Item 1.01
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Entry Into A Material Definitive Agreement.
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On December 3, 2020,
Stark Peak Energy Transition Corp., a Delaware corporation (“STPK”), entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with STPK Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of STPK (“Merger
Sub”), and Stem, Inc., a Delaware corporation (“Stem”).
Pursuant to the
terms of the Merger Agreement, a business combination between STPK and Stem will be effected through the merger of Merger Sub
with and into Stem, with Stem surviving as a wholly-owned subsidiary of STPK (the “Merger”). Immediately prior to
the effective time of the Merger (the “Effective Time”), each outstanding share of Stem common stock, including
common stock held by prior owners of Stem preferred stock (“Existing Stem Common Stock”), will be cancelled and
converted into the right to receive a pro rata portion of an aggregate amount of 65,000,000 shares of common stock of STPK,
par value $0.0001 (“New Stem Common Stock”) on a fully diluted basis, inclusive of New Stem Common Stock
allocated to the Stem Options (as defined below) and certain Stem Warrants that are outstanding as of the effective time of
the Merger, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, as more fully set forth
under “Consideration” below.
Consideration
Under the terms of
the Merger Agreement, immediately prior to the Effective Time, each outstanding share of Existing Stem Common Stock (other than
shares owned by Stem as treasury stock and restricted shares), after giving effect to the Preferred Conversion, Convertible Notes
Conversion and Warrant Exercise (as discussed below) will be cancelled and converted into the right to receive a pro rata portion
of 65,000,000 shares of New Stem Common Stock, on a fully diluted basis, inclusive of New Stem Common Stock allocated to the Stem
Options and certain Stem Warrants that are outstanding as of the effective time of the Merger. Each share of Existing Stem Common
Stock owned by Stem as treasury stock will be canceled for no consideration.
Equity Conversions
In addition, as
of the Effective Time, each option to purchase Existing Stem Common Stock (“Stem Option”), whether vested or
unvested, that is outstanding immediately prior to the Effective Time will be assumed and converted into an option with
respect to a number of shares of New Stem Common Stock in the manner set forth in the Merger Agreement, without any further
action on the part of Stem, STPK or the holder thereof.
Immediately prior to
the Effective Time, Stem’s outstanding preferred shares will convert into shares of Existing Stem Common Stock (the “Preferred
Conversion”). Certain Pre-Closing Holders of convertible promissory notes issued by Stem (the “Convertible Promissory
Notes”), have entered into that certain Amendment No. 3 to the Subordinated Convertible Promissory Notes, dated as of November
27, 2020, pursuant to which the requisite majority of noteholders have voted to amend the Convertible Promissory Notes to provide
that all Convertible Promissory Notes then outstanding will, immediately prior to the Effective Time, be converted into Existing
Stem Common Stock (the “Convertible Notes Conversion”).
In connection with
Stem’s entry into the Merger Agreement, certain Pre-Closing Holders of Stem’s outstanding warrants will enter into
Warrant Exercise Agreements, each substantially in the form attached to the Merger Agreement, pursuant to which all Stem warrants
held by such Pre-Closing Holders will, immediately prior to the Effective Time, be exercised into Existing Stem Common Stock (the
“Warrant Exercise”).
Representations and Warranties
The Merger Agreement
contains customary representations and warranties of the parties thereto with respect to, among other things, (a) entity organization,
formation and authority, (b) capital structure, (c) authorization to enter into the Merger Agreement, (d) licenses and permits,
(e) taxes, (f) financial statements, (g) real property, (h) material contracts, (i) title to assets, (j) absence of changes,
(k) employee matters, (l) compliance with laws, (m) litigation, (n) transactions with affiliates and (o) regulatory matters.
The representations and warranties of the parties do not survive the Closing.
Covenants
The Merger Agreement
includes covenants of Stem with respect to operation of the business prior to consummation of the Merger. The Merger Agreement
also contains additional covenants of the parties, including, among others, (a) requirement to make appropriate filings pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”), (b) the use of reasonable best efforts
to obtain the financing from the PIPE Investors (as defined below) (and for Stem to reasonably cooperate with STPK in connection
thereto) and (c) preparation and filing of a registration statement on Form S-4 relating to the Merger and containing a proxy statement
of STPK (the “Registration Statement / Proxy Statement”).
The Merger Agreement
also contains exclusivity provisions prohibiting (a) Stem and its subsidiaries from initiating, soliciting, entertaining or otherwise
encouraging an Acquisition Proposal (as defined in the Merger Agreement) (subject to limited exceptions specified therein) or entering
into any contracts or agreements in connection therewith and (b) STPK from issuing an indication of interest, memorandum of understanding,
letter of intent or other similar agreement with respect to a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination other that with respect to the transactions with Stem contemplated by the Merger
Agreement.
New Incentive Plan
In connection with
the Closing, STPK will adopt the New Incentive Plan (as defined in the Merger Agreement) subject to the receipt of STPK stockholder
approval.
Conditions to Consummation of the Transactions
Consummation of the
Transactions is generally subject to customary conditions of the respective parties, and conditions customary to special purpose
acquisition companies, including (a) expiry or termination of all applicable waiting periods under HSR, (b) the absence of any
law or governmental order, threatened or pending, preventing the consummation of the Merger, (c) the effectiveness of the Registration
Statement / Proxy Statement, (d) the STPK Class A Shares to be issued in the Merger having been listed on NYSE upon the Closing,
and otherwise satisfying the applicable listing requirements of NYSE, and (e) receipt of shareholder approval from shareholders
of each of STPK and Stem for consummation of the Merger. In addition, Stem also has the right to not consummate the Merger in the
event that (i) STPK has net tangible assets following the redemptions of less than $5,000,001 and (ii) the cash proceeds available
in the trust account, together with the cash proceeds received at Closing in respect of the various financing transactions contemplated
by the Merger Agreement (including from the PIPE Investors (discussed below)), is less than $200,000,000 (after giving effect to
payments in respect of any redemptions by STPK’s stockholders in connection with the Merger).
Termination
The Merger Agreement
may be terminated under certain customary and limited circumstances at any time prior to the Closing, including by mutual written
consent or if the Transactions have not been consummated on or prior to June 3, 2021 (subject to extensions for delays as set forth
in the Merger Agreement).
A copy of the Merger
Agreement is filed with this Current Report on Form 8-K as Exhibit 2.1 and is incorporated herein by reference. The foregoing description
of the Merger Agreement and the Transactions is not complete and is subject to, and qualified in its entirety by, reference to
the actual agreement. The Merger Agreement contains representations, warranties and covenants that the respective parties made
to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied in those representations,
warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications
and limitations agreed to by the parties in connection with negotiating such agreement. In particular, the assertions embodied
in the representations and warranties in the Merger Agreement were made as of a specified date, are modified or qualified by information
in one or more confidential disclosure letters prepared in connection with the execution and delivery of the Merger Agreement,
may be subject to a contractual standard of materiality different from what might be viewed as material to investors, or may have
been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Merger
Agreement are not necessarily characterizations of the actual state of facts about STPK, Stem or the other parties at the time
they were made or otherwise and should only be read in conjunction with the other information that STPK makes publicly available
in reports, statements and other documents filed with the Securities and Exchange Commission (the “SEC”).
Support Agreements
In connection and concurrent
with the execution of the Merger Agreement, certain holders representing approximately 71% of outstanding Stem Preferred Stock
and the Existing Stem Common Stock (determined on an as-converted basis) (“Supporting Holders”) entered into support
agreements (the “Support Agreements”) with STPK. Under the Support Agreements, the Supporting Holders agreed, among
other things, to execute and deliver a written consent (a) adopting the Merger Agreement and the consummation of the transactions
contemplated thereby, after the Registration Statement / Proxy Statement is declared effective by the SEC and (b) to effect a conversion
of all of the preferred stock of Stem designated as “Senior Preferred Stock.”
A copy of the form
of Support Agreement is filed with this Current Report on Form 8-K as Exhibit 10.1 and is incorporated herein by reference, and
may include such changes as are negotiated between the parties thereto. The foregoing description of the Support Agreement is not
complete and is subject to, and qualified in its entirety by, reference to the form thereof filed herewith.
Lock-up Agreements
In connection with
the execution of the Merger Agreement, certain Pre-Closing Holders entered into certain lock-up agreements (the “Lock-up
Agreements”) with STPK and Stem. Pursuant to the Lock-up Agreements certain holders of Restricted Securities (as defined
therein) have agreed, among other things, to be subject to a lock-up period which will last from the Closing until the earlier
of (i) the six month anniversary of the Closing and (ii) the date after the Closing on which STPK completes a liquidation, merger,
capital stock exchange, reorganization or other similar transaction (the “Lock-up Period”) in respect of their Restricted
Securities. During this lock-up period, the holders of Restricted Securities may not transfer any Restricted Securities or engage
in any short sales or other hedging or derivative transactions, subject to certain limited exceptions.
A copy of the form
of Lock-up Agreement is filed with this Current Report on Form 8-K as Exhibit 10.2 and is incorporated herein by reference, and
may include such changes as are negotiated between the parties thereto. The foregoing description of the Lock-up Agreement is not
complete and is subject to, and qualified in its entirety by, reference to the form thereof filed herewith.
PIPE Financing
On December 3,
2020, STPK entered into subscription agreements (each, a “Subscription Agreement”) with certain investors (the
“PIPE Investors”) pursuant to which, among other things, the PIPE Investors have agreed to subscribe for and
purchase, and STPK has agreed to issue and sell to the PIPE Investors, an aggregate of 22,500,000 shares of New Stem Common
Stock for an aggregate purchase price of $225,000,000 on the date of Closing, on the terms and subject to the conditions set
forth therein. The Subscription Agreement contains customary representations and warranties of STPK, on the one hand, and
each PIPE Investor, on the other hand, and customary conditions to closing, including the consummation of the transactions
contemplated by the Merger Agreement. The form of the Subscription Agreement is attached as Exhibit 10.3 hereto and is
incorporated herein by reference. The foregoing description of the Subscription Agreement is not complete and is subject to,
and qualified in its entirety by, reference to the form filed herewith.