1002-00004 · Pinnacle Venture Fund II LP · Transaction Documents

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SERIES D PREFERRED STOCK PURCHASE AGREEMENT

Second Draft — July 18, 2022

Prepared by: Calderwood & Harkness LLP 101 Montgomery Street, Suite 3500 San Francisco, CA 94104

On behalf of: Pinnacle Venture Fund II LP

Matter Number: 1002-00004

DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO FURTHER NEGOTIATION

This Second Draft responds to the markup of Langford Price & Associates LLP dated June 22, 2022, of the Initial Draft dated June 8, 2022. All bracketed language, annotations, and internal notes are included for discussion purposes and will be removed from the final execution version.

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SERIES D PREFERRED STOCK PURCHASE AGREEMENT

This SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of [__], 2022, by and between:

VERDANA SOFTWARE, INC., a Delaware corporation (the "Company"), with its principal offices located at 1175 NW Couch Street, Suite 800, Portland, OR 97209;

and

PINNACLE VENTURE FUND II LP, a Delaware limited partnership (the "Purchaser"), with its principal offices located at 2400 Sand Hill Road, Suite 310, Menlo Park, CA 94025, acting through its general partner, Pinnacle Capital Management LLC, a Delaware limited liability company.

The Company and the Purchaser are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

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 (the "Series D Preferred Stock"), on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, the Company's authorized capital stock will be amended pursuant to the filing of an Amended and Restated Certificate of Incorporation of the Company (the "Restated Certificate") with the Secretary of State of the State of Delaware prior to or concurrently with the Closing (as defined herein), which Restated Certificate will, among other things, authorize the creation and issuance of the Series D Preferred Stock and establish the rights, preferences, privileges, and restrictions thereof;

WHEREAS, the Parties wish to set forth certain representations, warranties, covenants, and conditions to the purchase and sale of the Series D Preferred Stock as more fully described herein;

WHEREAS, as of the date hereof, the Company's existing capitalization on a fully diluted basis consists of approximately 80,000,000 shares, comprising (a) shares of Common Stock held by the Company's founders, (b) shares of Series A Preferred Stock held by Ridgeline Ventures Fund III LP, (c) shares of Series B Preferred Stock held by Northgate Growth Partners Fund II LP, (d) shares of Series C Preferred Stock held by Brindoval Capital Group LLC, and (e) shares of Common Stock issued or reserved for issuance under the Company's existing equity incentive plan; and

WHEREAS, the Parties intend that the purchase and sale of the Series D Preferred Stock be part of a broader set of agreements, including an Amended and Restated Investors' Rights Agreement, an Amended and Restated Voting Agreement, an Amended and Restated Right of First Refusal and Co-Sale Agreement, and certain other ancillary agreements, all as more fully described herein.

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1 — DEFINITIONS

Section 1.1 — Defined Terms

As used in this Agreement, the following terms shall have the meanings ascribed to them 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, with correlative meanings, "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 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 Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of such other Person.

"Amended and Restated Certificate of Incorporation" or "Restated Certificate" means the Amended and Restated Certificate of Incorporation of the Company, substantially in the form attached hereto as Exhibit A (as such form may be modified by mutual agreement of the Parties), to be filed with the Secretary of State of the State of Delaware prior to or concurrently with the Closing, which shall, among other things, authorize the Series D Preferred Stock and set forth the rights, preferences, privileges, and restrictions applicable thereto.

"Amended and Restated Investors' Rights Agreement" means that certain Amended and Restated Investors' Rights Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit B, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, and Brindoval Capital Group LLC, as such form may be modified by mutual agreement of the parties thereto.

"Amended and Restated Right of First Refusal and Co-Sale Agreement" means that certain Amended and Restated Right of First Refusal and Co-Sale Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit D, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, Brindoval Capital Group LLC, and the holders of Common Stock party thereto, as such form may be modified by mutual agreement of the parties thereto.

"Amended and Restated Voting Agreement" means that certain Amended and Restated Voting Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit C, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, Brindoval Capital Group LLC, and the holders of Common Stock party thereto, as such form may be modified by mutual agreement of the parties thereto.

"Board of Directors" means the board of directors of the Company, as constituted from time to time.

"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in San Francisco, California or Portland, Oregon are authorized or required by law, regulation, or executive order to close.

"Closing" has the meaning set forth in Section 2.2(a).

"Closing Date" has the meaning set forth in Section 2.2(a).

"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.

"Common Stock" means the Common Stock of the Company, par value $0.0001 per share.

"Company" means Verdana Software, Inc., a Delaware corporation (EIN: 93-1485726; Delaware Secretary of State File Number: 6274913), together with any successors thereto.

"Company Indemnified Parties" has the meaning set forth in Section 7.2.

"Company intellectual Property" means all intellectual Property that is owned by, licensed to, or used by the Company in the conduct of its business as currently conducted, including without limitation the Verdana SCX platform, all patents, patent applications, copyrights, trademarks, service marks, trade names, domain names, trade secrets, know-how, software (in both source code and object code form), algorithms, databases, documentation, and all other proprietary technology and intellectual property rights, whether registered or unregistered.

"Credit Facility" means that certain Revolving Credit Agreement, dated as of [__], by and between the Company, as borrower, and Pacific Summit Bank, N.A., as lender, providing for a revolving credit facility in an aggregate principal amount of up to Ten Million Dollars ($10,000,000), as the same may be amended, restated, supplemented, or otherwise modified from time to time.

"DGCL" means the Delaware General Corporation Law, Title 8 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 of this Agreement, as the same may be updated in accordance with Section 6.1(h) of this Agreement.

"ESOP" means the Company's 2017 Equity Incentive Plan, as amended, including any successor plan thereto, currently providing for the issuance of up to an aggregate of 12,000,000 shares of Common Stock (including shares subject to outstanding options and other equity awards, whether vested or unvested, and shares remaining available for future grant).

"Existing Investors" means, collectively, Ridgeline Ventures Fund III LP, a Delaware limited partnership, Northgate Growth Partners Fund II LP, a Delaware limited partnership, and Brindoval Capital Group LLC, a Delaware limited liability company.

"Fully Diluted Capitalization" means, as of any date of determination, the aggregate number of shares of capital stock of the Company outstanding or deemed outstanding, calculated on a fully diluted basis, including without limitation (a) all outstanding shares of Common Stock, (b) all outstanding shares of Preferred Stock (on an as-converted-to-Common-Stock basis), and (c) all shares of Common Stock reserved for issuance under the ESOP (whether or not such shares have been issued or are subject to outstanding awards). For the avoidance of doubt, the Fully Diluted Capitalization as of the date hereof is 80,000,000 shares, which includes the 12,000,000 shares currently reserved under the ESOP.

[C&H Note: Pinnacle's position is that the existing ESOP of 12,000,000 shares is included in the pre-money fully-diluted count of 80,000,000 shares. The Langford Price markup dated June 22, 2022 proposed inclusion of the proposed 5,000,000 share ESOP expansion (bringing the ESOP to 17,000,000 shares) in the pre-money Fully Diluted Capitalization count. This change is rejected in this Second Draft. Any expansion of the ESOP beyond 12,000,000 shares is a post-money event for valuation purposes and shall not be taken into account in calculating the Purchase Price Per Share, the number of Series D Shares issuable hereunder, or the Purchaser's pro forma ownership percentage at Closing.]

"Fundamental Representations" means the representations and warranties set forth in Section 3.1 (Organization, Good Standing, and Qualification), Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 3.4 (Financial Statements), Section 3.9 (Tax Matters), and Section 3.14 (Brokers and Finders).

"GAAP" means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.

"Governmental Authority" means any federal, state, local, municipal, foreign, or other governmental or quasi-governmental authority of any nature, including any governmental agency, branch, department, commission, board, bureau, official, minister, court, tribunal, judicial body, or other instrumentality, or any self-regulatory organization.

"Indemnification Agreement" means that certain Indemnification Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit F, by and between the Company and Marcus Trejo (or his designee) in his capacity as the Purchaser's designee to the Board of Directors.

"intellectual Property" means all intellectual property and proprietary rights of any kind, including without limitation patents, patent applications, inventions, copyrights, trademarks, service marks, trade names, trade dress, trade secrets, know-how, domain names, moral rights, and all registrations, applications, renewals, extensions, and restorations thereof, together with all goodwill associated therewith.

"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 each 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 reasonable inquiry of their respective direct reports and review of the files and records within their respective areas of responsibility.

[C&H Note: Langford Price's markup dated June 22, 2022 proposed limiting "Knowledge of the Company" to the actual knowledge of the named individuals without the "after reasonable inquiry" qualifier. This change is rejected. The "after reasonable inquiry" standard is appropriate and customary for a transaction of this size and nature and ensures that the Company's knowledge representations are not rendered meaningless by a failure to investigate known areas of potential concern.]

"Lender Consent" means the written consent, waiver, or other documentation from Pacific Summit Bank, N.A. required under the Credit Facility to permit the issuance of the Series D Preferred Stock and the consummation of the transactions contemplated by the Transaction Agreements, in form and substance reasonably satisfactory to the Purchaser, confirming that such issuance and consummation do not constitute a default, event of default, or "Change of Control" (as defined in the Credit Facility) under the Credit Facility and do not trigger any mandatory prepayment, acceleration, or termination right thereunder.

"Liens" means any mortgage, pledge, lien, security interest, charge, claim, encumbrance, option, right of first refusal, preemptive right, or other restriction or limitation of any kind (whether arising by contract, operation of law, or otherwise).

"Losses" has the meaning set forth in Section 7.1.

"Management Rights Letter" means that certain Management Rights Letter to be issued by the Company to the Purchaser at the Closing, substantially in the form attached hereto as Exhibit E, granting the Purchaser certain management rights and information access rights as contemplated by 29 C.F.R. § 2510.3-101(d)(3)(ii).

"Material Adverse Effect" means any event, change, development, occurrence, condition, state of facts, or circumstance that, individually or in the aggregate with all other events, changes, developments, occurrences, conditions, states of facts, or circumstances, (a) has or would reasonably be expected to have a material adverse effect on the business, assets, properties, financial condition, or results of operations of the Company, taken as a whole, or (b) would reasonably be expected to prevent, materially delay, or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement and the other Transaction Agreements; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, nor shall any of the following 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 (including changes in prevailing interest rates, credit markets, currency exchange rates, or commodity prices) that do not disproportionately affect the Company relative to other participants in the industries and markets in which the Company operates;

(ii) changes in conditions generally affecting the industries or markets in which the Company operates that do not disproportionately affect the Company relative to other participants in such industries or markets;

(iii) changes in applicable law, regulation, or the interpretation thereof by any Governmental Authority after the date hereof;

(iv) changes in GAAP or the interpretation thereof after the date hereof;

(v) effects resulting from the public announcement or pendency of the transactions contemplated by this Agreement and the other Transaction Agreements, including any loss of customers, suppliers, employees, or other business relationships directly and proximately caused by such announcement or pendency; and

(vi) any natural disaster, act of God, epidemic (but not pandemic, as discussed below), hostilities, act of terrorism, military action, or escalation thereof, or any national or international calamity, in each case to the extent that such events do not disproportionately affect the Company relative to other participants in the industries and markets in which the Company operates.

[C&H Note: Langford Price's markup dated June 22, 2022 proposed two additional carve-outs: (A) changes in GAAP or the interpretation thereof, and (B) effects related to or arising from COVID-19 or any related pandemic, including any governmental response thereto. C&H accepts the GAAP carve-out (now reflected in clause (iv) above). C&H rejects the COVID-19 carve-out. As of the date hereof (July 2022), the acute effects of the COVID-19 pandemic have substantially normalized and it is not appropriate to carve out pandemic-related effects from the Material Adverse Effect definition. The Company has had more than two years to adapt to the post-pandemic business environment, and any ongoing pandemic-related disruptions should properly be treated as part of the Company's baseline operating conditions. If the Company is aware of specific COVID-19-related risks that may affect its business, such risks should be disclosed in the Disclosure Schedules.]

"Outside Date" has the meaning set forth in Section 8.1(b).

"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or other entity of any kind.

"Purchase Price" means Sixty Million Dollars ($60,000,000).

"Purchase Price Per Share" means [$4.00] per share of Series D Preferred Stock.

[C&H Note: The Purchase Price Per Share of $4.00 reflects the Company's proposed pre-money valuation of $320,000,000 ($4.00 × 80,000,000 pre-money Fully Diluted Capitalization shares). This price remains bracketed and subject to further negotiation. Pinnacle's position is that the pre-money valuation should be $260,000,000, resulting in a Purchase Price Per Share of $3.25 ($260,000,000 ÷ 80,000,000 shares). At $3.25/share, the $60,000,000 Purchase Price would acquire approximately 18,461,538 shares, representing approximately 18.75% of the post-close Fully Diluted Capitalization. The $60,000,000 gap between the respective valuation positions ($320M vs. $260M) remains the principal commercial issue to be resolved between Marcus Trejo and Raj Anand.]

"Purchaser" means Pinnacle Venture Fund II LP, a Delaware limited partnership.

"Purchaser Indemnified Parties" has the meaning set forth in Section 7.1.

"SEC" means the United States Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"Series D Preferred Stock" means the shares of Series D Preferred Stock of the Company, par value $0.0001 per share, to be authorized by the Restated Certificate and having the rights, preferences, privileges, and restrictions set forth therein.

"Series D Shares" means the [15,000,000] shares of Series D Preferred Stock to be issued to the Purchaser at the Closing pursuant to Section 2.1 of this Agreement, subject to adjustment based on the final Purchase Price Per Share as mutually agreed by the Parties.

"Transaction Agreements" means, collectively, this Agreement, the Restated Certificate, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, the Amended and Restated Voting Agreement, the Management Rights Letter, and the Indemnification Agreement.

"Verdana SCX" means the Company's proprietary AI-powered supply chain optimization software-as-a-service (SaaS) platform, including all versions, modules, updates, enhancements, and derivative works thereof.

Section 1.2 — Interpretation

The following rules of interpretation shall apply to this Agreement:

(a) The term "including" (and correlative terms such as "include," "includes," and "included") means "including without limitation" and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.

(b) 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.

(c) References herein to "Articles," "Sections," "Exhibits," and "Schedules" are to the articles, sections, exhibits, and schedules of and to this Agreement, unless otherwise specified.

(d) Words in the singular shall be deemed to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires.

(e) The word "or" is not exclusive and shall be interpreted as "and/or" where the context so requires.

(f) All references to dollar amounts or "$" shall mean United States dollars.

(g) The term "days" means calendar days, unless otherwise expressly specified as "Business Days."

(h) All references to any statute, rule, or regulation shall be deemed to include any amendments, supplements, modifications, reenactments, or successor provisions thereto.

(i) The terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement.

(j) The Parties have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, 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 of the provisions of this Agreement.

(k) Any reference to a document or set of documents, and the rights and obligations of the parties under such document or documents, shall mean such document or documents as amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms thereof.

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, at the Closing, an aggregate of [15,000,000] shares of Series D Preferred Stock (the "Series D Shares") at the Purchase Price Per Share of [$4.00] per share, for an aggregate Purchase Price of Sixty Million Dollars ($60,000,000).

The number of Series D Shares and the Purchase Price Per Share specified above are subject to adjustment based on the final resolution of the valuation discussion between the Parties. At the Purchase Price Per Share of [$4.00] per share, the Purchaser would receive 15,000,000 Series D Shares, representing approximately 15.79% of the post-Closing Fully Diluted Capitalization of 95,000,000 shares (or approximately 15.00% of post-Closing Fully Diluted Capitalization if the proposed 5,000,000 share ESOP expansion were to be completed pre-Closing, resulting in a post-Closing Fully Diluted Capitalization of 100,000,000 shares). At the Purchaser's proposed Purchase Price Per Share of $3.25 per share, the Purchaser would receive approximately 18,461,538 Series D Shares, representing approximately 18.75% of the post-Closing Fully Diluted Capitalization of approximately 98,461,538 shares.

The Series D Shares shall have the rights, preferences, privileges, and restrictions set forth in the Restated Certificate, as described in Exhibit A hereto. The Series D Shares shall be issued to the Purchaser free and clear of all Liens (other than restrictions under applicable securities laws and the Transaction Agreements).

Section 2.2 — Closing; Delivery

(a) Closing. The closing of the purchase and sale of the Series D Shares (the "Closing") shall take place remotely via the electronic exchange of documents and signatures on a date mutually agreed upon by the Parties, which date shall be no later than [__] Business Days following the satisfaction or waiver of all of the conditions set forth in Article 5 of this Agreement (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or on such later date as the Parties may mutually agree in writing (the "Closing Date"). The Closing shall be deemed to have occurred at 12:01 a.m. Eastern Time on the Closing Date.

(b) Deliveries by the Company at Closing. At or prior to the Closing, the Company shall deliver or cause to be delivered to the Purchaser each of the following:

(i) duly executed counterparts of each of the Transaction Agreements to which the Company is a party, including this Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Voting Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, the Management Rights Letter, and the Indemnification Agreement;

(ii) a copy of the Restated Certificate, as filed with and certified by the Secretary of State of the State of Delaware, reflecting the authorization of the Series D Preferred Stock;

(iii) a stock certificate or certificates representing the Series D Shares, registered in the name of the Purchaser, or, if the Company has adopted a book-entry system for its capital stock, evidence of book-entry issuance of the Series D Shares to the Purchaser, in each case bearing appropriate legends as required by this Agreement, the Transaction Agreements, and applicable securities laws;

(iv) a certificate of the Secretary or Assistant Secretary of the Company, dated as of the Closing Date, certifying as to (A) the Restated Certificate as in effect as of the Closing, (B) the bylaws of the Company as in effect as of the Closing, (C) resolutions of the Board of Directors authorizing the execution, delivery, and performance by the Company of this Agreement and the other Transaction Agreements, the issuance and sale of the Series D Shares, and the filing of the Restated Certificate, and (D) resolutions of the stockholders of the Company approving the Restated Certificate and such other matters as may require stockholder approval;

(v) a certificate of good standing (or equivalent) of the Company, issued by the Secretary of State of the State of Delaware, dated not more than ten (10) days prior to the Closing Date;

(vi) a certificate of good standing (or equivalent) of the Company, or a certificate of authorization to transact business, issued by the Secretary of State of the State of Oregon, dated not more than ten (10) days prior to the Closing Date;

(vii) a compliance certificate, dated as of the Closing Date, signed by Raj Anand, Chief Executive Officer of the Company, certifying that (A) the representations and warranties of the Company contained in this Agreement are true and correct in all material respects (or, with respect to representations and warranties that are qualified by materiality or Material Adverse Effect, in all respects) as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties speak as of a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date), (B) the Company has performed in all material respects all obligations and conditions required to be performed or complied with by the Company under this Agreement on or before the Closing Date, and (C) no Material Adverse Effect has occurred since March 31, 2022;

(viii) a legal opinion of Langford Price & Associates LLP, counsel to the Company, addressed to the Purchaser, dated as of the Closing Date, in form and substance reasonably satisfactory to the Purchaser and its counsel, substantially in the form attached hereto as Exhibit G;

(ix) evidence of the Lender Consent from Pacific Summit Bank, N.A., in form and substance reasonably satisfactory to the Purchaser, as described in Section 5.1(e) of this Agreement;

(x) copies of all third-party consents, waivers, and approvals required under the Company's material contracts, organizational documents, or otherwise in connection with the execution, delivery, and performance of the Transaction Agreements and the consummation of the transactions contemplated hereby;

(xi) updated Disclosure Schedules, dated as of the Closing Date, to the extent any information set forth in the Disclosure Schedules delivered as of the date hereof requires updating to reflect changes occurring between the date hereof and the Closing Date; and

(xii) such other documents, instruments, and certificates as the Purchaser may reasonably request in connection with the Closing.

(c) Deliveries by the Purchaser at Closing. At or prior to the Closing, the Purchaser shall deliver or cause to be delivered to the Company each of the following:

(i) payment of the Purchase Price of Sixty Million Dollars ($60,000,000) by wire transfer of immediately available funds to a bank account designated by the Company in a written notice delivered to the Purchaser not less than three (3) Business Days prior to the Closing Date; and

(ii) duly executed counterparts of each of the Transaction Agreements to which the Purchaser is a party, including this Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Voting Agreement, and the Amended and Restated Right of First Refusal and Co-Sale Agreement.

Section 2.3 — Use of Proceeds

The Company shall use the proceeds from the sale of the Series D Shares for general corporate purposes, including without limitation (a) working capital, (b) continued product development and enhancement of the Verdana SCX platform, including investments in artificial intelligence and machine learning capabilities, (c) sales and marketing expansion, including hiring of additional sales personnel and expansion into new geographic markets, and (d) other operational purposes, in each case as set forth in a board-approved annual budget and operating plan. The allocation of proceeds among the foregoing categories shall be consistent with the operating plan presented to the Purchaser during the due diligence process.

Notwithstanding the foregoing, the Company shall not use any portion of the proceeds from the sale of the Series D Shares to repay, prepay, redeem, defease, or otherwise reduce any outstanding indebtedness under the Credit Facility with Pacific Summit Bank, N.A. without the prior written consent of the Purchaser (which consent may be granted or withheld in the Purchaser's sole discretion). For the avoidance of doubt, this restriction shall not prevent the Company from making regularly scheduled interest payments under the Credit Facility in the ordinary course of business.

[C&H Note: The restriction on use of proceeds to repay the Credit Facility is a new provision in this Second Draft and was not included in the Initial Draft or addressed in the Langford Price markup. This provision is intended to ensure that the Purchaser's investment is deployed for growth purposes rather than being used to deleverage the Company's balance sheet for the benefit of Pacific Summit Bank, N.A. at the expense of the Series D investor.]

ARTICLE 3 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Purchaser that, except as set forth in the Disclosure Schedules delivered to the Purchaser concurrently herewith (which Disclosure Schedules shall be arranged in sections corresponding to the sections of this Article 3, provided that any disclosure set forth in any section of the Disclosure Schedules shall be deemed to qualify and be incorporated into any other section of this Article 3 to the extent the relevance of such disclosure to such other section is reasonably apparent on the face of such disclosure), as of the date hereof and as of the Closing Date (except for representations and warranties that speak as of a specific date, which shall be true and correct only as of such date), the following representations and warranties are true and correct:

Section 3.1 — Organization, Good Standing, and Qualification

The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware (Delaware Secretary of State File Number: 6274913). The Company has all requisite corporate power and authority to own, lease, and operate its properties and assets and to conduct its business as currently conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing (or its equivalent) in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. As of the date hereof, the jurisdictions in which the Company is qualified to transact business include the State of Oregon, where the Company's principal place of business is located at 1175 NW Couch Street, Suite 800, Portland, OR 97209. The Company's registered agent in the State of Delaware is Cascade Systems, located at 1209 Orange Street, Wilmington, DE 19801. The Company has made available 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

All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, delivery, and performance of this Agreement and each of the other Transaction Agreements to which the Company is a party, the authorization and issuance of the Series D Shares, and the filing of the Restated Certificate with the Secretary of State of the State of Delaware, has been taken or will be taken prior to the Closing. This Agreement, when duly executed and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies (the "Enforceability Exceptions"). Each of the other Transaction Agreements to which the Company is a party, when duly executed and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. The execution and delivery of this Agreement and the other Transaction Agreements to which the Company is a party, the issuance and sale of the Series D Shares, and the consummation of the other transactions contemplated hereby and thereby do not and will not (i) violate any provision of the Company's certificate of incorporation (as currently in effect or as proposed to be amended by the Restated Certificate) or bylaws, (ii) violate any applicable law, rule, regulation, order, judgment, or decree of any Governmental Authority, or (iii) result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to any other Person any rights of termination, amendment, acceleration, or cancellation of, or result in the creation of any Lien upon any of the properties or assets of the Company under, any material contract, agreement, instrument, permit, or license to which the Company is a party or by which the Company or any of its properties or assets is bound, except, in the case of clauses (ii) and (iii), as would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.3 — Capitalization

(a) Pre-Transaction Capitalization. As of the date hereof, the Fully Diluted Capitalization of the Company is 80,000,000 shares, consisting of the following:

(b) Valid Issuance. All outstanding shares of the Company's capital stock have been duly authorized, are validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The Company has reserved 12,000,000 shares of Common Stock for issuance under the ESOP, of which [__] shares have been issued upon exercise of options, [_] shares are subject to outstanding and unexercised options, and [___] shares remain available for future grant. Except as set forth in the Disclosure Schedules or as contemplated by the ESOP, there are no outstanding warrants, options, rights (including conversion or preemptive rights), or other agreements or commitments for the purchase or acquisition from the Company of any shares of the Company's capital stock, and there are no outstanding obligations of the Company to issue, deliver, or sell, or cause to be issued, delivered, or sold, any shares of the Company's capital stock or any securities convertible into or exercisable or exchangeable for any shares of the Company's capital stock.

[C&H Note: Langford Price's markup dated June 22, 2022 proposed adding language to this Section 3.3 stating that the Board of Directors has approved the expansion of the ESOP by 5,000,000 additional shares (from 12,000,000 shares to 17,000,000 shares) and that such expansion is expected to be completed prior to the Closing. This change is rejected in this Second Draft. The ESOP expansion, if and when approved by the Board of Directors and the Company's stockholders, will be treated as a post-money event and shall not affect the calculation of the Purchase Price Per Share, the number of Series D Shares to be issued to the Purchaser, or the Purchaser's pro forma ownership percentage at Closing. See also Section 6.1(i) (Pre-Closing Covenants).]

(c) Validity of Series D Shares. The Series D Shares, when issued, sold, and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be duly authorized, validly issued, fully paid, and nonassessable, and will be free and clear of all Liens (other than restrictions on transfer imposed by applicable securities laws and the Transaction Agreements). Based on the representations of the Purchaser set forth in Article 4 of this Agreement, the offer, sale, and issuance of the Series D Shares to the Purchaser will be in compliance with all applicable federal and state securities laws.

Section 3.4 — Financial Statements

(a) The Company has delivered to the Purchaser (i) audited consolidated financial statements of the Company for the fiscal year ended December 31, 2021, including a balance sheet, statement of operations, statement of stockholders' equity (deficit), and statement of cash flows, together with the notes thereto and the report of Whitfield & Greer LLP (engagement partner: Gerald Whitfield), the Company's independent registered public accounting firm (the "Audited Financial Statements"), and (ii) unaudited consolidated interim financial statements of the Company for the three-month period ended March 31, 2022, including a balance sheet and statement of operations (the "Interim Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements").

(b) The Financial Statements (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except, in the case of the Interim Financial Statements, for the absence of footnotes and subject to normal year-end audit adjustments, none of which, individually or in the aggregate, would be material) and (ii) present fairly, in all material respects, the consolidated financial condition and results of operations of the Company as of the respective dates thereof and for the respective periods indicated therein, subject, in the case of the Interim Financial Statements, to normal year-end audit adjustments and the absence of footnotes.

(c) Without limiting the generality of the foregoing, the following key financial metrics of the Company as of and for the most recently available period (the quarter ended March 31, 2022) are accurate in all material respects:

(i) Annual Recurring Revenue (ARR): $47,300,000;

(ii) Net Revenue Retention (NRR): 128%;

(iii) Gross Margin: 74.2%;

(iv) EBITDA (trailing twelve months ended March 31, 2022): negative $11,600,000; and

(v) Cash and Cash Equivalents on Balance Sheet: $22,400,000.

(d) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, and (iii) access to the Company's assets is permitted only in accordance with management's general or specific authorization.

[C&H Note: Langford Price's markup dated June 22, 2022 proposed qualifying the representations in this Section 3.4 to the "Knowledge of the Company." This qualification is rejected. The financial statement representations are Fundamental Representations and are among the most critical representations in this Agreement. Knowledge-qualifying these representations would fundamentally undermine the Purchaser's ability to rely on the accuracy of the Company's financial information in making its investment decision. The Company, through its management team and its independent auditors, is in the best position to know whether its financial statements are accurate and prepared in accordance with GAAP, and it should stand behind these representations without qualification.]

Section 3.5 — No Material Adverse Effect

Since March 31, 2022, the Company has conducted its business in the ordinary course of business consistent with past practice, and there has not been any event, change, development, occurrence, condition, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, since March 31, 2022, except as set forth in the Disclosure Schedules or as expressly contemplated by this Agreement:

(i) the Company has not declared, set aside, or paid any dividend or other distribution with respect to any shares of its capital stock;

(ii) the Company has not issued, sold, or granted (or authorized the issuance, sale, or grant of) any shares of its capital stock or any options, warrants, or other rights to acquire shares of its capital stock (other than grants of options under the ESOP in the ordinary course of business consistent with past practice);

(iii) the Company has not incurred any indebtedness for borrowed money in excess of $1,000,000 in the aggregate;

(iv) the Company has not sold, assigned, transferred, licensed, or otherwise disposed of any material assets or properties (other than sales of inventory and licensing of software in the ordinary course of business);

(v) the Company has not made any material changes to its accounting methods, principles, or practices;

(vi) the Company has not experienced any damage, destruction, or casualty loss (whether or not covered by insurance) in excess of $500,000 in the aggregate; and

(vii) the Company has not entered into any agreement or commitment to do any of the foregoing.

Section 3.6 — Absence of Litigation

Except as set forth in Schedule 3.6 of the Disclosure Schedules, there is no action, suit, proceeding, arbitration, mediation, claim, complaint, investigation, inquiry, or other legal proceeding (collectively, "Proceedings") pending or, to the Knowledge of the Company, threatened against the Company or any of its officers or directors (in their capacities as such), at law or in equity, before or by any Governmental Authority, nor is there any judgment, decree, injunction, order, ruling, or writ of any Governmental Authority outstanding against the Company. The Company is not a party to or subject to any consent decree, settlement agreement, or other similar agreement with any Governmental Authority relating to the Company's business, assets, or operations.

Section 3.7 — Intellectual Property

(a) Ownership and Rights. The Company owns or has valid and enforceable rights to use all Company intellectual Property necessary for the conduct of its business as currently conducted, including without limitation the Verdana SCX platform and all related technology, software, algorithms, data models, and documentation. The Company has not received any written notice that any of the Company intellectual Property has been adjudged invalid or unenforceable, in whole or in part, and to the Knowledge of the Company, all Company intellectual Property owned by the Company is valid, subsisting, and enforceable.

(b) No Infringement. To the Knowledge of the Company, the conduct of the Company's business as currently conducted does not infringe, misappropriate, or otherwise violate the intellectual Property rights of any third party. There are no Proceedings pending or, to the Knowledge of the Company, threatened against the Company alleging that the Company has infringed, misappropriated, or otherwise violated the intellectual Property rights of any third party. The Company has not received any written notice or claim asserting that the Company has infringed, misappropriated, or otherwise violated, or is infringing, misappropriating, or otherwise violating, any intellectual Property rights of any third party.

(c) Employee and Contractor Agreements. All current and former employees, consultants, and contractors of the Company who have had access to or contributed to the development of any Company intellectual Property have executed written agreements containing (i) confidentiality and non-disclosure obligations with respect to the Company's proprietary and confidential information and (ii) assignment provisions assigning to the Company all right, title, and interest in and to any intellectual Property developed, conceived, or reduced to practice in connection with such Person's engagement with the Company, in each case substantially in the form provided to the Purchaser during the due diligence process.

(d) Open-Source Software. Schedule 3.7 of the Disclosure Schedules sets forth a complete and accurate list of all open-source software (including software licensed under any license meeting the Open Source Initiative's definition of "open source" or any similar license, including the GNU General Public License, the GNU Lesser General Public License, the Mozilla Public License, the Apache License, the BSD License, the MIT License, and any Creative Commons license) used by the Company in any Company intellectual Property or any products or services offered by the Company. The Company is in compliance in all material respects with the terms and conditions of each such open-source license. The Company has not used any open-source software in a manner that would require the Company to (i) disclose, distribute, or make available the source code of any proprietary software of the Company (including the Verdana SCX platform), (ii) license any proprietary software of the Company for the purpose of making derivative works, or (iii) redistribute any proprietary software of the Company at no charge.

Section 3.8 — Material Contracts

(a) Schedule 3.8 of the Disclosure Schedules sets forth a complete and accurate list of all material contracts of the Company (collectively, the "Material Contracts"), including without limitation the following categories:

(i) Customer agreements with the Company's top customers by annual recurring revenue, including:

• Meridian Logistics Corp. — Three-year enterprise license agreement, annual recurring revenue of $11,800,000 (representing approximately 24.9% of the Company's total ARR), with an initial term expiring December 31, 2023, automatically renewing for successive one-year terms unless either party provides written notice of non-renewal at least 180 days prior to the end of the then-current term;

• Caldera Manufacturing Inc. — Annual recurring revenue of approximately $5,200,000 (representing approximately 11.0% of the Company's total ARR);

• Atlas Freight Holdings LLC — Annual recurring revenue of approximately $4,100,000 (representing approximately 8.7% of the Company's total ARR);

• Brannock Industrial Group — Annual recurring revenue of approximately $3,400,000 (representing approximately 7.2% of the Company's total ARR); and

• Solaris Warehousing Co. — Annual recurring revenue of approximately $2,700,000 (representing approximately 5.7% of the Company's total ARR);

(ii) the Credit Facility with Pacific Summit Bank, N.A. (aggregate facility amount of $10,000,000; $6,200,000 drawn as of March 31, 2022);

(iii) employment agreements, offer letters, and consulting agreements with Key Employees;

(iv) any contract or agreement involving annual payments by or to the Company in excess of $500,000; and

(v) all other contracts or agreements that are material to the business, assets, properties, financial condition, or results of operations of the Company.

(b) Each Material Contract is in full force and effect and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. The Company is not in material breach or default under any Material Contract, and, to the Knowledge of the Company, no other party to any Material Contract is in material breach or default thereunder. The Company has not received any written notice of any intention of any party to terminate, cancel, or not renew any Material Contract. The Company has delivered or made available to the Purchaser true, correct, and complete copies of all Material Contracts (including all amendments, supplements, and modifications thereto).

[C&H Note: Langford Price's markup dated June 22, 2022 proposed raising the material contract disclosure threshold from $250,000 to $500,000 in annual commitments. C&H accepts this change in this Second Draft, as reflected in clause (a)(iv) above. This revised threshold is consistent with market practice for companies of the Company's size and stage.]

Section 3.9 — Tax Matters

(a) The Company has timely filed (taking into account any applicable extensions) all federal, state, local, and foreign tax returns and reports required to be filed by it. All such tax returns and reports are true, correct, and complete in all material respects. The Company has timely paid all taxes due and payable by it (whether or not shown on any tax return), except for taxes being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the Company's financial statements in accordance with GAAP. The Company's employer identification number (EIN) is 93-1485726.

(b) There are no pending or, to the Knowledge of the Company, threatened audits, examinations, investigations, assessments, deficiency notices, or other proceedings by any taxing authority with respect to any taxes of the Company. The Company has not received any written notice from any taxing authority of any proposed assessment, deficiency, or adjustment with respect to any taxes. The Company has not waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency.

(c) The Company has withheld and timely remitted to the appropriate taxing authorities all taxes required to have been withheld and remitted in connection with amounts paid or owed to any employee, independent contractor, creditor, stockholder, or other third party, including without limitation all employment taxes, income tax withholdings, and social security and unemployment taxes.

(d) The Company has not been a member of any affiliated group filing a consolidated federal income tax return (other than a group the common parent of which was the Company), and the Company has no liability for the taxes of any other Person under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

Section 3.10 — Employee Matters

(a) As of the date hereof, the Company has approximately 310 employees. A complete and accurate list of all employees, their titles, dates of hire, and annual compensation (including base salary and target bonus) has been provided to the Purchaser in the data room.

(b) The ESOP covers a pool of 12,000,000 shares of Common Stock (including shares subject to outstanding options, whether vested or unvested, shares issued upon exercise of options, and shares remaining available for future grant). Schedule 3.10 of the Disclosure Schedules sets forth a complete and accurate list of all outstanding equity awards, including the holder, grant date, exercise price, vesting schedule, and number of shares subject to each award.

(c) There are no pending or, to the Knowledge of the Company, threatened labor disputes, strikes, slowdowns, work stoppages, lockouts, unfair labor practice charges, or material employment-related litigation against the Company. The Company is not a party to any collective bargaining agreement or other labor union contract. No labor union or other collective bargaining representative has been certified or recognized as the representative of any employees of the Company, and, to the Knowledge of the Company, there are no organizing activities or campaigns pending or threatened with respect to any employees of the Company.

(d) All employees of the Company are employed on an at-will basis under Oregon law (except to the extent otherwise disclosed in the Disclosure Schedules or as otherwise provided by applicable law), and the Company has no obligation to provide severance or other termination-related compensation to any employee, except as set forth in the employment agreements with Key Employees or as disclosed in the Disclosure Schedules.

(e) The Company is in compliance in all material respects with all applicable federal, state, and local laws, rules, and regulations relating to employment, employment practices, terms and conditions of employment, wages and hours, worker classification, employee health and safety, immigration, equal employment opportunity, non-discrimination, harassment, retaliation, disability, employee leave, whistleblowing, workers' compensation, unemployment insurance, and the collection and payment of withholding and social security taxes and any similar taxes.

Section 3.11 — Insurance

The Company maintains insurance policies as described in Schedule 3.11 of the Disclosure Schedules, in such amounts and covering such risks as are customary for companies of similar size and in the same or similar industries. All such insurance policies are in full force and effect, and the Company is not in breach or default (including with respect to the payment of premiums or the giving of notices) under any such policy. The Company has not received any written notice of cancellation, non-renewal, or material change in coverage, scope, or amount of any such policy. Since January 1, 2020, the Company has not made any claim under any insurance policy as to which coverage has been denied or disputed by the applicable insurer (other than customary reservations of rights).

Section 3.12 — Compliance with Laws

The Company is in compliance in all material respects with all applicable federal, state, local, and foreign laws, statutes, rules, regulations, orders, judgments, decrees, permits, licenses, franchises, and other governmental authorizations or approvals (collectively, "Applicable Laws"). The Company has not received any written notice from any Governmental Authority alleging or asserting any non-compliance with, or violation of, any Applicable Laws. The Company holds all permits, licenses, franchises, and other governmental authorizations and approvals necessary for the conduct of its business as currently conducted, and all such permits, licenses, franchises, authorizations, and approvals are in full force and effect.

Section 3.13 — Indebtedness

(a) Schedule 3.13 of the Disclosure Schedules sets forth a complete and accurate list of all outstanding indebtedness of the Company for borrowed money (including the principal amount, maturity date, interest rate, and lender) as of the date hereof.

(b) As of the date hereof, the Company's outstanding indebtedness includes $6,200,000 drawn under the Credit Facility with Pacific Summit Bank, N.A. The Credit Facility has a total revolving commitment of $10,000,000, bears interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 3.50% per annum, matures on June 30, 2024, and contains the following material financial covenants:

(i) a minimum liquidity requirement of $10,000,000 (defined as unrestricted cash and cash equivalents plus the undrawn availability under the Credit Facility); and

(ii) an ARR-based coverage ratio, requiring that the Company's annual recurring revenue as of each quarter-end be not less than a specified multiple of the outstanding principal amount under the Credit Facility.

(c) The Company is in compliance with all covenants (financial and otherwise) under the Credit Facility as of the date hereof. The Company has not received any notice of default, event of default, or alleged breach under the Credit Facility, and, to the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, would constitute a default or event of default under the Credit Facility.

Section 3.14 — Brokers and Finders

Except for Hargrove Securities LLC, a FINRA-registered broker-dealer with offices at 600 Lexington Avenue, 22nd Floor, New York, NY 10022 (CRD Number: [__]), which is entitled to receive a placement fee of 1.5% of the capital raised in connection with the transactions contemplated by this Agreement (the "Placement Fee"), estimated at $900,000 based on a Purchase Price of $60,000,000, no broker, finder, investment banker, financial advisor, or other intermediary has been retained by or is authorized to act on behalf of the Company in connection with the transactions contemplated by this Agreement, and no such Person is entitled to any fee, commission, or other compensation from the Company or the Purchaser in connection herewith. The Placement Fee payable to Hargrove Securities LLC is solely the obligation of the Company, and the Company shall indemnify and hold harmless the Purchaser from and against any claim by Hargrove Securities LLC or any other broker, finder, or intermediary for any fee, commission, or other compensation in connection with the transactions contemplated hereby.

Section 3.15 — Data Privacy and Security

(a) The Company is in compliance in all material respects with (i) all Applicable Laws relating to data privacy, data security, and the collection, use, processing, storage, transfer, disclosure, and protection of personal data and personally identifiable information, including without limitation the California Consumer Privacy Act of 2018 (as amended by the California Privacy Rights Act), the Oregon Consumer Information Protection Act, and, to the extent applicable, the European Union's General Data Protection Regulation, (ii) the

SERIES D PREFERRED STOCK PURCHASE AGREEMENT
Second Draft — July 18, 2022
Prepared by: Calderwood & Harkness LLP 101 Montgomery Street, Suite 3500 San Francisco, CA 94104
On behalf of: Pinnacle Venture Fund II LP
Matter Number: 1002-00004
DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO FURTHER NEGOTIATION
This Second Draft responds to the markup of Langford Price & Associates LLP dated June 22, 2022, of the Initial Draft dated June 8, 2022. All bracketed language, annotations, and internal notes are included for discussion purposes and will be removed from the final execution version.
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SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of [__], 2022, by and between:
VERDANA SOFTWARE, INC., a Delaware corporation (the "Company"), with its principal offices located at 1175 NW Couch Street, Suite 800, Portland, OR 97209;
and
PINNACLE VENTURE FUND II LP, a Delaware limited partnership (the "Purchaser"), with its principal offices located at 2400 Sand Hill Road, Suite 310, Menlo Park, CA 94025, acting through its general partner, Pinnacle Capital Management LLC, a Delaware limited liability company.
The Company and the Purchaser are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
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 (the "Series D Preferred Stock"), on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Company's authorized capital stock will be amended pursuant to the filing of an Amended and Restated Certificate of Incorporation of the Company (the "Restated Certificate") with the Secretary of State of the State of Delaware prior to or concurrently with the Closing (as defined herein), which Restated Certificate will, among other things, authorize the creation and issuance of the Series D Preferred Stock and establish the rights, preferences, privileges, and restrictions thereof;
WHEREAS, the Parties wish to set forth certain representations, warranties, covenants, and conditions to the purchase and sale of the Series D Preferred Stock as more fully described herein;
WHEREAS, as of the date hereof, the Company's existing capitalization on a fully diluted basis consists of approximately 80,000,000 shares, comprising (a) shares of Common Stock held by the Company's founders, (b) shares of Series A Preferred Stock held by Ridgeline Ventures Fund III LP, (c) shares of Series B Preferred Stock held by Northgate Growth Partners Fund II LP, (d) shares of Series C Preferred Stock held by Brindoval Capital Group LLC, and (e) shares of Common Stock issued or reserved for issuance under the Company's existing equity incentive plan; and
WHEREAS, the Parties intend that the purchase and sale of the Series D Preferred Stock be part of a broader set of agreements, including an Amended and Restated Investors' Rights Agreement, an Amended and Restated Voting Agreement, an Amended and Restated Right of First Refusal and Co-Sale Agreement, and certain other ancillary agreements, all as more fully described herein.
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1 — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings ascribed to them 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, with correlative meanings, "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 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 Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of such other Person.
"Amended and Restated Certificate of Incorporation" or "Restated Certificate" means the Amended and Restated Certificate of Incorporation of the Company, substantially in the form attached hereto as Exhibit A (as such form may be modified by mutual agreement of the Parties), to be filed with the Secretary of State of the State of Delaware prior to or concurrently with the Closing, which shall, among other things, authorize the Series D Preferred Stock and set forth the rights, preferences, privileges, and restrictions applicable thereto.
"Amended and Restated Investors' Rights Agreement" means that certain Amended and Restated Investors' Rights Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit B, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, and Brindoval Capital Group LLC, as such form may be modified by mutual agreement of the parties thereto.
"Amended and Restated Right of First Refusal and Co-Sale Agreement" means that certain Amended and Restated Right of First Refusal and Co-Sale Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit D, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, Brindoval Capital Group LLC, and the holders of Common Stock party thereto, as such form may be modified by mutual agreement of the parties thereto.
"Amended and Restated Voting Agreement" means that certain Amended and Restated Voting Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit C, by and among the Company, the Purchaser, Ridgeline Ventures Fund III LP, Northgate Growth Partners Fund II LP, Brindoval Capital Group LLC, and the holders of Common Stock party thereto, as such form may be modified by mutual agreement of the parties thereto.
"Board of Directors" means the board of directors of the Company, as constituted from time to time.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in San Francisco, California or Portland, Oregon are authorized or required by law, regulation, or executive order to close.
"Closing" has the meaning set forth in Section 2.2(a).
"Closing Date" has the meaning set forth in Section 2.2(a).
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.
"Common Stock" means the Common Stock of the Company, par value $0.0001 per share.
"Company" means Verdana Software, Inc., a Delaware corporation (EIN: 93-1485726; Delaware Secretary of State File Number: 6274913), together with any successors thereto.
"Company Indemnified Parties" has the meaning set forth in Section 7.2.
"Company intellectual Property" means all intellectual Property that is owned by, licensed to, or used by the Company in the conduct of its business as currently conducted, including without limitation the Verdana SCX platform, all patents, patent applications, copyrights, trademarks, service marks, trade names, domain names, trade secrets, know-how, software (in both source code and object code form), algorithms, databases, documentation, and all other proprietary technology and intellectual property rights, whether registered or unregistered.
"Credit Facility" means that certain Revolving Credit Agreement, dated as of [__], by and between the Company, as borrower, and Pacific Summit Bank, N.A., as lender, providing for a revolving credit facility in an aggregate principal amount of up to Ten Million Dollars ($10,000,000), as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"DGCL" means the Delaware General Corporation Law, Title 8 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 of this Agreement, as the same may be updated in accordance with Section 6.1(h) of this Agreement.
"ESOP" means the Company's 2017 Equity Incentive Plan, as amended, including any successor plan thereto, currently providing for the issuance of up to an aggregate of 12,000,000 shares of Common Stock (including shares subject to outstanding options and other equity awards, whether vested or unvested, and shares remaining available for future grant).
"Existing Investors" means, collectively, Ridgeline Ventures Fund III LP, a Delaware limited partnership, Northgate Growth Partners Fund II LP, a Delaware limited partnership, and Brindoval Capital Group LLC, a Delaware limited liability company.
"Fully Diluted Capitalization" means, as of any date of determination, the aggregate number of shares of capital stock of the Company outstanding or deemed outstanding, calculated on a fully diluted basis, including without limitation (a) all outstanding shares of Common Stock, (b) all outstanding shares of Preferred Stock (on an as-converted-to-Common-Stock basis), and (c) all shares of Common Stock reserved for issuance under the ESOP (whether or not such shares have been issued or are subject to outstanding awards). For the avoidance of doubt, the Fully Diluted Capitalization as of the date hereof is 80,000,000 shares, which includes the 12,000,000 shares currently reserved under the ESOP.
[C&H Note: Pinnacle's position is that the existing ESOP of 12,000,000 shares is included in the pre-money fully-diluted count of 80,000,000 shares. The Langford Price markup dated June 22, 2022 proposed inclusion of the proposed 5,000,000 share ESOP expansion (bringing the ESOP to 17,000,000 shares) in the pre-money Fully Diluted Capitalization count. This change is rejected in this Second Draft. Any expansion of the ESOP beyond 12,000,000 shares is a post-money event for valuation purposes and shall not be taken into account in calculating the Purchase Price Per Share, the number of Series D Shares issuable hereunder, or the Purchaser's pro forma ownership percentage at Closing.]
"Fundamental Representations" means the representations and warranties set forth in Section 3.1 (Organization, Good Standing, and Qualification), Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 3.4 (Financial Statements), Section 3.9 (Tax Matters), and Section 3.14 (Brokers and Finders).
"GAAP" means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.
"Governmental Authority" means any federal, state, local, municipal, foreign, or other governmental or quasi-governmental authority of any nature, including any governmental agency, branch, department, commission, board, bureau, official, minister, court, tribunal, judicial body, or other instrumentality, or any self-regulatory organization.
"Indemnification Agreement" means that certain Indemnification Agreement to be entered into at the Closing, substantially in the form attached hereto as Exhibit F, by and between the Company and Marcus Trejo (or his designee) in his capacity as the Purchaser's designee to the Board of Directors.
"intellectual Property" means all intellectual property and proprietary rights of any kind, including without limitation patents, patent applications, inventions, copyrights, trademarks, service marks, trade names, trade dress, trade secrets, know-how, domain names, moral rights, and all registrations, applications, renewals, extensions, and restorations thereof, together with all goodwill associated therewith.
"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 each 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 reasonable inquiry of their respective direct reports and review of the files and records within their respective areas of responsibility.
[C&H Note: Langford Price's markup dated June 22, 2022 proposed limiting "Knowledge of the Company" to the actual knowledge of the named individuals without the "after reasonable inquiry" qualifier. This change is rejected. The "after reasonable inquiry" standard is appropriate and customary for a transaction of this size and nature and ensures that the Company's knowledge representations are not rendered meaningless by a failure to investigate known areas of potential concern.]
"Lender Consent" means the written consent, waiver, or other documentation from Pacific Summit Bank, N.A. required under the Credit Facility to permit the issuance of the Series D Preferred Stock and the consummation of the transactions contemplated by the Transaction Agreements, in form and substance reasonably satisfactory to the Purchaser, confirming that such issuance and consummation do not constitute a default, event of default, or "Change of Control" (as defined in the Credit Facility) under the Credit Facility and do not trigger any mandatory prepayment, acceleration, or termination right thereunder.
"Liens" means any mortgage, pledge, lien, security interest, charge, claim, encumbrance, option, right of first refusal, preemptive right, or other restriction or limitation of any kind (whether arising by contract, operation of law, or otherwise).
"Losses" has the meaning set forth in Section 7.1.
"Management Rights Letter" means that certain Management Rights Letter to be issued by the Company to the Purchaser at the Closing, substantially in the form attached hereto as Exhibit E, granting the Purchaser certain management rights and information access rights as contemplated by 29 C.F.R. § 2510.3-101(d)(3)(ii).
"Material Adverse Effect" means any event, change, development, occurrence, condition, state of facts, or circumstance that, individually or in the aggregate with all other events, changes, developments, occurrences, conditions, states of facts, or circumstances, (a) has or would reasonably be expected to have a material adverse effect on the business, assets, properties, financial condition, or results of operations of the Company, taken as a whole, or (b) would reasonably be expected to prevent, materially delay, or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement and the other Transaction Agreements; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, nor shall any of the following 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 (including changes in prevailing interest rates, credit markets, currency exchange rates, or commodity prices) that do not disproportionately affect the Company relative to other participants in the industries and markets in which the Company operates;
(ii) changes in conditions generally affecting the industries or markets in which the Company operates that do not disproportionately affect the Company relative to other participants in such industries or markets;
(iii) changes in applicable law, regulation, or the interpretation thereof by any Governmental Authority after the date hereof;
(iv) changes in GAAP or the interpretation thereof after the date hereof;
(v) effects resulting from the public announcement or pendency of the transactions contemplated by this Agreement and the other Transaction Agreements, including any loss of customers, suppliers, employees, or other business relationships directly and proximately caused by such announcement or pendency; and
(vi) any natural disaster, act of God, epidemic (but not pandemic, as discussed below), hostilities, act of terrorism, military action, or escalation thereof, or any national or international calamity, in each case to the extent that such events do not disproportionately affect the Company relative to other participants in the industries and markets in which the Company operates.
[C&H Note: Langford Price's markup dated June 22, 2022 proposed two additional carve-outs: (A) changes in GAAP or the interpretation thereof, and (B) effects related to or arising from COVID-19 or any related pandemic, including any governmental response thereto. C&H accepts the GAAP carve-out (now reflected in clause (iv) above). C&H rejects the COVID-19 carve-out. As of the date hereof (July 2022), the acute effects of the COVID-19 pandemic have substantially normalized and it is not appropriate to carve out pandemic-related effects from the Material Adverse Effect definition. The Company has had more than two years to adapt to the post-pandemic business environment, and any ongoing pandemic-related disruptions should properly be treated as part of the Company's baseline operating conditions. If the Company is aware of specific COVID-19-related risks that may affect its business, such risks should be disclosed in the Disclosure Schedules.]
"Outside Date" has the meaning set forth in Section 8.1(b).
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or other entity of any kind.
"Purchase Price" means Sixty Million Dollars ($60,000,000).
"Purchase Price Per Share" means [$4.00] per share of Series D Preferred Stock.
[C&H Note: The Purchase Price Per Share of $4.00 reflects the Company's proposed pre-money valuation of $320,000,000 ($4.00 × 80,000,000 pre-money Fully Diluted Capitalization shares). This price remains bracketed and subject to further negotiation. Pinnacle's position is that the pre-money valuation should be $260,000,000, resulting in a Purchase Price Per Share of $3.25 ($260,000,000 ÷ 80,000,000 shares). At $3.25/share, the $60,000,000 Purchase Price would acquire approximately 18,461,538 shares, representing approximately 18.75% of the post-close Fully Diluted Capitalization. The $60,000,000 gap between the respective valuation positions ($320M vs. $260M) remains the principal commercial issue to be resolved between Marcus Trejo and Raj Anand.]
"Purchaser" means Pinnacle Venture Fund II LP, a Delaware limited partnership.
"Purchaser Indemnified Parties" has the meaning set forth in Section 7.1.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Series D Preferred Stock" means the shares of Series D Preferred Stock of the Company, par value $0.0001 per share, to be authorized by the Restated Certificate and having the rights, preferences, privileges, and restrictions set forth therein.
"Series D Shares" means the [15,000,000] shares of Series D Preferred Stock to be issued to the Purchaser at the Closing pursuant to Section 2.1 of this Agreement, subject to adjustment based on the final Purchase Price Per Share as mutually agreed by the Parties.
"Transaction Agreements" means, collectively, this Agreement, the Restated Certificate, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, the Amended and Restated Voting Agreement, the Management Rights Letter, and the Indemnification Agreement.
"Verdana SCX" means the Company's proprietary AI-powered supply chain optimization software-as-a-service (SaaS) platform, including all versions, modules, updates, enhancements, and derivative works thereof.
Section 1.2 — Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) The term "including" (and correlative terms such as "include," "includes," and "included") means "including without limitation" and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.
(b) 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.
(c) References herein to "Articles," "Sections," "Exhibits," and "Schedules" are to the articles, sections, exhibits, and schedules of and to this Agreement, unless otherwise specified.
(d) Words in the singular shall be deemed to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires.
(e) The word "or" is not exclusive and shall be interpreted as "and/or" where the context so requires.
(f) All references to dollar amounts or "$" shall mean United States dollars.
(g) The term "days" means calendar days, unless otherwise expressly specified as "Business Days."
(h) All references to any statute, rule, or regulation shall be deemed to include any amendments, supplements, modifications, reenactments, or successor provisions thereto.
(i) The terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement.
(j) The Parties have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, 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 of the provisions of this Agreement.
(k) Any reference to a document or set of documents, and the rights and obligations of the parties under such document or documents, shall mean such document or documents as amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms thereof.
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, at the Closing, an aggregate of [15,000,000] shares of Series D Preferred Stock (the "Series D Shares") at the Purchase Price Per Share of [$4.00] per share, for an aggregate Purchase Price of Sixty Million Dollars ($60,000,000).
The number of Series D Shares and the Purchase Price Per Share specified above are subject to adjustment based on the final resolution of the valuation discussion between the Parties. At the Purchase Price Per Share of [$4.00] per share, the Purchaser would receive 15,000,000 Series D Shares, representing approximately 15.79% of the post-Closing Fully Diluted Capitalization of 95,000,000 shares (or approximately 15.00% of post-Closing Fully Diluted Capitalization if the proposed 5,000,000 share ESOP expansion were to be completed pre-Closing, resulting in a post-Closing Fully Diluted Capitalization of 100,000,000 shares). At the Purchaser's proposed Purchase Price Per Share of $3.25 per share, the Purchaser would receive approximately 18,461,538 Series D Shares, representing approximately 18.75% of the post-Closing Fully Diluted Capitalization of approximately 98,461,538 shares.
The Series D Shares shall have the rights, preferences, privileges, and restrictions set forth in the Restated Certificate, as described in Exhibit A hereto. The Series D Shares shall be issued to the Purchaser free and clear of all Liens (other than restrictions under applicable securities laws and the Transaction Agreements).
Section 2.2 — Closing; Delivery
(a) Closing. The closing of the purchase and sale of the Series D Shares (the "Closing") shall take place remotely via the electronic exchange of documents and signatures on a date mutually agreed upon by the Parties, which date shall be no later than [__] Business Days following the satisfaction or waiver of all of the conditions set forth in Article 5 of this Agreement (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or on such later date as the Parties may mutually agree in writing (the "Closing Date"). The Closing shall be deemed to have occurred at 12:01 a.m. Eastern Time on the Closing Date.
(b) Deliveries by the Company at Closing. At or prior to the Closing, the Company shall deliver or cause to be delivered to the Purchaser each of the following:
(i) duly executed counterparts of each of the Transaction Agreements to which the Company is a party, including this Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Voting Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, the Management Rights Letter, and the Indemnification Agreement;
(ii) a copy of the Restated Certificate, as filed with and certified by the Secretary of State of the State of Delaware, reflecting the authorization of the Series D Preferred Stock;
(iii) a stock certificate or certificates representing the Series D Shares, registered in the name of the Purchaser, or, if the Company has adopted a book-entry system for its capital stock, evidence of book-entry issuance of the Series D Shares to the Purchaser, in each case bearing appropriate legends as required by this Agreement, the Transaction Agreements, and applicable securities laws;
(iv) a certificate of the Secretary or Assistant Secretary of the Company, dated as of the Closing Date, certifying as to (A) the Restated Certificate as in effect as of the Closing, (B) the bylaws of the Company as in effect as of the Closing, (C) resolutions of the Board of Directors authorizing the execution, delivery, and performance by the Company of this Agreement and the other Transaction Agreements, the issuance and sale of the Series D Shares, and the filing of the Restated Certificate, and (D) resolutions of the stockholders of the Company approving the Restated Certificate and such other matters as may require stockholder approval;
(v) a certificate of good standing (or equivalent) of the Company, issued by the Secretary of State of the State of Delaware, dated not more than ten (10) days prior to the Closing Date;
(vi) a certificate of good standing (or equivalent) of the Company, or a certificate of authorization to transact business, issued by the Secretary of State of the State of Oregon, dated not more than ten (10) days prior to the Closing Date;
(vii) a compliance certificate, dated as of the Closing Date, signed by Raj Anand, Chief Executive Officer of the Company, certifying that (A) the representations and warranties of the Company contained in this Agreement are true and correct in all material respects (or, with respect to representations and warranties that are qualified by materiality or Material Adverse Effect, in all respects) as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties speak as of a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date), (B) the Company has performed in all material respects all obligations and conditions required to be performed or complied with by the Company under this Agreement on or before the Closing Date, and (C) no Material Adverse Effect has occurred since March 31, 2022;
(viii) a legal opinion of Langford Price & Associates LLP, counsel to the Company, addressed to the Purchaser, dated as of the Closing Date, in form and substance reasonably satisfactory to the Purchaser and its counsel, substantially in the form attached hereto as Exhibit G;
(ix) evidence of the Lender Consent from Pacific Summit Bank, N.A., in form and substance reasonably satisfactory to the Purchaser, as described in Section 5.1(e) of this Agreement;
(x) copies of all third-party consents, waivers, and approvals required under the Company's material contracts, organizational documents, or otherwise in connection with the execution, delivery, and performance of the Transaction Agreements and the consummation of the transactions contemplated hereby;
(xi) updated Disclosure Schedules, dated as of the Closing Date, to the extent any information set forth in the Disclosure Schedules delivered as of the date hereof requires updating to reflect changes occurring between the date hereof and the Closing Date; and
(xii) such other documents, instruments, and certificates as the Purchaser may reasonably request in connection with the Closing.
(c) Deliveries by the Purchaser at Closing. At or prior to the Closing, the Purchaser shall deliver or cause to be delivered to the Company each of the following:
(i) payment of the Purchase Price of Sixty Million Dollars ($60,000,000) by wire transfer of immediately available funds to a bank account designated by the Company in a written notice delivered to the Purchaser not less than three (3) Business Days prior to the Closing Date; and
(ii) duly executed counterparts of each of the Transaction Agreements to which the Purchaser is a party, including this Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and Restated Voting Agreement, and the Amended and Restated Right of First Refusal and Co-Sale Agreement.
Section 2.3 — Use of Proceeds
The Company shall use the proceeds from the sale of the Series D Shares for general corporate purposes, including without limitation (a) working capital, (b) continued product development and enhancement of the Verdana SCX platform, including investments in artificial intelligence and machine learning capabilities, (c) sales and marketing expansion, including hiring of additional sales personnel and expansion into new geographic markets, and (d) other operational purposes, in each case as set forth in a board-approved annual budget and operating plan. The allocation of proceeds among the foregoing categories shall be consistent with the operating plan presented to the Purchaser during the due diligence process.
Notwithstanding the foregoing, the Company shall not use any portion of the proceeds from the sale of the Series D Shares to repay, prepay, redeem, defease, or otherwise reduce any outstanding indebtedness under the Credit Facility with Pacific Summit Bank, N.A. without the prior written consent of the Purchaser (which consent may be granted or withheld in the Purchaser's sole discretion). For the avoidance of doubt, this restriction shall not prevent the Company from making regularly scheduled interest payments under the Credit Facility in the ordinary course of business.
[C&H Note: The restriction on use of proceeds to repay the Credit Facility is a new provision in this Second Draft and was not included in the Initial Draft or addressed in the Langford Price markup. This provision is intended to ensure that the Purchaser's investment is deployed for growth purposes rather than being used to deleverage the Company's balance sheet for the benefit of Pacific Summit Bank, N.A. at the expense of the Series D investor.]
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that, except as set forth in the Disclosure Schedules delivered to the Purchaser concurrently herewith (which Disclosure Schedules shall be arranged in sections corresponding to the sections of this Article 3, provided that any disclosure set forth in any section of the Disclosure Schedules shall be deemed to qualify and be incorporated into any other section of this Article 3 to the extent the relevance of such disclosure to such other section is reasonably apparent on the face of such disclosure), as of the date hereof and as of the Closing Date (except for representations and warranties that speak as of a specific date, which shall be true and correct only as of such date), the following representations and warranties are true and correct:
Section 3.1 — Organization, Good Standing, and Qualification
The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware (Delaware Secretary of State File Number: 6274913). The Company has all requisite corporate power and authority to own, lease, and operate its properties and assets and to conduct its business as currently conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing (or its equivalent) in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. As of the date hereof, the jurisdictions in which the Company is qualified to transact business include the State of Oregon, where the Company's principal place of business is located at 1175 NW Couch Street, Suite 800, Portland, OR 97209. The Company's registered agent in the State of Delaware is Cascade Systems, located at 1209 Orange Street, Wilmington, DE 19801. The Company has made available 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
All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, delivery, and performance of this Agreement and each of the other Transaction Agreements to which the Company is a party, the authorization and issuance of the Series D Shares, and the filing of the Restated Certificate with the Secretary of State of the State of Delaware, has been taken or will be taken prior to the Closing. This Agreement, when duly executed and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies (the "Enforceability Exceptions"). Each of the other Transaction Agreements to which the Company is a party, when duly executed and delivered by the Company, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. The execution and delivery of this Agreement and the other Transaction Agreements to which the Company is a party, the issuance and sale of the Series D Shares, and the consummation of the other transactions contemplated hereby and thereby do not and will not (i) violate any provision of the Company's certificate of incorporation (as currently in effect or as proposed to be amended by the Restated Certificate) or bylaws, (ii) violate any applicable law, rule, regulation, order, judgment, or decree of any Governmental Authority, or (iii) result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to any other Person any rights of termination, amendment, acceleration, or cancellation of, or result in the creation of any Lien upon any of the properties or assets of the Company under, any material contract, agreement, instrument, permit, or license to which the Company is a party or by which the Company or any of its properties or assets is bound, except, in the case of clauses (ii) and (iii), as would not, individually or in the aggregate, have a Material Adverse Effect.
Section 3.3 — Capitalization
(a) Pre-Transaction Capitalization. As of the date hereof, the Fully Diluted Capitalization of the Company is 80,000,000 shares, consisting of the following:
(b) Valid Issuance. All outstanding shares of the Company's capital stock have been duly authorized, are validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The Company has reserved 12,000,000 shares of Common Stock for issuance under the ESOP, of which [__] shares have been issued upon exercise of options, [_] shares are subject to outstanding and unexercised options, and [___] shares remain available for future grant. Except as set forth in the Disclosure Schedules or as contemplated by the ESOP, there are no outstanding warrants, options, rights (including conversion or preemptive rights), or other agreements or commitments for the purchase or acquisition from the Company of any shares of the Company's capital stock, and there are no outstanding obligations of the Company to issue, deliver, or sell, or cause to be issued, delivered, or sold, any shares of the Company's capital stock or any securities convertible into or exercisable or exchangeable for any shares of the Company's capital stock.
[C&H Note: Langford Price's markup dated June 22, 2022 proposed adding language to this Section 3.3 stating that the Board of Directors has approved the expansion of the ESOP by 5,000,000 additional shares (from 12,000,000 shares to 17,000,000 shares) and that such expansion is expected to be completed prior to the Closing. This change is rejected in this Second Draft. The ESOP expansion, if and when approved by the Board of Directors and the Company's stockholders, will be treated as a post-money event and shall not affect the calculation of the Purchase Price Per Share, the number of Series D Shares to be issued to the Purchaser, or the Purchaser's pro forma ownership percentage at Closing. See also Section 6.1(i) (Pre-Closing Covenants).]
(c) Validity of Series D Shares. The Series D Shares, when issued, sold, and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be duly authorized, validly issued, fully paid, and nonassessable, and will be free and clear of all Liens (other than restrictions on transfer imposed by applicable securities laws and the Transaction Agreements). Based on the representations of the Purchaser set forth in Article 4 of this Agreement, the offer, sale, and issuance of the Series D Shares to the Purchaser will be in compliance with all applicable federal and state securities laws.
Section 3.4 — Financial Statements
(a) The Company has delivered to the Purchaser (i) audited consolidated financial statements of the Company for the fiscal year ended December 31, 2021, including a balance sheet, statement of operations, statement of stockholders' equity (deficit), and statement of cash flows, together with the notes thereto and the report of Whitfield & Greer LLP (engagement partner: Gerald Whitfield), the Company's independent registered public accounting firm (the "Audited Financial Statements"), and (ii) unaudited consolidated interim financial statements of the Company for the three-month period ended March 31, 2022, including a balance sheet and statement of operations (the "Interim Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements").
(b) The Financial Statements (i) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except, in the case of the Interim Financial Statements, for the absence of footnotes and subject to normal year-end audit adjustments, none of which, individually or in the aggregate, would be material) and (ii) present fairly, in all material respects, the consolidated financial condition and results of operations of the Company as of the respective dates thereof and for the respective periods indicated therein, subject, in the case of the Interim Financial Statements, to normal year-end audit adjustments and the absence of footnotes.
(c) Without limiting the generality of the foregoing, the following key financial metrics of the Company as of and for the most recently available period (the quarter ended March 31, 2022) are accurate in all material respects:
(i) Annual Recurring Revenue (ARR): $47,300,000;
(ii) Net Revenue Retention (NRR): 128%;
(iii) Gross Margin: 74.2%;
(iv) EBITDA (trailing twelve months ended March 31, 2022): negative $11,600,000; and
(v) Cash and Cash Equivalents on Balance Sheet: $22,400,000.
(d) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, and (iii) access to the Company's assets is permitted only in accordance with management's general or specific authorization.
[C&H Note: Langford Price's markup dated June 22, 2022 proposed qualifying the representations in this Section 3.4 to the "Knowledge of the Company." This qualification is rejected. The financial statement representations are Fundamental Representations and are among the most critical representations in this Agreement. Knowledge-qualifying these representations would fundamentally undermine the Purchaser's ability to rely on the accuracy of the Company's financial information in making its investment decision. The Company, through its management team and its independent auditors, is in the best position to know whether its financial statements are accurate and prepared in accordance with GAAP, and it should stand behind these representations without qualification.]
Section 3.5 — No Material Adverse Effect
Since March 31, 2022, the Company has conducted its business in the ordinary course of business consistent with past practice, and there has not been any event, change, development, occurrence, condition, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, since March 31, 2022, except as set forth in the Disclosure Schedules or as expressly contemplated by this Agreement:
(i) the Company has not declared, set aside, or paid any dividend or other distribution with respect to any shares of its capital stock;
(ii) the Company has not issued, sold, or granted (or authorized the issuance, sale, or grant of) any shares of its capital stock or any options, warrants, or other rights to acquire shares of its capital stock (other than grants of options under the ESOP in the ordinary course of business consistent with past practice);
(iii) the Company has not incurred any indebtedness for borrowed money in excess of $1,000,000 in the aggregate;
(iv) the Company has not sold, assigned, transferred, licensed, or otherwise disposed of any material assets or properties (other than sales of inventory and licensing of software in the ordinary course of business);
(v) the Company has not made any material changes to its accounting methods, principles, or practices;
(vi) the Company has not experienced any damage, destruction, or casualty loss (whether or not covered by insurance) in excess of $500,000 in the aggregate; and
(vii) the Company has not entered into any agreement or commitment to do any of the foregoing.
Section 3.6 — Absence of Litigation
Except as set forth in Schedule 3.6 of the Disclosure Schedules, there is no action, suit, proceeding, arbitration, mediation, claim, complaint, investigation, inquiry, or other legal proceeding (collectively, "Proceedings") pending or, to the Knowledge of the Company, threatened against the Company or any of its officers or directors (in their capacities as such), at law or in equity, before or by any Governmental Authority, nor is there any judgment, decree, injunction, order, ruling, or writ of any Governmental Authority outstanding against the Company. The Company is not a party to or subject to any consent decree, settlement agreement, or other similar agreement with any Governmental Authority relating to the Company's business, assets, or operations.
Section 3.7 — Intellectual Property
(a) Ownership and Rights. The Company owns or has valid and enforceable rights to use all Company intellectual Property necessary for the conduct of its business as currently conducted, including without limitation the Verdana SCX platform and all related technology, software, algorithms, data models, and documentation. The Company has not received any written notice that any of the Company intellectual Property has been adjudged invalid or unenforceable, in whole or in part, and to the Knowledge of the Company, all Company intellectual Property owned by the Company is valid, subsisting, and enforceable.
(b) No Infringement. To the Knowledge of the Company, the conduct of the Company's business as currently conducted does not infringe, misappropriate, or otherwise violate the intellectual Property rights of any third party. There are no Proceedings pending or, to the Knowledge of the Company, threatened against the Company alleging that the Company has infringed, misappropriated, or otherwise violated the intellectual Property rights of any third party. The Company has not received any written notice or claim asserting that the Company has infringed, misappropriated, or otherwise violated, or is infringing, misappropriating, or otherwise violating, any intellectual Property rights of any third party.
(c) Employee and Contractor Agreements. All current and former employees, consultants, and contractors of the Company who have had access to or contributed to the development of any Company intellectual Property have executed written agreements containing (i) confidentiality and non-disclosure obligations with respect to the Company's proprietary and confidential information and (ii) assignment provisions assigning to the Company all right, title, and interest in and to any intellectual Property developed, conceived, or reduced to practice in connection with such Person's engagement with the Company, in each case substantially in the form provided to the Purchaser during the due diligence process.
(d) Open-Source Software. Schedule 3.7 of the Disclosure Schedules sets forth a complete and accurate list of all open-source software (including software licensed under any license meeting the Open Source Initiative's definition of "open source" or any similar license, including the GNU General Public License, the GNU Lesser General Public License, the Mozilla Public License, the Apache License, the BSD License, the MIT License, and any Creative Commons license) used by the Company in any Company intellectual Property or any products or services offered by the Company. The Company is in compliance in all material respects with the terms and conditions of each such open-source license. The Company has not used any open-source software in a manner that would require the Company to (i) disclose, distribute, or make available the source code of any proprietary software of the Company (including the Verdana SCX platform), (ii) license any proprietary software of the Company for the purpose of making derivative works, or (iii) redistribute any proprietary software of the Company at no charge.
Section 3.8 — Material Contracts
(a) Schedule 3.8 of the Disclosure Schedules sets forth a complete and accurate list of all material contracts of the Company (collectively, the "Material Contracts"), including without limitation the following categories:
(i) Customer agreements with the Company's top customers by annual recurring revenue, including:
•  Meridian Logistics Corp. — Three-year enterprise license agreement, annual recurring revenue of $11,800,000 (representing approximately 24.9% of the Company's total ARR), with an initial term expiring December 31, 2023, automatically renewing for successive one-year terms unless either party provides written notice of non-renewal at least 180 days prior to the end of the then-current term;
•  Caldera Manufacturing Inc. — Annual recurring revenue of approximately $5,200,000 (representing approximately 11.0% of the Company's total ARR);
•  Atlas Freight Holdings LLC — Annual recurring revenue of approximately $4,100,000 (representing approximately 8.7% of the Company's total ARR);
•  Brannock Industrial Group — Annual recurring revenue of approximately $3,400,000 (representing approximately 7.2% of the Company's total ARR); and
•  Solaris Warehousing Co. — Annual recurring revenue of approximately $2,700,000 (representing approximately 5.7% of the Company's total ARR);
(ii) the Credit Facility with Pacific Summit Bank, N.A. (aggregate facility amount of $10,000,000; $6,200,000 drawn as of March 31, 2022);
(iii) employment agreements, offer letters, and consulting agreements with Key Employees;
(iv) any contract or agreement involving annual payments by or to the Company in excess of $500,000; and
(v) all other contracts or agreements that are material to the business, assets, properties, financial condition, or results of operations of the Company.
(b) Each Material Contract is in full force and effect and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. The Company is not in material breach or default under any Material Contract, and, to the Knowledge of the Company, no other party to any Material Contract is in material breach or default thereunder. The Company has not received any written notice of any intention of any party to terminate, cancel, or not renew any Material Contract. The Company has delivered or made available to the Purchaser true, correct, and complete copies of all Material Contracts (including all amendments, supplements, and modifications thereto).
[C&H Note: Langford Price's markup dated June 22, 2022 proposed raising the material contract disclosure threshold from $250,000 to $500,000 in annual commitments. C&H accepts this change in this Second Draft, as reflected in clause (a)(iv) above. This revised threshold is consistent with market practice for companies of the Company's size and stage.]
Section 3.9 — Tax Matters
(a) The Company has timely filed (taking into account any applicable extensions) all federal, state, local, and foreign tax returns and reports required to be filed by it. All such tax returns and reports are true, correct, and complete in all material respects. The Company has timely paid all taxes due and payable by it (whether or not shown on any tax return), except for taxes being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the Company's financial statements in accordance with GAAP. The Company's employer identification number (EIN) is 93-1485726.
(b) There are no pending or, to the Knowledge of the Company, threatened audits, examinations, investigations, assessments, deficiency notices, or other proceedings by any taxing authority with respect to any taxes of the Company. The Company has not received any written notice from any taxing authority of any proposed assessment, deficiency, or adjustment with respect to any taxes. The Company has not waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency.
(c) The Company has withheld and timely remitted to the appropriate taxing authorities all taxes required to have been withheld and remitted in connection with amounts paid or owed to any employee, independent contractor, creditor, stockholder, or other third party, including without limitation all employment taxes, income tax withholdings, and social security and unemployment taxes.
(d) The Company has not been a member of any affiliated group filing a consolidated federal income tax return (other than a group the common parent of which was the Company), and the Company has no liability for the taxes of any other Person under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.
Section 3.10 — Employee Matters
(a) As of the date hereof, the Company has approximately 310 employees. A complete and accurate list of all employees, their titles, dates of hire, and annual compensation (including base salary and target bonus) has been provided to the Purchaser in the data room.
(b) The ESOP covers a pool of 12,000,000 shares of Common Stock (including shares subject to outstanding options, whether vested or unvested, shares issued upon exercise of options, and shares remaining available for future grant). Schedule 3.10 of the Disclosure Schedules sets forth a complete and accurate list of all outstanding equity awards, including the holder, grant date, exercise price, vesting schedule, and number of shares subject to each award.
(c) There are no pending or, to the Knowledge of the Company, threatened labor disputes, strikes, slowdowns, work stoppages, lockouts, unfair labor practice charges, or material employment-related litigation against the Company. The Company is not a party to any collective bargaining agreement or other labor union contract. No labor union or other collective bargaining representative has been certified or recognized as the representative of any employees of the Company, and, to the Knowledge of the Company, there are no organizing activities or campaigns pending or threatened with respect to any employees of the Company.
(d) All employees of the Company are employed on an at-will basis under Oregon law (except to the extent otherwise disclosed in the Disclosure Schedules or as otherwise provided by applicable law), and the Company has no obligation to provide severance or other termination-related compensation to any employee, except as set forth in the employment agreements with Key Employees or as disclosed in the Disclosure Schedules.
(e) The Company is in compliance in all material respects with all applicable federal, state, and local laws, rules, and regulations relating to employment, employment practices, terms and conditions of employment, wages and hours, worker classification, employee health and safety, immigration, equal employment opportunity, non-discrimination, harassment, retaliation, disability, employee leave, whistleblowing, workers' compensation, unemployment insurance, and the collection and payment of withholding and social security taxes and any similar taxes.
Section 3.11 — Insurance
The Company maintains insurance policies as described in Schedule 3.11 of the Disclosure Schedules, in such amounts and covering such risks as are customary for companies of similar size and in the same or similar industries. All such insurance policies are in full force and effect, and the Company is not in breach or default (including with respect to the payment of premiums or the giving of notices) under any such policy. The Company has not received any written notice of cancellation, non-renewal, or material change in coverage, scope, or amount of any such policy. Since January 1, 2020, the Company has not made any claim under any insurance policy as to which coverage has been denied or disputed by the applicable insurer (other than customary reservations of rights).
Section 3.12 — Compliance with Laws
The Company is in compliance in all material respects with all applicable federal, state, local, and foreign laws, statutes, rules, regulations, orders, judgments, decrees, permits, licenses, franchises, and other governmental authorizations or approvals (collectively, "Applicable Laws"). The Company has not received any written notice from any Governmental Authority alleging or asserting any non-compliance with, or violation of, any Applicable Laws. The Company holds all permits, licenses, franchises, and other governmental authorizations and approvals necessary for the conduct of its business as currently conducted, and all such permits, licenses, franchises, authorizations, and approvals are in full force and effect.
Section 3.13 — Indebtedness
(a) Schedule 3.13 of the Disclosure Schedules sets forth a complete and accurate list of all outstanding indebtedness of the Company for borrowed money (including the principal amount, maturity date, interest rate, and lender) as of the date hereof.
(b) As of the date hereof, the Company's outstanding indebtedness includes $6,200,000 drawn under the Credit Facility with Pacific Summit Bank, N.A. The Credit Facility has a total revolving commitment of $10,000,000, bears interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 3.50% per annum, matures on June 30, 2024, and contains the following material financial covenants:
(i) a minimum liquidity requirement of $10,000,000 (defined as unrestricted cash and cash equivalents plus the undrawn availability under the Credit Facility); and
(ii) an ARR-based coverage ratio, requiring that the Company's annual recurring revenue as of each quarter-end be not less than a specified multiple of the outstanding principal amount under the Credit Facility.
(c) The Company is in compliance with all covenants (financial and otherwise) under the Credit Facility as of the date hereof. The Company has not received any notice of default, event of default, or alleged breach under the Credit Facility, and, to the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, would constitute a default or event of default under the Credit Facility.
Section 3.14 — Brokers and Finders
Except for Hargrove Securities LLC, a FINRA-registered broker-dealer with offices at 600 Lexington Avenue, 22nd Floor, New York, NY 10022 (CRD Number: [__]), which is entitled to receive a placement fee of 1.5% of the capital raised in connection with the transactions contemplated by this Agreement (the "Placement Fee"), estimated at $900,000 based on a Purchase Price of $60,000,000, no broker, finder, investment banker, financial advisor, or other intermediary has been retained by or is authorized to act on behalf of the Company in connection with the transactions contemplated by this Agreement, and no such Person is entitled to any fee, commission, or other compensation from the Company or the Purchaser in connection herewith. The Placement Fee payable to Hargrove Securities LLC is solely the obligation of the Company, and the Company shall indemnify and hold harmless the Purchaser from and against any claim by Hargrove Securities LLC or any other broker, finder, or intermediary for any fee, commission, or other compensation in connection with the transactions contemplated hereby.
Section 3.15 — Data Privacy and Security
(a) The Company is in compliance in all material respects with (i) all Applicable Laws relating to data privacy, data security, and the collection, use, processing, storage, transfer, disclosure, and protection of personal data and personally identifiable information, including without limitation the California Consumer Privacy Act of 2018 (as amended by the California Privacy Rights Act), the Oregon Consumer Information Protection Act, and, to the extent applicable, the European Union's General Data Protection Regulation, (ii) the

SERIES D PREFERRED STOCK PURCHASE AGREEMENT

SERIES D PREFERRED STOCK PURCHASE AGREEMENT

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