On May 19, 2022, Quantum Computing Inc. (the “Company”), Project Alpha Merger Sub I, Inc., a Delaware corporation (“Merger Sub I”), Project Alpha Merger Sub II, LLC, a Delaware limited liability
On May 19, 2022, Quantum Computing Inc. (the “Company”), Project Alpha Merger Sub I, Inc., a Delaware corporation (“Merger Sub I”), Project Alpha Merger Sub II, LLC, a Delaware limited liability company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), QPhoton, Inc., a Delaware corporation (“QPhoton”), and Yuping Huang, the principal stockholder of QPhoton (“Mr. Huang”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company agreed to acquire QPhoton through a series of merger transactions (collectively with the other transactions contemplated by the Merger Agreement, the “Transactions”).
The Transaction and Consideration
Pursuant to the Merger Agreement, immediately following the closing of the Transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub I will merge with and into QPhoton, with QPhoton surviving the merger as a wholly-owned subsidiary of the Company, immediately after which the surviving corporation would merge with and into Merger Sub II, with Merger Sub II surviving the merger as a wholly-owned subsidiary of the Company (the “Surviving Company”). The merger consideration to be paid to the stockholders of QPhoton (the “Merger Consideration”) consists of (i) 5,802,206 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), (ii) 2,377,028 shares of a new series of the Company’s preferred stock, par value $0.0001 per share, to be designated Series B convertible preferred stock (“Series B Preferred Stock”), and (iii) warrants to purchase up to 7,028,337 shares of Common Stock (the “Warrants”).
The terms of the Series B Preferred Stock will be as set forth in the Certificate of Designation of the Series B Preferred Stock to be filed with the Secretary of State of the State of Delaware, the form of which is attached as Exhibit D to the Merger Agreement (the “Certificate of Designation”). Each share of Series B Preferred Stock will initially be convertible into ten shares of Common Stock, subject to customary adjustments for stock dividends, stock splits, reclassifications and the like. The Certificate of Designation provides that, unless and until the Stockholder Approval (as defined below) is obtained, no shares of Series B Preferred Stock may be converted into shares of Common Stock to the extent that such issuance, taken together with the issuance of all other shares of Common Stock pursuant to the Merger Agreement, would breach the Company’s obligations under the Nasdaq listing rules. Upon receipt of the Stockholder Approval, all outstanding shares of Series B Preferred Stock would automatically convert into shares of Common Stock. The Series B Preferred Stock will rank senior to the Common Stock, and junior to the Company’s outstanding Series A convertible preferred stock, with respect to payment of dividends and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the Company. No dividends will be payable on the Series B Preferred, unless specifically declared by the Company’s board of directors (the “Board”). The holders of shares of Series B Preferred Stock will have no voting rights on account of the Series B Preferred Stock, other than certain protective provisions set forth in the Certificate of Designation, including with respect to certain matters affecting the rights of the Series B Preferred Stock and with respect to any voluntary liquidation or Change of Control (as defined in the Certificate of Designation) of the Company not approved by the Board (including at least one Board designee of the former stockholders of QPhoton).
The terms of the Warrants will be as set forth in the form of Warrant attached as Exhibit F to the Merger Agreement. The Warrants will have an exercise price of $0.0001 per share and will be exercisable for cash or on a cashless basis. The number and kind of shares issuable upon exercise of the Warrants and the exercise price of the Warrants will be subject to customary adjustments for stock dividends, stock splits, reclassifications and the like. The Warrants will be exercisable commencing upon issuance at the Closing and will expire five years from the date of issuance. Unless and until the Stockholder Approval is obtained, no shares of Common Stock may be issued upon exercise of the Warrants to the extent that such issuance, taken together with the issuance of all other shares of Common Stock pursuant to the Merger Agreement, would breach the Company’s obligations under the Nasdaq listing rules and an appropriate number of shares of Series B Preferred Stock would instead be issued upon exercise of the Warrants to the extent of such limitation. In addition, no shares of Common Stock or Series B Preferred Stock may be issued under the Warrant until certain vesting terms set forth in the Warrant and Merger Agreement are satisfied.
175,035 of the shares of Series B Preferred Stock to be issued to Mr. Huang as part of the Merger Consideration will be held in escrow for six months following the Closing to secure Mr. Huang’s indemnification obligations under the Merger Agreement, pursuant to an escrow agreement to be entered into at the Closing in form mutually acceptable to the Company, Mr. Huang and an exchange agent to be designated in accordance with the provisions of the Merger Agreement (the “Escrow Agreement”).
The Merger Agreement provides that the Merger Consideration would be adjusted to reflect any stock split, stock dividend or other similar event affecting the outstanding shares of capital stock of the Company prior to the Closing. In addition, if the Company issues additional shares of Common Stock, preferred stock, options, warrants or other equity-like securities prior to the Closing without the consent of QPhoton, subject to certain specified excepted issuances, the parties have agreed to use commercially reasonable efforts to negotiate appropriate changes to the terms of the Merger Agreement such that the aggregate Merger Consideration would equal 49% of the total capital stock of the Company on a fully-diluted basis immediately following the Closing.
