PRO RATA RIGHTS SIDE LETTER
April 15, 2022
Brightfield Cloud Services Inc. 4710 East Riverside Drive, Suite 210 Austin, TX 78741
To: Each Major Purchaser (as defined herein) executing a counterpart signature page hereto
Ladies and Gentlemen:
This Pro Rata Rights Side Letter (this "Side Letter") is entered into as of April 15, 2022 (the "Effective Date"), by and between Brightfield Cloud Services Inc., a Delaware corporation, with its principal offices located at 4710 East Riverside Drive, Suite 210, Austin, TX 78741 (the "Company"), and each Major Purchaser (as defined below) who executes and delivers a counterpart signature page hereto (each, a "Major Purchaser" and, collectively, the "Major Purchasers").
RECITALS
WHEREAS, the Company and certain investors (each, a "Purchaser") have entered into Simple Agreements for Future Equity, each dated as of April 15, 2022 (each, a "SAFE" and, collectively, the "SAFEs"), pursuant to which the Purchasers have agreed to invest an aggregate of One Million Eight Hundred Fifty Thousand Dollars ($1,850,000) in the Company, with each SAFE having a post-money valuation cap of Twelve Million Dollars ($12,000,000) and no discount rate;
WHEREAS, as a material condition and inducement to each Major Purchaser's execution and delivery of such Major Purchaser's SAFE and payment of the Purchase Amount (as defined in the SAFEs) thereunder, the Company has agreed to grant to each Major Purchaser certain pro rata participation rights in connection with the Company's next Equity Financing (as defined in the SAFEs), on the terms and subject to the conditions set forth herein;
WHEREAS, a "Major Purchaser" means any Purchaser whose Purchase Amount under a SAFE is equal to or greater than Three Hundred Fifty Thousand Dollars ($350,000); and
WHEREAS, as of the Effective Date, the following Purchasers qualify as Major Purchasers and are executing counterpart signature pages to this Side Letter:
(i) Lorraine Chastain, an individual, with a Purchase Amount of Five Hundred Thousand Dollars ($500,000);
(ii) marshall Huang, investing through Jade Peak Ventures LLC, a Texas limited liability company, with a Purchase Amount of Four Hundred Thousand Dollars ($400,000); and
(iii) Dr. Nneka Adeyemi-Foster, investing through Ariel Crest Capital LLC, a Delaware limited liability company, with a Purchase Amount of Three Hundred Fifty Thousand Dollars ($350,000).
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions
As used in this Side Letter, the following terms shall have the meanings ascribed to them below. Capitalized terms used but not otherwise defined in this Side Letter shall have the meanings set forth in the SAFEs.
"Company" means Brightfield Cloud Services Inc., a Delaware corporation.
"Equity Financing" has the meaning ascribed to such term in each SAFE, and shall mean a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which the Company issues and sells shares of its Preferred Stock, resulting in aggregate gross proceeds to the Company of not less than One Million Dollars ($1,000,000) (excluding any amounts received upon conversion of the SAFEs and any other convertible instruments, including convertible promissory notes, other simple agreements for future equity, or similar instruments).
"Equity Financing Notice" has the meaning set forth in Section 2.2 of this Side Letter.
"Equity Financing Securities" means the shares of Preferred Stock (and any other securities, including any warrants or other rights issued in connection therewith) issued and sold by the Company in the Equity Financing, on the same terms, conditions, and price per share as offered to other investors participating in such Equity Financing.
"Exercise Notice" has the meaning set forth in Section 2.3 of this Side Letter.
"Exercise Period" has the meaning set forth in Section 2.3 of this Side Letter.
"Major Purchaser" means any Purchaser whose Purchase Amount under a SAFE is equal to or greater than Three Hundred Fifty Thousand Dollars ($350,000).
"Pro Rata Share" means, with respect to each Major Purchaser, the ratio (expressed as a percentage) of:
(a) the number of shares of capital stock of the Company owned by such Major Purchaser (calculated on an as-converted basis, assuming for such purpose the conversion of such Major Purchaser's SAFE at the post-money valuation cap of $12,000,000 as set forth in such Major Purchaser's SAFE) immediately prior to the issuance and sale of the Equity Financing Securities in the Equity Financing; to
(b) the total number of shares of capital stock of the Company outstanding immediately prior to such issuance and sale, calculated on a fully-diluted, as-converted basis, including without limitation (i) all shares of Common Stock outstanding, (ii) all shares of Common Stock issuable upon conversion or exercise of all outstanding convertible securities, options, and warrants (whether or not then vested or exercisable), (iii) all shares issuable upon conversion of all outstanding SAFEs at their respective post-money valuation caps, and (iv) all shares of Common Stock reserved for future issuance under any equity incentive plan, stock option plan, or similar arrangement of the Company, whether or not such shares have been granted or allocated.
"Purchase Amount" has the meaning ascribed to such term in each SAFE and means the amount invested by a Purchaser under such Purchaser's SAFE.
"SAFE" means each Simple Agreement for Future Equity, dated as of April 15, 2022, by and between the Company and a Purchaser, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
Section 2. Pro Rata Right
2.1 Grant of Right.
Subject to the terms and conditions of this Side Letter, the Company hereby grants to each Major Purchaser the right (but not the obligation) to purchase up to such Major Purchaser's Pro Rata Share of the Equity Financing Securities issued and sold by the Company in the next Equity Financing, on the same terms, conditions, and at the same price per share as offered to the other purchasers participating in such Equity Financing. For the avoidance of doubt, the pro rata right granted under this Section 2.1 applies exclusively to the first Equity Financing that occurs following the Effective Date (i.e., the next Equity Financing that triggers conversion of the SAFEs pursuant to their terms), and does not extend to any subsequent financing, whether an equity financing, a debt financing, or otherwise, unless such rights are separately granted in writing by the Company in connection with such subsequent financing. Nothing in this Side Letter shall be construed to obligate the Company to grant any Major Purchaser any participation, preemptive, or similar rights with respect to any issuance of securities by the Company following the closing of the Equity Financing.
2.2 Notice. The Company shall provide written notice (the "Equity Financing Notice") to each Major Purchaser not less than ten (10) business days prior to the anticipated initial closing date of the Equity Financing. The Equity Financing Notice shall include the following information:
(a) a summary description of the material terms and conditions of the Equity Financing, including without limitation the price per share at which the Equity Financing Securities are to be sold, the aggregate amount of capital being raised in the Equity Financing (including any anticipated overallotment or greenshoe amounts, if applicable), the identity of the lead investor or investors in the Equity Financing, and a description of any material rights, preferences, privileges, restrictions, or other terms attaching to the Equity Financing Securities (including liquidation preferences, dividend rights, anti-dilution protections, board representation rights, and protective provisions);
(b) the anticipated closing date (or dates, if multiple closings are contemplated) of the Equity Financing; and
(c) a calculation, prepared by the Company in good faith, of such Major Purchaser's Pro Rata Share and the maximum dollar amount and number of shares of Equity Financing Securities that such Major Purchaser is entitled to purchase pursuant to the pro rata right set forth in Section 2.1.
The Company shall deliver the Equity Financing Notice by the means set forth in Section 10 of this Side Letter. The Company shall make reasonable efforts to provide the Equity Financing Notice as promptly as practicable and, in any event, not less than ten (10) business days prior to the anticipated initial closing of the Equity Financing. If the anticipated closing date of the Equity Financing is changed after the delivery of the Equity Financing Notice, the Company shall promptly notify each Major Purchaser of such change.
2.3 Exercise. Each Major Purchaser shall have ten (10) business days following receipt of the Equity Financing Notice (the "Exercise Period") within which to deliver written notice to the Company (an "Exercise Notice") electing to purchase all or any portion of such Major Purchaser's Pro Rata Share of the Equity Financing Securities. The Exercise Notice shall specify the number of shares of Equity Financing Securities (and/or the dollar amount) that such Major Purchaser desires to purchase, which amount shall not exceed such Major Purchaser's Pro Rata Share as set forth in the Equity Financing Notice. A Major Purchaser may elect to purchase less than the full Pro Rata Share to which it is entitled; provided, that any portion of a Major Purchaser's Pro Rata Share that is not subscribed for in the Exercise Notice shall be deemed waived, and such Major Purchaser shall have no further right to purchase such unsubscribed portion.
If a Major Purchaser does not deliver an Exercise Notice to the Company within the Exercise Period, or if a Major Purchaser delivers written notice to the Company affirmatively waiving its pro rata right, such Major Purchaser shall be deemed to have irrevocably waived its pro rata right with respect to the Equity Financing, and the Company shall thereafter be free to issue and sell the Equity Financing Securities that would otherwise have been available for purchase by such Major Purchaser to any other person or persons, on terms no more favorable than those set forth in the Equity Financing Notice.
2.4 Closing Participation.
If a Major Purchaser timely delivers an Exercise Notice in accordance with Section 2.3, such Major Purchaser shall be entitled and obligated to purchase the number of Equity Financing Securities specified in the Exercise Notice at the closing of the Equity Financing (or, if the Equity Financing contemplates multiple closings, at such closing or subsequent closing as the Company and such Major Purchaser may agree), subject to the following conditions:
(a) such Major Purchaser shall execute and deliver the definitive transaction documents governing the Equity Financing on the same terms and conditions as the other purchasers participating in the Equity Financing, including without limitation any stock purchase agreement, investors' rights agreement, voting agreement, right of first refusal and co-sale agreement, indemnification agreement, and any other agreements or instruments as may be required in connection with the Equity Financing;
(b) such Major Purchaser shall deliver the aggregate purchase price for the Equity Financing Securities to be purchased by such Major Purchaser in immediately available funds at or prior to the applicable closing; and
(c) such Major Purchaser shall satisfy any other closing conditions applicable to purchasers of Equity Financing Securities in the Equity Financing.
For the avoidance of doubt, a Major Purchaser's purchase of Equity Financing Securities pursuant to this Section 2.4 shall be in addition to, and shall not reduce or offset, any shares of capital stock that such Major Purchaser receives upon conversion of such Major Purchaser's SAFE in connection with the Equity Financing. The shares of capital stock issued upon conversion of the SAFEs and the Equity Financing Securities purchased pursuant to this Side Letter shall be treated as separate and distinct issuances.
2.5 Termination of Right.
The pro rata right granted under this Section 2 shall terminate automatically and be of no further force or effect upon the earliest to occur of any of the following:
(a) the closing of the Equity Financing (whether or not the Major Purchaser has exercised its pro rata right);
(b) a Liquidity Event (as defined in the SAFEs); or
(c) a Dissolution Event (as defined in the SAFEs).
Upon termination of the pro rata right in accordance with this Section 2.5, this Side Letter shall be of no further force or effect, except that (i) Sections 3, 5, 8, 9, 11, and 12 shall survive such termination, and (ii) termination shall not affect any rights or obligations that have accrued prior to such termination.
Section 3. Representations and Warranties of Each Major Purchaser
Each Major Purchaser, severally and not jointly, hereby represents and warrants to the Company as of the Effective Date, and shall be deemed to re-make such representations and warranties as of the date of delivery of any Exercise Notice and as of the closing date of the Equity Financing (if applicable), as follows:
3.1 Accredited Investor Status. Such Major Purchaser is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and has such knowledge, sophistication, and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Company and the Equity Financing Securities.
3.2 Capacity and Authority. Such Major Purchaser has full legal capacity, power, and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by such Major Purchaser does not and will not conflict with, violate, or result in a breach of any agreement, instrument, order, judgment, or decree to which such Major Purchaser is a party or by which such Major Purchaser is bound.
3.3 Entity Authorization. Where a Major Purchaser is an entity (including, without limitation, Jade Peak Ventures LLC and Ariel Crest Capital LLC), such entity is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and the individual executing this Side Letter and any Exercise Notice on behalf of such entity has been duly authorized by all necessary limited liability company, corporate, or other organizational action to execute and deliver such documents and to bind such entity to the terms and conditions hereof.
3.4 Investment Intent. Any Equity Financing Securities acquired by such Major Purchaser pursuant to this Side Letter will be acquired for such Major Purchaser's own account, for investment purposes only, and not with a view to, or for resale in connection with, any distribution thereof in violation of the Securities Act or any applicable state securities laws. Such Major Purchaser understands that the Equity Financing Securities have not been, and may not be, registered under the Securities Act or any state securities laws by reason of specific exemptions from the registration provisions thereof, and that the Equity Financing Securities must be held indefinitely unless subsequently registered under the Securities Act and applicable state securities laws or unless an exemption from such registration is available. Such Major Purchaser acknowledges that certificates or book-entry statements representing such Equity Financing Securities may bear restrictive legends to that effect.
Section 4. Representations and Warranties of the Company
The Company hereby represents and warrants to each Major Purchaser as of the Effective Date as follows:
4.1 Organization and Standing. The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware. The Company is qualified to do business as a foreign corporation and is in good standing in the State of Texas, and in each other jurisdiction in which the failure to so qualify would have a material adverse effect on the Company's business, operations, assets, or financial condition.
4.2 Authorization. The execution, delivery, and performance of this Side Letter by the Company have been duly authorized by all necessary corporate action on the part of the Company, including the Action by Unanimous Written Consent of the Board of Directors of the Company dated April 4, 2022. No further consent or authorization of the Company, its board of directors, or its stockholders is required for the execution, delivery, and performance of this Side Letter.
4.3 Enforceability. This Side Letter has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws of general applicability relating to or affecting creditors' rights generally, and (b) general principles of equity, including principles of commercial reasonableness, good faith, and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 5. Confidentiality
5.1 Confidentiality Obligations. Each Major Purchaser agrees to hold in strict confidence and not to disclose, publish, or otherwise disseminate to any third party any information received from the Company in connection with the exercise of the pro rata right granted hereunder, including without limitation the terms, conditions, and contents of the Equity Financing Notice, any information regarding the Company's capitalization, financial condition, or business operations disclosed in connection therewith, and any other non-public information furnished by the Company or its representatives in connection with this Side Letter (collectively, "Confidential Information"), except:
(a) to such Major Purchaser's attorneys, accountants, financial advisors, and tax advisors (collectively, "Advisors"), in each case who have a bona fide need to know such Confidential Information in connection with such Major Purchaser's evaluation of the pro rata right and who are bound by professional duties of confidentiality or by written confidentiality obligations no less restrictive than those set forth in this Section 5;
(b) as required by applicable law, rule, regulation, or judicial or administrative order, subpoena, civil investigative demand, or similar process; provided that such Major Purchaser shall, to the extent legally permissible, provide the Company with prompt written notice of such requirement prior to making any such disclosure and shall cooperate with the Company, at the Company's expense, in seeking a protective order or other appropriate remedy to limit such disclosure; or
(c) with the prior written consent of the Company, which consent may be granted, withheld, conditioned, or delayed in the Company's sole discretion.
5.2 Permitted Disclosure. Notwithstanding Section 5.1, the existence and general terms of this Side Letter may be disclosed by the Company or any Major Purchaser to the extent reasonably necessary in connection with the Equity Financing (including in any due diligence materials provided to prospective investors), in connection with the Company's capitalization table management or corporate governance matters, or as otherwise required by applicable law.
Section 6. Amendment and Waiver
This Side Letter may not be amended, modified, supplemented, or restated, and no provision hereof may be waived, except by a written instrument duly executed by the Company and each Major Purchaser who is affected by such amendment, modification, supplement, restatement, or waiver. Any such amendment, modification, supplement, restatement, or waiver shall be binding upon each party hereto who has executed such written instrument and their respective successors and assigns. No waiver by any party of any breach or default of any term or condition of this Side Letter shall operate or be construed as a waiver of any other breach or default of the same or any other term or condition, nor shall any waiver of any breach or default constitute a continuing waiver of the same breach or default. No failure or delay on the part of any party in exercising any right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy.
Section 7. Assignment
The rights and obligations of each Major Purchaser under this Side Letter are personal to such Major Purchaser and may not be transferred, assigned, delegated, hypothecated, or otherwise disposed of, in whole or in part, by operation of law or otherwise, without the prior written consent of the Company, which consent may be withheld in the Company's sole discretion; provided, however, that a Major Purchaser may, without the prior written consent of the Company, assign its rights (but not its obligations) under this Side Letter to (a) an affiliate of such Major Purchaser, (b) a trust established for the benefit of such Major Purchaser or such Major Purchaser's immediate family members (defined as spouse, domestic partner, children, grandchildren, parents, and siblings), or (c) an estate planning vehicle controlled by such Major Purchaser; provided, further, that in each case any such assignee shall have executed and delivered to the Company a written instrument, in form and substance reasonably satisfactory to the Company, pursuant to which such assignee agrees to be bound by all of the terms and conditions of this Side Letter as if such assignee were an original party hereto. Any purported assignment in violation of this Section 7 shall be null and void and of no force or effect. The Company may not assign its rights or obligations hereunder without the prior written consent of each Major Purchaser.
Section 8. Governing Law
This Side Letter shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
Section 9. Entire Agreement
This Side Letter, together with the SAFEs and any other documents, instruments, or agreements executed and delivered by the parties in connection with the SAFE financing contemplated thereby, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, warranties, negotiations, and understandings, whether oral or written, relating to the pro rata rights described herein. There are no representations, warranties, covenants, or other agreements between the parties with respect to the subject matter hereof other than those expressly set forth or referred to in this Side Letter.
Section 10. Notices
All notices, requests, consents, demands, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given: (a) when delivered personally to the party to be notified; (b) when sent by confirmed electronic mail (with written confirmation of receipt by the recipient, which may be by reply e-mail confirming receipt); or (c) one (1) business day after deposit with a nationally recognized overnight courier service, postage prepaid, addressed as follows (or to such other address as any party may designate by written notice to the other parties hereto):
If to the Company:
Brightfield Cloud Services Inc. 4710 East Riverside Drive, Suite 210 Austin, TX 78741
Attention: Devin Mallory, Chief Executive Officer
Email: dmallory@brightfieldcloud.com
with a copy to (which shall not constitute notice):
Calderwood & Harkness LLP 600 Travis Street, Suite 4200 Houston, TX 77002
Attention: Christy Bauer
Email: cbauer@calderwoodharkness.com
If to Lorraine Chastain:
Lorraine Chastain 2814 Barton Creek Boulevard Austin, TX 78735
Email: lchastain@Northgate Software.com
If to marshall Huang / Jade Peak Ventures LLC:
Jade Peak Ventures LLC c/o marshall Huang 1701 Hermann Drive, Apt. 18C Houston, TX 77004
Email: mhuang@jadepeakventures.com
If to Dr. Nneka Adeyemi-Foster / Ariel Crest Capital LLC:
Ariel Crest Capital LLC c/o Dr. Nneka Adeyemi-Foster 5923 Preston Oaks Road, Suite 200 Dallas, TX 75254
Email: nadeyemifoster@arielcrestcapital.com
Any party may change its address for purposes of this Section 10 by giving written notice of such change to the other parties in accordance with the provisions of this Section 10.
Section 11. Severability
If any provision of this Side Letter (or any portion thereof) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect under any applicable law, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Side Letter shall be construed as if such invalid, illegal, or unenforceable provision (or portion thereof) had never been contained herein. In such event, the remaining provisions of this Side Letter shall continue in full force and effect, and the parties shall negotiate in good faith to reform the invalid, illegal, or unenforceable provision (or portion thereof) to the minimum extent necessary to render it valid, legal, and enforceable while preserving the parties' original intent to the greatest extent possible.
Section 12. Counterparts
This Side Letter may be executed in one or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, the Uniform Electronic Transactions Act, or any other applicable law), or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and shall be valid and effective for all purposes.
[Signature Pages Follow]
SIGNATURE PAGE TO PRO RATA RIGHTS SIDE LETTER
— COMPANY —
IN WITNESS WHEREOF, the Company has caused this Side Letter to be executed by its duly authorized representative as of the date first written above.
BRIGHTFIELD CLOUD SERVICES INC.
By: ________
Name: Devin Mallory
Title: Chief Executive Officer
Date: April 15, 2022
COUNTERPART SIGNATURE PAGE TO PRO RATA RIGHTS SIDE LETTER
— MAJOR PURCHASER (1 of 3) —
IN WITNESS WHEREOF, the undersigned Major Purchaser has executed this Side Letter as of the date first written above.
MAJOR PURCHASER:
________________________________________
Lorraine Chastain, individually
Purchase Amount under SAFE: $500,000
Address: 2814 Barton Creek Boulevard, Austin, TX 78735
Date: April 15, 2022
COUNTERPART SIGNATURE PAGE TO PRO RATA RIGHTS SIDE LETTER
— MAJOR PURCHASER (2 of 3) —
IN WITNESS WHEREOF, the undersigned Major Purchaser has caused this Side Letter to be executed by its duly authorized representative as of the date first written above.
MAJOR PURCHASER:
JADE PEAK VENTURES LLC
By: ________
Name: Marshall Huang
Title: Sole Member and Manager
Purchase Amount under SAFE: $400,000
Address: 1701 Hermann Drive, Apt. 18C, Houston, TX 77004
Date: April 15, 2022
COUNTERPART SIGNATURE PAGE TO PRO RATA RIGHTS SIDE LETTER
— MAJOR PURCHASER (3 of 3) —
IN WITNESS WHEREOF, the undersigned Major Purchaser has caused this Side Letter to be executed by its duly authorized representative as of the date first written above.
MAJOR PURCHASER:
ARIEL CREST CAPITAL LLC
By: ________
Name: Dr. Nneka Adeyemi-Foster
Title: Sole Member and Manager
Purchase Amount under SAFE: $350,000
Address: 5923 Preston Oaks Road, Suite 200, Dallas, TX 75254
Date: April 15, 2022