains the 2016 Equity Incentive Plan, under which shares of Common Stock are reserved for issuance. The Company has provided the Purchaser with a true, correct, and complete copy of the ESOP, including all amendments thereto, and a summary of all outstanding grants (including options, restricted stock, and restricted stock units), reflecting the detail set forth in Schedule 3.3(d).
(d) The Company maintains a 401(k) plan and provides health, dental, vision, and other employee benefit plans for its employees. The Company is in compliance in all material respects with ERISA and all other applicable laws with respect to each employee benefit plan maintained, sponsored, or contributed to by the Company.
(e) There are no pending or, to the Knowledge of the Company, threatened claims, actions, suits, proceedings, charges, complaints, or investigations by or before any Governmental Authority or arbitrator relating to any current or former employee, applicant, consultant, independent contractor, or volunteer of the Company, including any claims relating to discrimination, harassment, retaliation, wrongful discharge, wage and hour violations, or ERISA violations.
(f) The Company is in compliance in all material respects with all applicable labor and employment laws, including laws relating to labor relations, equal employment opportunity, fair employment practices, discrimination, harassment, retaliation, immigration, wages and hours (including minimum wage, overtime, and meal and rest period requirements), leaves of absence, worker classification, worker health and safety, workers' compensation, unemployment insurance, and the collection and payment of withholding and/or social security Taxes.
Section 3.13 — Compliance with Laws
The Company is, and since its inception has been, in compliance in all material respects with all applicable federal, state, local, and foreign laws, statutes, ordinances, rules, regulations, codes, orders, judgments, decrees, and governmental requirements (including data privacy, information security, export control, trade sanctions, environmental, employment, and tax laws). are no pending or, to the Knowledge of the Company, threatened investigations, inquiries, enforcement actions, or proceedings by any Governmental Authority against or involving the Company. The Company has not received any written notice from any Governmental Authority alleging any violation of or noncompliance with any applicable law.
Section 3.14 — Insurance
Schedule 3.14 sets forth a true, correct, and complete list and summary description of all insurance policies and programs maintained by the Company (or under which the Company is an insured or otherwise the beneficiary of coverage), including the type of coverage, the insurer, the policy number, the policy period, the coverage limits, the deductibles, and the annual premium for each such policy. All such insurance policies are in full force and effect, all premiums due thereunder have been timely paid, and no written notice of cancellation, non-renewal, or material premium increase has been received by the Company. The Company has not been refused any insurance coverage sought or applied for, and the Company has no reason to believe that existing coverage will not be available for renewal upon similar terms as are presently in effect.