Bolt and its cofounder Ryan Breslow were dealt a series of stinging remarks from a Delaware judge last week, during a hearing to continue a temporary restraining order on the company’s controversial $450 million funding round. The halt on the Series F financing was requested by a trio of irate Bolt investors including the world’s largest asset manager, BlackRock, and has been extended through mid-October.
It is the latest snag in Breslow’s ongoing bid to raise fresh capital for the struggling payments company. The round, which was first announced in August and would value Bolt at $14 billion, has already been hamstrung by a series of complications that have infuriated shareholders, among them a mixup over the name of its lead investor, and inaccurate claims made by Breslow about who had signed up for the deal. Three weeks ago, a Delaware court approved the restraining order, which Bolt has since tried to lift.
“It’s a return of the king for Ryan Breslow,” said Skadden attorney Cliff Gardner, representing BlackRock, Hedosophia and Untitled Ventures during Wednesday’s hearing, according to a Delaware Court of Chancery transcript obtained by Forbes. As previously reported by Forbes and others, the unorthodox deal would see Breslow reinstated as Bolt’s CEO and afford him a large number of benefits, such as a $2 million closing bonus, $80,000 per month for travel and security expenses and a preemptive right to purchase all shares issued in future rounds.
The terms of the deal, which gave investors just days to buy into the pay-to-play round or see 70% of their shares effectively wiped out, were characterized by Vice Chancellor Nathan Cook as a “prisoner’s dilemma,” referring to the thought experiment where participants have a chance to either turn on each other or cooperate for a greater, shared prize.
Accusing the deal of being coercive and harmful to shareholders, the three investors filed a restraining order to stop the round. The hearing last week was intended to provide Bolt an opportunity to respond. But the court transcript showed the company was unable to provide evidence that resolved the questions and allegations raised by the plaintiffs.
“It should come as no surprise to anyone that I am concerned about an allegation that stockholders of a Delaware corporation are being subject to coercion,” Cook remarked. “And it’s been two weeks since our last hearing, and there is no affidavit, no document that anyone can apparently point to that rebuts the allegation.”
An attorney for Bolt called the investors’ claims “hyperventilation” and “indignation about the deal that Ryan Breslow is supposed to get out of this.” They also disputed the allegation that the deal, if approved by shareholders, would push through a broad release of claims against Breslow. When the judge pointed to a document that seemingly showed evidence of the release, the company’s attorneys said they planned to remove the “ambiguous” language.
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The contours of the confusing deal have continued to evolve. Last month, Forbes reported that a broker accidentally listed investment bank Silverbear Capital as the funding round’s lead investor, causing a flurry of shareholder confusion. The source of the error was Silverbear partner Brad Pamnani, who claimed to have used the wrong email address to sign a Bolt nondisclosure agreement.
The broker, AMA Investment Group, told Forbes that it would be issuing corrected financial documents with the name of the actual lead investor, but according to last week’s hearing, no new paperwork has been provided — a fact the plaintiffs argued could prove troubling if they seek legal action against Pamnani, who is claiming to represent an unnamed Abu Dhabi-based fund, which could fall outside the Delaware court’s jurisdiction. “If I’m looking at this with the lightest touch…it would seem to me that whatever it is that’s going on with Silverbear Capital is problematic from a disclosure standpoint,” said Judge Cook.
Now, the plaintiffs are hoping to obtain testimony from Breslow, Bolt and some of its new backers. “We intend to depose Mr. Pamnani at a later stage and find out why he is confused about Silverbear’s participation,” said Gardner, the plaintiffs’ attorney. Pamnani previously told Forbes that the error about Silverbear’s role was merely administrative. Bolt has since threatened the bank with legal action to hold it to the “binding term sheet” Pamnani signed. Silverbear partner Veronica Welch told Forbes she was unaware of the temporary restraining order, and said their team is currently working with Bolt “to come up with a solution that will enable us to all move forward together in a positive way.”
Still, Bolt pushed for the injunction to be lifted, warning that the payments company was losing market share, and the lawsuit could stall the planned October launch of Bolt’s “super app.” But it struggled to explain the terms of the deal to the court, which include $250 million of “marketing credits” from an obscure venture fund with an influencer marketing startup. “I am beseeching you to identify somewhere in these documents that this deal actually works the way you are saying it works,” said Cook.
In slides submitted to the court, the plaintiffs also detailed previously unreported elements of Bolt’s Series F round. For example, should the deal go through, Pamnani is set to receive compensation representing 250,000 shares of Class A Common Stock, while Bolt board member and gaming startup founder Michael Carter, who has known Breslow since his days at Stanford University, will receive options representing 1.8 million shares of Class A Common Stock.
The shareholders continued to protest a settlement between Breslow and Bolt investor Activant Capital. Last year, Activant sued the founder over a $30 million loan he had secured with Bolt’s money and subsequently defaulted on. Both parties eventually agreed to a settlement that would cancel a commensurate number of Breslow’s shares as repayment, and would see Bolt repurchase Activant’s entire stake in the company.
It also included a “true-up provision” that would hand Breslow a block of Bolt A or B shares worth $37.3 million if the startup raised at least $75 million in a new round by the end of the year. BlackRock and its co-plaintiffs objected to the agreement in July, accusing Breslow of using company funds to pay off his dissenters, and now argue the settlement should be halted under the restraining order. Last week, Breslow and Activant filed a joint appeal to allow the share cancellation and buyout to go through.
“I want to pause and say those of us who are on the outside of the board, the plaintiffs, now it’s just so utterly obvious this has been choreographed for all this time,” said Gardener. “When that settlement agreement came in — and I recall, I read that true-up provision, and I thought, boy, they must have this one cooking in the background.”
Bolt and the investors are now fighting over the date of an upcoming preliminary injunction hearing next month. There will also be an expedited discovery process, wherein Bolt will be expected to produce internal documentation detailing the funding round. The investors pushed for a full trial next year but the company has asked the court to accept an earlier date “to accommodate sensitive business timing” issues. Bolt declined to comment, and Activant did not respond to a comment request.
