As filed with the Securities and Exchange Commission on June 21, 2024
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZSPACE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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6770
(Primary Standard Industrial
Classification Code Number)
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35-2284050
(I.R.S. Employer
Identification No.)
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zSpace, Inc.
55 Nicholson Lane
San Jose, California 95134
(408) 498-4050
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Paul Kellenberger
Chief Executive Officer
zSpace, Inc.
55 Nicholson Lane
San Jose, California 95134
(408) 498-4050
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
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M. Ali Panjwani, Esq.
Pryor Cashman LLP
7 Times Square
New York, New York 10036
Tel: (212) 326-0820
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Jonathan J. Russo, Esq.
Alexandra F. Calcado, Esq.
Pillsbury Winthrop Shaw Pittman LLP
31 West 52nd Street
New York, New York 10019
(212) 858-1000
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☐
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
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Smaller reporting company ☒
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Emerging growth company ☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 21, 2024
PRELIMINARY PROSPECTUS
SHARES
ZSPACE, INC.
Common Stock
This is our initial public offering of shares of common stock. Prior to this offering, there has been no public market for shares of our common stock. We anticipate that the initial public offering price will be between $ and $ per share.
We intend to apply to list our common stock on The Nasdaq Capital Market® (“Nasdaq”), under the symbol “ZSPC.” No assurance can be given that our listing will be approved by Nasdaq or that a trading market will develop for our common stock. We will not proceed with this offering in the event our common stock is not approved for listing on Nasdaq.
We are an emerging growth company and a smaller reporting company under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
After the completion of this offering, we expect that dSpace Investments Limited, bSpace Investments Limited and Fiza Investments Limited, our controlling stockholders, will continue to control a majority of the voting power of our common stock. As a result, we will be a “controlled company” under the listing standards of Nasdaq and the rules of the Securities and Exchange Commission (“SEC”), and, in the event that we decide to rely on the “controlled company” exemption, we will be exempt from certain corporate governance requirements. See “Management — Controlled Company Exemption.”
Investing in our common stock involves a high degree of risk. Please read the section titled “Risk Factors” beginning on page 16 of this prospectus for a discussion of some of the risks you should consider before investing.
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Per Share
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Total
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Public offering price
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Underwriting discounts and commissions(1)
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Proceeds, before expenses, to us
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(1)
The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting.”
We have granted the underwriters an option, which is exercisable for up to 30 days after the date of this prospectus, to purchase up to additional shares of common stock from us at the public offering price, less the underwriting discounts and commissions, to cover over-allotments of shares, if any.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of our common stock to purchasers against payment on or about , 2024.
Joint Book-Running Managers
Roth Capital PartnersCraig-Hallum Capital Group
Co-Manager
Barrington Research
Prospectus dated , 2024
TABLE OF CONTENTS
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F-1
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You should rely only on the information contained in this prospectus and in any free writing prospectus that we have authorized for use in connection with this offering. Neither we nor the underwriters have authorized any other person to provide you with additional or different information. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
NON-GAAP FINANCIAL MEASURES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). We also supplement our consolidated financial statements with non-GAAP financial measures in this prospectus, including Adjusted EBITDA. For a discussion of the limitations on these measures and the rationales for using these measures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
MARKET DATA AND FORECASTS
We are responsible for the disclosures contained in this prospectus. However, unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on information obtained from a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research.
Our estimates are derived from publicly available information released by third parties, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable. None of the independent industry publications discussed in this prospectus were prepared on our behalf.
In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets in which we operate. Market and industry data, which is derived in part from management’s estimates and beliefs, are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of such data. In addition, projections, assumptions and estimates of the future performance of the markets in which we operate, and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.
TRADEMARKS, TRADENAMES, SERVICE MARKS, AND COPYRIGHTS
We own or have rights to use various trademarks, tradenames, service marks, and copyrights, which are protected under applicable intellectual property laws, as further described herein. This prospectus also contains trademarks, tradenames, service marks, and copyrights of other companies, which are, to our knowledge, the property of their respective owners. Solely for convenience, certain trademarks, tradenames, service marks, and copyrights referred to in this prospectus may appear without the ©, ®, and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, tradenames, service marks, and copyrights. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, such other companies.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should carefully read this entire prospectus, including the information in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Cautionary Note Regarding Forward-Looking Statements,” and our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Unless the context requires otherwise, references in this prospectus to “zSpace,” the “Company,” “we,” “us,” and “our” refer to zSpace, Inc. and its subsidiaries. All share and per share information in this prospectus gives effect to the 1-for-75 reverse split of our shares of common stock and Series A Convertible Preferred Stock, which was effective on December 29, 2023.
Company Overview
We are a leading provider of augmented reality (AR) and virtual reality (VR) educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and Career & Technical Education (CTE) markets. Our proprietary hardware and software platform provides the unique ability to deliver an interactive, stereoscopic three-dimensional (3D) learning experience to our users without the need to utilize VR goggles or specialty glasses. Our hands-on “learning by doing” solutions have been shown to enhance the learning process and drive higher student test scores, as evidenced by a study on the utility of 3D virtual reality technologies for student knowledge gains published in the Journal of Computer Assisted Learning in 2021. We allow students and teachers to experience learning in the classroom that may otherwise be dangerous, impossible, counterproductive, or expensive using traditional techniques. Our platform serves a broad range of critical educational tools designed for K-12 science, technology, engineering and math (STEM) lessons as well as training skilled trades in areas such as health sciences, automotive engineering/repair, Unity3D® software programming and advanced manufacturing.
![[MISSING IMAGE: pht_ourcompany-4c.jpg]](https://content.edgar-online.com/edgar_conv_img/2024/06/24/0001104659-24-074045_pht_ourcompany-4c.jpg)
We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries. We believe the applicability of our platform in education environments provides an opportunity for significant scale.
Since 2014, we have been developing and delivering hardware and software technology focused on improving education in K-12 and CTE classrooms. We believe that our platform leads to (i) deeper
understanding of content, (ii) increased motivation of students to learn, (iii) additional engagement of students with content and (iv) improved preparedness for the workforce. We believe that we have significant growth potential and that we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors, including scaling in the United States, expanding internationally, investing in research and development (“R&D”), and acquiring software, both specific software applications and third party software developers, in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenues.
From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it, and interact with it as if it were real.
Our Industry and Market Opportunity
We estimate using data from national government sources specifying the number of schools within their regions that our total addressable market (TAM) for the K-12 market is approximately $21.4 billion in the United States, $29.0 billion in Europe, Middle East and Africa region (EMEA) and $5.6 billion in the Asia Pacific region (APAC) and that our TAM for the CTE market is approximately $6.2 billion in the United States, $5.4 billion in EMEA and $0.8 billion in APAC, with an overall global TAM of greater than $68 billion. Our TAM for the K-12 market is an estimate of the revenue that we would receive over a five year period assuming that each public school in the applicable region purchases one “lab” (consisting of 25 laptops and one cart) at our current prices. Such estimates include recurring annual revenue per laptop based on the average software subscription revenue we receive per unit per year from K-12 customers and assumes an 80% renewal rate. Our TAM for the CTE market is an estimate of the revenue that we would receive over a five year period assuming that each school that offers vocational/CTE programs (including community colleges) in the applicable region purchases one “lab” (consisting of 27 laptops and one cart) at our current prices. Such estimates include recurring annual revenue based on the average software subscription revenue we receive per unit per year from CTE customers in such region and assumes an 80% renewal rate. We have estimated the number of schools in the K-12 market and the CTE market in the US/Canada region, EMEA region and APAC region based on data sourced from third parties, including the Institute of Education Science, the British Educational Suppliers Association, Statista, various governmental instrumentalities, articles and published papers.
According to market analysis by Grand View Research, the global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 13.6% from 2023 to 2030. Further, according to Insight Partners, the global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028 compared to $28 billion in 2021. Markets and Markets Research predicts that spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).
Over the past several years, a significant portion of our revenue was generated in the United States. For the year ended December 31, 2022, our revenue in the United States was $27.3 million and our revenue outside of the United States was $8.4 million, representing 76% and 24% of our total revenue, respectively. For the year ended December 31, 2023, our revenue in the United States was $38.7 million and our revenue outside of the United States was $5.2 million, representing 88% and 12% of our total revenue, respectively. In 2022, our revenue in China was $6.4 million, representing 18% of our total revenue and in 2023, our revenue in China was $2.8 million, representing 6% of our total revenue. We are in the process of focusing on expanding our business in the United States and elsewhere, and we expect the percentage of our total revenue generated from China in 2024 to be lower than in 2023.
Our Learning Platform
Key elements of our platform include:
The ability for users to easily understand abstract concepts. Our products have the ability to deliver an interactive, autostereoscopic 3D experience, allowing students to interact directly with complex, spatial, and abstract concepts. Our products integrate the latest AR/VR technology with science, math, and career training applications that empower students to learn in a 3D world without the fear of making mistakes.
![[MISSING IMAGE: pht_learningplatform-4c.jpg]](https://content.edgar-online.com/edgar_conv_img/2024/06/24/0001104659-24-074045_pht_learningplatform-4c.jpg)
An immersive 3D experience using familiar hardware. Traditionally, AR/VR technology has required complicated hardware, including glasses or goggles, that is difficult to incorporate into a classroom setting and limits collaboration. Our 3D experience uses a laptop without the need for any external eyewear. Using our patented hand-held stylus device, which functions like a pen, interactions are designed to be simple and familiar so customers can feel more comfortable bringing the latest technology into classrooms. Our platform is designed to work with natural gestures and movements to allow learners to manipulate objects in a 360-degree experience outside the confines of the screen.
Effective kinesthetic learning tools. Our products leverage hands on, kinesthetic learning (i.e., using body movements to interact with learning environments). With built-in eye-tracking technology and our patented hand-held stylus device, learners naturally move their heads and rotate their wrists as they pick-up, dissect, and interact with virtual objects. We believe that engaging tactile learning with movement, testing, and trial and error in a non-traditional learning environment can support retention and recall of information.
Our Products
Our platform consists of three key components — proprietary hardware, software and services.
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Hardware. Our hardware is the enabler of the 3D learning experience on our platform. We work closely with original equipment manufacturers (OEMs) to produce devices that deliver a 3D experience.
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Inspire. Inspire is our second-generation laptop product launched in early 2022 and built in partnership with a major PC OEM. It is our first product that delivers autostereoscopic 3D graphics, not requiring any eyewear or headset. With a specialized optical lens and eye-tracking technology, a set of images for each eye is created and directly projected through the lens to where the eyes are looking for a unique 3D experience. We deliver each Inspire laptop with our patented hand-held stylus, which allows users to interact with and manipulate 3D images. When not being
used in 3D stereo, the screen provides 2D color accuracy, including 100% Adobe RGB color gamut and Delta E<2 color accuracy, allowing the user to see minute details on the 15.6” 4K UHD narrow bezel display.
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Tracked stylus. Our tracked stylus allows users to interact with the projection of the 3D information to provide a comfortable and realistic experience as well as the precise interaction with the virtual objects in open space. Our patented hand-held stylus device allows for freedom of movement, enabling students to use our products with familiar movements and interactions that they commonly perform, such as rotating their wrists naturally as they examine and manipulate 3D visuals. It allows students to bring objects out of the screen and interact with them as if they were real objects. Our stylus works together with the eye-tracking technology in our products to read the position of the user’s body and respond to movements throughout the interaction, creating a natural, comfortable and effortless experience. Each stylus includes three buttons designed to map the buttons on a traditional mouse to provide a familiar interface model for the user. The buttons on the stylus perform different actions depending on the application.
Our hand-held stylus device is designed to leverage the experience all students have with using a pen/ pencil. It is sized to be comfortable for both adult and child users when held like a pen/pencil in either the right or left hand. Because the stylus is wired, charging is unnecessary and removal of the stylus from our devices is discouraged. The stylus also supports haptic feedback, allowing applications to provide a physical response to engaging in the learning process, enhancing realism and providing distinct feedback to the user.
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Original Edition (OE) Products. Our all-in-one products and OE laptop were our initial product offerings that used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US.
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Software. We develop and deliver both platform management software, enabling the easy distribution, licensing and management of web enabled applications, and end user applications that students use on our devices. Our platform offers a full range of applications, developed both in-house and by
third-party application developers, that provide learning experiences designed for the K-12 STEM and CTE markets. In the K-12 market, we offer applications in areas such as Science, Health and Math, and in the CTE markets we provide applications in key areas such as Automotive, Advanced Manufacturing, Health and Agri-Sciences. We believe that providing software that offers a range of effective educational experiences for end users is a critical component of our product’s value to our customers.
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In September 2021, to help accelerate user adoption and meet the needs for learning anywhere, anytime, anyplace, we launched StudioA3, which gives every learner access to evidence-based virtual experiences for in-person, remote, and hybrid learning on any device, including non-zSpace devices such as Chromebooks and Apple-based computers. StudioA3 is an application in which teachers can build lessons for almost any subject using thousands of pre-made models, and students can learn and explore.
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Services. Implementation and professional development services are part of the overall solution we offer to our customers so they can quickly use, and be fully trained on, our products. We have developed a network of trainers in the United States with education experience with the goal of making our customers’ experience with our products positive and effective. Internationally, we rely exclusively on resellers to provide these services to our customers.
Our Competitive Strengths
We believe that we have a number of competitive strengths that will enable us to grow our business. Our competitive strengths include:
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Breadth and depth of our platform. Our platform is focused on delivering virtual interactive learning capabilities to the education market. From our technology design to content development, our products have the ability to deliver value across the world-wide education spectrum. The same platform can be used by third grade learners and college students. Our growing range of software content, developed both in house and by third-party software developers, includes hundreds of STEM, Game Design and CTE lessons, including Physical Science, Math, Health, Automotive, Unity3D® Programming, and Advanced Manufacturing.
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Highly Differentiated and Proprietary Technology. Our product offerings are designed to facilitate intuitive, responsive, and comfortable learner experiences, with hardware that includes built-in eye-tracking technology that allows for 3D images without the use of specialized glasses and a hand-held stylus device that allows users to bring objects out of the screen and manipulate them as if they were real objects. We believe our proprietary platform offers a unique solution to educators interested in effective kinesthetic learning tools.
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Brand recognition. We believe we are a trusted brand in the K-12 education market that has a track record of attracting and maintaining customers. We believe we are recognized as a market leader in AR/VR and the “eduverse” for schools. We expect to continue to leverage our position and increase our brand awareness to grow our customer base.
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Leadership and first-mover advantage. We believe we are a leader in the AR/VR educational market with an experienced executive management and sales team and longstanding relationships and significant knowledge regarding the education market. Additionally, our broad patent portfolio is the result of many years of research and development and innovation, and we believe it provides a strong foundation for our business. Innovation has been at the center of our business since inception, and we plan to continue to prioritize investments in R&D to further our position.
Our Growth Strategies
We believe that we have significant growth potential. We believe we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors. These include:
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Targeted software growth via both software acquisitions and application acquisitions. We intend to pursue software acquisitions, both specific software applications and third-party software developers, in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenue.
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Scale within the United States education market. We expect to continue to drive growth by increasing marketing efforts, expanding use cases and introducing new applications within the United States. We are particularly focused on acquiring and retaining both K-12 and CTE users while expanding our sales with our Inspire products. With our large content library and pioneering AR/VR capabilities, we pride ourselves on our ability to deliver value across the education landscape including K-12 schools, community colleges, technical colleges and trade colleges. Going forward, we plan to continue to expand our content library and platform to address the needs of our current and future customers. We also plan to increase investments in specific sales and marketing initiatives to increase sales efficiency and increase users and growth in renewing software revenue.
Recent Developments
On May 24, 2024, we were awarded an approximately $5 million purchase order for our science solution, which we expect to implement in the 3rd quarter of 2024.
Corporate Information
We are a Delaware corporation incorporated on October 26, 2006 under the name Infinite Z, Inc. On February 12, 2013, we effected a name change from Infinite Z, Inc. to zSpace, Inc. Our business is conducted through zSpace, Inc. and our other operating subsidiaries.
Our principal executive office is located at 55 Nicholson Lane, San Jose, CA 95134. Our telephone number is (408) 498-4050. Our corporate website is zspace.com. Information contained on or accessible through our website is not part of this prospectus, and is not incorporated by reference herein, and should not be relied on in determining whether to make an investment decision. The inclusion of our website address in this prospectus is an inactive textual reference only.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For so long as we are an emerging growth company, we will, among other things:
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not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
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not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of Securities Exchange Act of 1934, as amended (the “Exchange Act”),
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not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act,
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be exempt from any rule adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation and identification of critical audit matters, and
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be subject to reduced disclosure obligations regarding executive compensation in our periodic reports.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will continue to qualify as an emerging growth company until the earliest of:
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the last day of the fiscal year following the fifth anniversary of the date of our initial public offering,
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the last day of our fiscal year in which we have annual gross revenue of $1.235 billion or more,
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the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, and
•
the date on which we are deemed to be a “large accelerated filer,” which will occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently completed second fiscal quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (3) have filed at least one annual report pursuant to the Exchange Act.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
For risks related to our status as an emerging growth company and a smaller reporting company, including the potential impact of reduced financial reporting and disclosure requirements see “Risk Factors — Risks Related to our Common Stock and this Offering — We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.”
Controlling Stockholders
As of , 2024, dSpace Investments Limited, an entity organized under the law of the Cayman Islands (“dSpace”) holds 3,874,946 shares of our Series A preferred stock, which is 100% of the outstanding shares of Series A preferred stock. Each share of our Series A preferred stock entitles the holder thereof to 100 votes on all matters submitted to securityholders, and each share of Series A preferred stock is convertible into one share of common stock (subject to adjustment in the case of certain events) at the option of the holder or automatically upon the occurrence of certain events, including this offering. In addition, dSpace holds 47,250 shares of our NCNV 1 preferred stock and 2,750 shares of our NCNV 3 preferred stock. Shares of NCNV 1 preferred stock and NCNV 3 preferred stock do not entitle holders thereof to vote on matters submitted to securityholders, but entitle the holders thereof to dividends if declared by our board of directors and to preferential payments upon liquidation and certain other corporate actions. Shares of NCNV 1 Preferred Stock and NCNV 3 preferred stock are convertible into our common stock upon the occurrence of certain events, including this offering. Immediately prior to the closing of this offering, each share of NCNV 1 preferred stock and NCNV 3 preferred stock will convert into shares of our common stock and shares of our common stock, respectively, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 1 preferred stock and NCNV 3 preferred stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Thus, upon consummation of this offering, we expect that dSpace will hold approximately shares of common stock, or approximately % of our outstanding common stock. Pankaj Gupta, one of our directors and the Co-CEO of Gulf Islamic Investments, LLC (“GII”), holds 100% of the equity interest in dSpace in his personal capacity.
As of , 2024, bSpace Investments Limited, an entity organized under the law of the Cayman Islands (“bSpace”) owns 45,890 shares of our NCNV 3 preferred stock. Mohammed Al Hassan, the Co-CEO of GII, personally holds 100% of the equity interest in bSpace. Shares of NCNV 3 preferred stock do not entitle holders thereof to vote on matters submitted to securityholders, but entitle the holders thereof to
dividends if declared by our board of directors and to preferential payments upon liquidation and certain other corporate actions. In addition, shares of our NCNV 3 preferred stock are convertible into our common stock upon the occurrence of certain events, including this offering. Immediately prior to the closing of this offering, each share of NCNV 3 preferred stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 3 preferred stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Thus, upon consummation of this offering, we expect that bSpace will hold approximately shares of common stock, or approximately % of our outstanding common stock.
As of , 2024, Fiza Investments Limited, an entity organized under the law of the Cayman Islands (“Fiza” and, together with dSpace and bSpace, the “Controlling Stockholders”), holds an aggregate of $10.0 million in principal amount of our convertible notes and an aggregate of approximately $3.9 million in principal amount of our non-convertible notes. Husain Zariwala, the Chief Financial Officer of GII and Imran Ladhani, the Head of Operations & Investor Relations of GII, each own 50% of the equity interests and voting control of Fiza. The convertible notes held by Fiza are convertible into our common stock upon the occurrence of certain events, including this offering. Immediately prior to this offering, an aggregate principal amount of $10.0 million of our convertible notes, plus accrued interest will convert into a total of shares of our common stock based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Thus, upon consummation of this offering, we expect that Fiza will hold approximately shares of common stock, or approximately % of our outstanding common stock.
We expect that the Controlling Stockholders will together beneficially own approximately % of our common stock immediately following consummation of this offering (or approximately % if the underwriters exercise their option to purchase additional shares of common stock in full). Therefore, the Controlling Stockholders will have a significant influence over fundamental and significant corporate matters and transactions. We will be a “controlled company” under the listing standards of Nasdaq and the rules of the SEC and, in the event that we decide to rely on the “controlled company” exemption, we will be exempt from certain corporate governance requirements. See “Management — Controlled Company Exemption” and “Risk Factors — Risks Related to our Common Stock and this Offering.”
Summary of Risk Factors
•
We have a limited operating history at the scale of our business which makes it difficult to evaluate our current business and future prospects, and we may not be able to scale our business for future growth.
•
We have a history of net losses. We expect to continue to experience net losses in the future and we cannot assure you that we will achieve or sustain profitability. If we cannot achieve and sustain profitability, our business, financial condition and operating results will be adversely affected.
•
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customers’ needs or requirements, our platform may become less competitive.
•
If we fail to manage our inventory and supply chain effectively, our business, financial condition and results of operations may be materially and adversely affected.
•
We were involved in a SPAC transaction that was terminated. The outcome of the termination remains uncertain and may result in negative impact to us.
•
We expect to incur research and development costs in developing new products, which could significantly reduce our profitability and may never result in revenue.
•
Our business is dependent on our ability to maintain and scale our product and software offerings and technical infrastructure, and any significant disruption in the availability of our platform could damage our reputation, result in a potential loss of customers and engagement, and adversely affect our business, operating results and financial condition.
•
We have in the past been, and may in the future be, dependent on a limited number of significant customers.
•
Our future revenues and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their contracts with us, or if we are unable to expand sales to our existing customers or develop new products that achieve market acceptance.
•
Any interruptions in our operations due to cyberattacks or to our failure to maintain adequate security and supporting infrastructure as we scale, could damage our reputation, business, operating results, and financial condition.
•
The failure of our information technology (“IT”) systems or a security breach involving customer or employee personal data, and the remediation of any such failure or breach, could materially impact our reputation and adversely affect our business, results of operations or financial condition.
•
If we need additional capital in the future, it may not be available on favorable terms, if at all.
•
Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.
•
We depend on a limited number of third-party partners to produce, resell and distribute our products.
•
Certain of our market opportunity estimates, growth forecasts and key metrics could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
•
Our ability to use our United States federal and state net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability.
•
State or local legislation has been and may continue to be adopted that limits or bans instruction in public schools that includes or promotes social or emotional learning, which could limit our ability to operate in those states and/or localities and have an adverse impact on our business, operating results and financial condition.
•
Our failure to comply with laws and regulations that are or may become applicable to us as a technology provider for Higher Education and K-12 could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.
•
Our business is subject to complex and evolving United States and foreign laws, regulations and industry standards, many of which are subject to change and uncertain interpretation, which uncertainty could harm our business, operating results and financial condition.
•
The obligations associated with operating as a public company following the offering will require significant resources and management attention and will cause us to incur additional expenses, which will adversely affect our profitability.
•
Failure to maintain effective systems of internal control and disclosure controls could have a material adverse effect on our business, operating results, and financial condition.
•
We have identified material weaknesses in its internal control over financial reporting. If we do not remediate the material weaknesses in its internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our common stock.
•
Economic uncertainty or downturns, including as a result of supply chain disruptions, geopolitical conflicts, rising fuel prices, inflation, increasing interest rates and instability in the global banking system could adversely affect our business, financial condition and operating results.
•
Failure to register, protect or enforce our proprietary technology and intellectual property rights could substantially harm our business, operating results and financial condition.
•
We will incur significant transaction and transition costs in connection with the offering, and we will incur additional costs and obligations as a result of being a public operating company following the offering.
•
We will be classified as a “controlled company” for purposes of the Nasdaq Listing Rules and therefore qualify for certain exceptions from certain corporate governance requirements. As a result, in the event we rely on such exceptions, our stockholders would not have the same protections afforded to stockholders of companies that are not controlled companies.
THE OFFERING
Common stock offered by us
shares (or shares if the underwriters exercise their option to purchase additional common stock in full).
Option to purchase additional shares of
common stock
The underwriters have a 30-day option extending from the date of this prospectus to purchase up to an additional shares of common stock from us to cover over-allotments.
Shares of common stock to be outstanding immediately after this offering(1)
shares (or shares if the underwriters exercise their option to purchase additional common stock in full).
Automatic conversion of preferred stock immediately prior to this offering
Immediately prior to the consummation of this offering, (i) each share of outstanding Series A Preferred Stock will convert into shares of common stock, resulting in the issuance by us of a total of additional shares of common stock and (ii) each share of outstanding New NCNV Preferred Stock (as defined herein) will convert into shares of common stock, resulting in the issuance by us of a total of additional shares of common stock, assuming an initial public offering price of $ per share (the mid-point of the offering price range indicated on the cover of this prospectus).
We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $ million, assuming an initial public offering price of $ per share (the mid-point of the offering price range indicated on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to advance our software development through acquisitions of applications and third-party software developers, increase sales and marketing efforts and for working capital and general corporate purposes. See “Use of Proceeds.”
After the consummation of this offering, we do not anticipate that we will declare or pay cash dividends on our common stock in the foreseeable future, as we intend to invest any future earnings in the development and growth of our business.
You should carefully consider all of the information set forth in this prospectus and, in particular, the risks set forth under “Risk Factors” on page 16, before deciding whether to invest in our common stock.
Principal stockholder and “controlled company” exemption
After the completion of this offering, our Controlling Stockholders will continue to control a majority of the voting power of our common stock. As a result, we will be a “controlled company” under the listing standards of Nasdaq and the rules of the SEC, and we will qualify for exceptions from certain corporate governance requirements if we decide to rely on the “Controlled Company” exemption.
We intend to apply to list our shares of common stock on Nasdaq Capital Market under the symbol “ZSPC”. No assurance can be given that our listing will be approved by Nasdaq or that a trading market will develop for our common stock. We will not proceed with this offering in the event our common stock is not approved for listing on Nasdaq.
(1)
Except as otherwise indicated, all information in this prospectus is based on 174,077 shares of common stock outstanding as of March 31, 2024, and:
•
excludes shares of common stock issuable upon exercise of outstanding options to purchase shares of common stock granted under our 2017 equity plan at a weighted average exercise price of $ per share;
•
excludes shares of common stock reserved for issuance following this offering under our 2017 equity plan;
•
excludes shares of common stock reserved for issuance following this offering under our 2024 equity plan;
•
excludes shares of common stock issuable upon the exercise of warrants to purchase common stock to be issued to Roth Capital Partners LLC in connection with this offering (the “Representative’s Warrants”) with an exercise price of $ ;
•
assumes the automatic conversion of all outstanding shares of our Series A Preferred Stock into an aggregate of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering;
•
assumes the automatic conversion of all outstanding shares of our NCNV 1, NCNV 2 and NCNV 3 preferred stock into an aggregate of shares of our common stock (based on an assumed public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus), the conversion of which will occur immediately prior to the completion of this offering;
•
assumes the automatic conversion of $10.0 million in principal amount, plus interest, of our convertible notes held by Fiza Investments Limited into an aggregate of shares of our common stock (based on an assumed public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus);
•
gives effect to our second amended and restated certificate of incorporation and second amended and restated bylaws to be adopted immediately subsequent to the completion of this offering; and
•
assumes no exercise of the underwriters’ option to purchase additional shares of common stock in this offering.
SUMMARY FINANCIAL DATA
The following tables summarize our financial data as of the dates and for the periods presented. We have derived the summary consolidated statements of operations data for the years ended December 31, 2023 and 2022, and the balance sheet data as of December 31, 2023 and 2022, from our audited financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the three months ended March 31, 2024 and 2023, and the balance sheet data as of March 31, 2024 and 2023, from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
The following summary financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
Consolidated Statements of Operations
| |
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
(In Thousands)
|
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
|
Revenues
|
|
|
|
$ |
7,841 |
|
|
|
|
$ |
7,549 |
|
|
|
|
$ |
43,922 |
|
|
|
|
$ |
35,784 |
|
|
|
Cost of goods sold
|
|
|
|
|
5,139 |
|
|
|
|
|
4,266 |
|
|
|
|
|
27,028 |
|
|
|
|
|
22,656 |
|
|
|
Gross profit
|
|
|
|
|
2,702 |
|
|
|
|
|
3,283 |
|
|
|
|
|
16,894 |
|
|
|
|
|
13,128 |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
1,977 |
|
|
|
|
|
1,113 |
|
|
|
|
|
4,218 |
|
|
|
|
|
4,666 |
|
|
|
Selling and marketing
|
|
|
|
|
5,254 |
|
|
|
|
|
3,278 |
|
|
|
|
|
12,898 |
|
|
|
|
|
11,585 |
|
|
|
General and administrative
|
|
|
|
|
6,860 |
|
|
|
|
|
1,715 |
|
|
|
|
|
6,710 |
|
|
|
|
|
6,780 |
|
|
|
Other operating expenses
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
Total operating expenses
|
|
|
|
|
14,091 |
|
|
|
|
|
6,106 |
|
|
|
|
|
25,509 |
|
|
|
|
|
23,031 |
|
|
|
Loss from operations
|
|
|
|
|
(11,389) |
|
|
|
|
|
(2,823) |
|
|
|
|
|
(8,615) |
|
|
|
|
|
(9,903) |
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(729) |
|
|
|
|
|
(599) |
|
|
|
|
|
(2,900) |
|
|
|
|
|
(3,696) |
|
|
|
Other income (expense), net
|
|
|
|
|
(82) |
|
|
|
|
|
5 |
|
|
|
|
|
23 |
|
|
|
|
|
(196) |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
(52) |
|
|
|
|
|
— |
|
|
|
|
|
(1,541) |
|
|
|
|
|
(3,346) |
|
|
|
Forgiveness of paycheck protection program loan
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
2,012 |
|
|
|
Loss, before income taxes
|
|
|
|
|
(12,252) |
|
|
|
|
|
(3,417) |
|
|
|
|
|
(13,033) |
|
|
|
|
|
(15,129) |
|
|
|
Income tax benefit (expense)
|
|
|
|
|
5 |
|
|
|
|
|
— |
|
|
|
|
|
(3) |
|
|
|
|
|
(44) |
|
|
|
Net loss
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
74 |
|
|
|
|
|
(11) |
|
|
|
|
|
64 |
|
|
|
|
|
212 |
|
|
|
Comprehensive loss
|
|
|
|
$ |
(12,173) |
|
|
|
|
$ |
(3,428) |
|
|
|
|
$ |
(12,972) |
|
|
|
|
$ |
(14,961) |
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
$ |
(70.83) |
|
|
|
|
$ |
(55.96) |
|
|
|
|
$ |
(113.21) |
|
|
|
|
$ |
(156.71) |
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
|
|
174,077 |
|
|
|
|
|
168,046 |
|
|
|
|
|
170,212 |
|
|
|
|
|
161,683 |
|
|
|
Pro forma net loss per common share, basic and diluted
(unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing
pro forma net loss per common share basic and
diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Reflects (i) the amounts converted from debt to convertible preferred stock, exclusive of any accrued interest or debt discount, under the recapitalization as described under “Capitalization”, (ii) the stock-based compensation expense of $ associated with stock options for which the service-based vesting conditions were satisfied or partially satisfied as of March 31, 2024. after giving effect of shares withheld to satisfy the associated withholding tax obligations (based on the assumed initial public offering price of $ per share and an assumed % tax withholding rate).
Consolidated Balance Sheet Data
| |
|
|
As of March 31, 2024
|
|
|
As of December 31, 2023
|
|
|
(In Thousands)
|
|
|
Actual
2024
|
|
|
Pro
Forma(1)(2)
|
|
|
Pro Forma
as Adjusted(3)
|
|
|
Actual
2023
|
|
|
Pro
Forma(1)(2)
|
|
|
Pro Forma
as Adjusted(3)
|
|
|
Cash and cash equivalents
|
|
|
|
|
1,188 |
|
|
|
|
|
|
|
|
|
|
|
3,128 |
|
|
|
|
|
|
|
|
|
Working capital(4)
|
|
|
|
|
(21,856) |
|
|
|
|
|
|
|
|
|
|
|
(16,209) |
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
14,352 |
|
|
|
|
|
|
|
|
|
|
|
13,847 |
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Other current debt
|
|
|
|
|
6,422 |
|
|
|
|
|
|
|
|
|
|
|
7,017 |
|
|
|
|
|
|
|
|
|
Noncurrent related party debt
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Other noncurrent debt
|
|
|
|
|
1,644 |
|
|
|
|
|
|
|
|
|
|
|
2,053 |
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
37,601 |
|
|
|
|
|
|
|
|
|
|
|
37,366 |
|
|
|
|
|
|
|
|
|
Total Temporary Redeemable Preferred Stock
|
|
|
|
|
112,142 |
|
|
|
|
|
|
|
|
|
|
|
106,952 |
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
146,132 |
|
|
|
|
|
|
|
|
|
|
|
138,878 |
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
(281,825) |
|
|
|
|
|
|
|
|
|
|
|
(269,577) |
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
|
|
(135,391) |
|
|
|
|
|
|
|
|
|
|
|
(130,471) |
|
|
|
|
|
|
|
|
(1)
The pro forma consolidated balance sheet data gives effect to the stock-based compensation expense of $ associated with stock options for which the service-based vesting conditions were satisfied or partially satisfied as of March 31, 2024 after giving effect to shares withheld to satisfy the associated withholding tax obligations (based on the assumed initial public offering price of $ per share and an assumed % tax withholding rate).
(2)
The pro forma consolidated balance sheet data gives effect to (a) the automatic conversion of (i) 3,874,946 shares of Series A preferred stock into shares of our common stock immediately prior to the consummation of this offering and (ii) 109,142 shares of NCNV 1, NCNV 2 and NCNV 3 preferred stock into shares of our common stock immediately prior to the consummation of this offering as described under “Capitalization” and based on an assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and (b) the conversion of $10.0 million in principal amount, plus interest, of our convertible notes held by Fiza Investments Limited into an aggregate of shares of our common stock, as described under “Capitalization” and based on an assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus).
(3)
The pro forma as adjusted consolidated balance sheet data gives effect to the issuance and sale by us of million shares of our common stock in this offering at the assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commission and estimated offering expenses payable by us and the application of the net proceeds from this offering to us as described under “Use of Proceeds,” in each case, as if such event had occurred on March 31, 2024.
(4)
Working capital is defined as total current assets less total current liabilities. See our financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
The following tables summarize our Adjusted EBITDA as of the dates and for the periods presented. We have derived the Adjusted EBITDA for the years ended December 31, 2023 and 2022 and for the three months ended March 31, 2024 and 2023. Adjusted EBITDA is not presented in accordance with GAAP. We believe, however, that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report similar metrics. Our calculation of Adjusted EBITDA, however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute
for net income (loss) calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. We calculate Adjusted EBITDA as GAAP net loss adjusted for interest expense, depreciation and amortization, write-off of deferred offering costs, stock-based compensation, forgiveness of paycheck protection program loan, loss on extinguishment of debt and income tax benefit.
| |
|
|
Three Months Ended
March 31,
|
|
|
Year Ended
December 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
|
GAAP Net Loss
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
Add back (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
729 |
|
|
|
|
|
599 |
|
|
|
|
|
2,900 |
|
|
|
|
|
3,696 |
|
|
|
Depreciation and amortization
|
|
|
|
|
4 |
|
|
|
|
|
11 |
|
|
|
|
|
32 |
|
|
|
|
|
49 |
|
|
|
Income tax expense (benefit)
|
|
|
|
|
(5) |
|
|
|
|
|
— |
|
|
|
|
|
3 |
|
|
|
|
|
44 |
|
|
|
Write-off of deferred offering costs
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
Stock-based compensation
|
|
|
|
|
7,253 |
|
|
|
|
|
— |
|
|
|
|
|
1 |
|
|
|
|
|
20 |
|
|
|
Forgiveness of paycheck protection program loan
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(2,012) |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
52 |
|
|
|
|
|
— |
|
|
|
|
|
1,541 |
|
|
|
|
|
3,346 |
|
|
|
Adjusted EBITDA
|
|
|
|
$ |
(4,214) |
|
|
|
|
$ |
(2,807) |
|
|
|
|
$ |
(6,876) |
|
|
|
|
$ |
(10,030) |
|
|
RISK FACTORS
An investment in our common stock involves risks. You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks and uncertainties develop into actual events, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that case, the price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
We have a limited operating history at the current scale of our business, which makes it difficult to evaluate our current business and future prospects, and we may not be able to scale our business for future growth.
We began offering our education products and solutions in 2014 and we have limited operating history at the current scale of our business. We have encountered, and will likely continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly evolving industries, including challenges related to accurate financial planning and forecasting, increasing competition and expenses as we continue to grow our business, and attracting and retaining customers. You should consider our business and prospects in light of the risks and difficulties that we may encounter as a business with a limited operating history. We may not be successful in addressing these and other challenges we may face in the future, and our business, operating results, and financial condition may be adversely affected if we do not manage these risks successfully. We may not be able to maintain our current rate of growth, which is a risk characteristic often shared by companies with limited operating histories participating in rapidly evolving industries.
We have a history of net losses. We expect to continue to experience net losses in the future, and we may not achieve profitability. If we do not achieve profitability, our business, financial condition and operating results will be adversely affected.
We have experienced significant net losses since we began operations in 2014, including a net loss of approximately $(13.0) million for the year ended December 31, 2023, approximately $(15.2) million for the year ended December 31, 2022, approximately $(12.2) million for the three months ended March 31, 2024 and approximately $(3.4) million for the three months ended March 31, 2023. We have an accumulated deficit of $(281.8) million and a total stockholders’ deficit of $(135.4) million as of March 31, 2024. We anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest in acquiring additional customers, expanding our platform and operations, hiring additional employees, developing and enhancing our platform and application and solutions offerings, marketing and sales, and enhancing our infrastructure. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenues sufficiently to offset these higher expenses. Given the significant operating and capital expenditures associated with our business, we expect to continue to incur net losses for the foreseeable future and cannot assure you that we will be able to achieve profitability.
Our business is highly competitive and competition presents an ongoing threat to the success of our business.
The markets that we serve are highly competitive. In our experience, potential buyers in the United States K-12 market are not typically evaluating an alternative AR/VR technology purchase, but rather whether to use any available funding for our products or for an entirely different class of purchase, such as student safety, IT products or standard computing devices. In the CTE market, we compete with physical training solutions, such as welding simulators. Additionally, potential customers might evaluate our products against a non-immersive alternative such as a 2D human anatomy web-based experience rather than the immersive content available on our platform.
Competitors in the education technology ecosystem include:
•
Companies that provide technology solutions and services to educators and students, such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy;
•
CTE companies such as A Cloud Guru Ltd., Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services, Pluralsight, Inc. and Udacity, Inc.;
•
Companies that operate in the virtual technology market, such as Apple, Google, Meta Platforms, Matterport Inc and Unity Software;
•
Providers of free educational resources such as Khan Academy, Inc., The Wikipedia Foundation, Inc. and Google LLC through its YouTube services; and
•
AR/VR focused companies such as ClassVR, Inception XR, Interplay Learning, Umety Solutions Ltd, Transfr VR Victory XR.
Outside the United States, certain Chinese companies have produced replicas of our original edition hardware products that require specialty eyewear, which we no longer produce or sell in the United States. We are currently not aware of any other companies producing or selling solutions substantially similar to our products.
Our competitors and new entrants to the education technology market may revise and improve their business models. If these or other market participants introduce new or improved education technology solutions or platforms and technology-enabled services that are more compelling or widely accepted than ours, our ability to grow our revenue and achieve profitability could suffer. Several new and existing companies in the education technology industry provide or may provide offerings similar to what we offer with our products, and these companies may pursue relationships with our reseller partners or software developer partners, which may make it more difficult to obtain new customers or reduce the content our software developer partners produce for our platform. In addition, our customers may choose to continue using or to develop their own educational tools or training solutions in-house, rather than pay for our products.
Some of our competitors and potential competitors have significantly greater resources than us. Increased competition may result in pricing pressure for us in terms of the price of the products and solutions we offer to our customers. The competitive landscape may also result in a longer and more complex process of recruiting and maintaining current and prospective resellers or a decrease in our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business.
A number of factors could impact our ability to compete, including:
•
changes in pricing policies and terms offered by us or our competitors;
•
the ability to adapt to new technologies;
•
the ability to adapt to changes in requirements of our customers;
•
customer acquisition and retention costs;
•
the ability of our current and future competitors to establish relationships with educational institutions to enhance their services and expand their markets; and
•
industry consolidation and the number and rate of new entrants.
We may not be able to compete successfully against current and future competitors. In addition, competition may intensify as our competitors raise additional capital and as established companies in other market segments or geographic markets seek to expand into our market segments or geographic markets. If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability could be impaired.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customers’ needs or requirements, our platform may become less competitive.
Our future success depends on our ability to adapt and enhance our platform. To attract new customers and increase revenue from existing customers, we will need to continuously enhance and improve our offerings to meet customers’ and end users’ needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we and our software developer partners are unable to develop content that addresses customers’ and end users’ needs or enhance and improve our platform in a timely manner, we may not be able to maintain or increase market acceptance of our platform. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs. If we fail to
maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors, our business could be harmed. Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver AR/VR learning tools at lower prices, more efficiently, more conveniently or more securely than ours, and if we fail to adopt such technologies or do so in a timely manner, our ability to compete would be adversely affected.
Certain of our market opportunity estimates, growth forecasts, and key metrics could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
Market opportunity estimates, growth forecasts and key metrics, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts relating to the size and expected growth of our market opportunity may prove to be inaccurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage estimate will generate any particular level of revenues. Even if the markets in which we compete meet our size estimates and growth forecasts, our business could fail to grow at expected rates, if at all, for a variety of reasons outside of our control. Furthermore, in order for us to successfully address this broader market opportunity, we will need to successfully expand within our current geographic markets and into new geographic regions where we do not currently operate. Our key metrics are calculated using internal company data and have not been validated by an independent third-party. We have in the past implemented, and may in the future implement, new methodologies for calculating these metrics which may result in the metrics from prior periods changing, decreasing or not being comparable to prior periods. As our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer appropriate measures of our performance. Our key metrics may also differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. If investors or analysts do not perceive our metrics to be sufficient or accurate representations of our business, or if we discover material inaccuracies in our metrics, our stock price, reputation and prospects would be adversely affected.
We expect to incur research and development costs to develop new products, which could significantly reduce our profitability and may never result in revenue.
Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products and solutions that achieve market acceptance. We have incurred, and plan to continue to incur, significant research and development costs in the future as part of our efforts to design, develop, manufacture and introduce new products and enhance existing products. Our research and development efforts may not produce successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.
Our business is dependent on our ability to maintain and scale our hardware and software offerings and technical infrastructure, and any significant disruption in the performance of our products could damage our reputation, result in a potential loss of customers and engagement, and adversely affect our business, operating results and financial condition.
Our reputation and ability to attract, retain and serve our customers and to scale our product offerings and solutions are dependent upon the reliable performance of our platform and its underlying technical infrastructure. We have in the past experienced immaterial, and may in the future experience immaterial or material, interruptions in the performance of our platform. Our systems may not be adequately designed or may not operate with the reliability and redundancy necessary to avoid performance delays that could be harmful to our business. Our customers may not invest in additional products offered by us, and our ability to expand our customer base or offer additional software solutions to such customers may be disrupted. Any of the foregoing could adversely affect our business, operating results and financial condition. As the application and solutions offerings provided by us grow and evolve, and as our internal operational demands continue to grow, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy our needs. If we fail to continue to effectively scale and grow our technical infrastructure to accommodate these increased demands, customer retention and revenue growth may be adversely impacted. Moreover, to the extent we scale our platform, product and application offerings, including additional hardware and software features, that may place strain on our technical infrastructure. In
addition, we may be unsuccessful in scaling our technical infrastructure to accommodate new product offerings and increased usage cost-effectively.
In addition, our business may be subject to interruptions, delays, or failures resulting from earthquakes, fires, floods, adverse weather conditions, other natural disasters, power loss, terrorism, pandemics, geopolitical conflict (such as the war in Ukraine), other physical security threats, cyber-attacks, or other catastrophic events. If such an event were to occur, our customers may be subject to service disruptions or outages and we may not be able to recover our technical infrastructure and customer data in a timely manner to restart or provide our services, which may adversely affect our financial results. The substantial majority of our employees are based in our headquarters located in San Jose, California. If there is a catastrophic failure involving our systems or major disruptive event affecting our headquarters or the San Jose area in general, we may be unable to operate our solutions.
We may not be able to maintain our revenue growth in the future or manage our growth effectively, which would adversely affect our business, operating results and financial condition.
We have experienced significant growth in recent periods. For example, consolidated revenue for the year ended December 31, 2023 increased over 22% as compared to the year ended December 31, 2022. To effectively manage our growth, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. We have increased employee headcount since our inception to support the growth in our business, and we intend for this growth to continue for the foreseeable future. To support continued growth, we must effectively integrate, develop and motivate new employees, while maintaining our corporate culture. We face competition for qualified personnel. Additionally, we may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs or successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, which may have a material adverse effect on our business, financial condition and operating results.
Additionally, the growth and expansion of our business and our product offerings in the future will place significant demands on our management. The growth of our business may require significant additional resources, which may not scale in a cost-effective manner or may negatively affect the quality of our customers’ experience. We are also required to manage multiple relationships with customers and other third parties. Further growth of our operations, our information technology systems or our internal controls and procedures may not be adequate to support our operations. We will need to continue to improve our operational, financial and management controls and reporting systems and procedures. Failure to manage growth effectively could result in difficulties or delays in attracting new customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing or enhancing products and services, loss of customers, bad actors obtaining unauthorized access to business information or misappropriating funds, information security vulnerabilities or other operational difficulties, internal controls over financial reporting and procedures being inadequate to support our operations, any of which could adversely affect our business performance and operating results.
We have in the past been, and may in the future be, dependent on a limited number of significant customers.
Due to the size and nature of our arrangements with customers, one or a few customers have in the past and may in the future represent a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. For example, in 2022, our five largest customers accounted for $12 million of revenue and our largest customer (a China-based entity) accounted for $6.1 million of revenue, representing approximately 34% and 16% of our total 2022 revenue, respectively. In 2023, our five largest customers accounted for $10.0 million of revenue and our largest customer accounted for $2.2 million of revenue, representing approximately 23% and 5% of our total 2023 revenue, respectively. For the three months ended March 31, 2024, two customers accounted for approximately 13% and 11% of the Company’s total revenue. For the three months ended March 31, 2023, there were no individual customers which represented 10% or more of the Company’s total revenue. Our resale contract with the China-based entity referred to above has expired. However, we currently do not expect that customer to account for a significant portion of our revenue in 2024 and we do not anticipate a decrease in our total revenue in 2024 as compared to 2023 as a result of the loss of such customer. We cannot predict whether any of these customers will have a significant downturn in funding, and whether any such downturn, or any loss of funding or delay in payment
from any one of these customers resulting therefrom, would have a material adverse effect on our business, results of operations, cash flows and financial condition.
Substantial time and effort are typically required to make a sale.
A number of factors influence the time and effort required for us to make sales, including, for example, the purchasing approval processes of potential customers, which are typically public school districts with a large number of stakeholders involved in decision-making, the need to educate potential customers about the uses and benefits of our products, the discretionary nature of potential customers’ purchasing and budget cycles and fluctuations in the needs of potential customers. We may incur significant sales and marketing expenses and invest significant time and effort in anticipation of a sale that may never occur.
Our future revenues and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their contracts with us, or if we are unable to expand sales to our existing customers or develop new products that achieve market acceptance.
To continue to grow our business, it is important that we attract new customers to purchase and use our products. Our success in attracting new customers depends on numerous factors, including our ability to:
•
offer a compelling education technology platform and solutions;
•
execute our sales and marketing strategy;
•
effectively identify, attract, hire, train, develop, motivate and retain new sales, marketing, professional services and support personnel;
•
develop or expand relationships with technology partners and third-party resellers;
•
expand into new geographies;
•
deploy our platform and solutions for new customers; and
•
provide quality customer support and professional services.
Upon purchasing our products, our customers generally enter into software application subscription agreements with a one-to-three-year term and have no obligation to renew such agreements. Our customers may decide not to renew these agreements with a similar contract period, at the same prices and terms, with the same or greater application/solution coverage or at all. Although our customer renewals have historically been strong, some of our customers have elected not to renew their agreements with us, and it is difficult to accurately predict long-term customer retention, churn and expansion rates. Our retention and expansion rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our platform, our customer support and professional services, our prices and pricing plans, the competitiveness of other software products and services, reductions in our customers’ spending levels, customer adoption of our solutions, deployment success, utilization rates by our customers and users, new product releases and changes to our product offerings. If our customers do not renew their software application subscription agreements, or renew on less favorable terms, our business, financial condition and operating results may be adversely affected.
Our ability to increase revenue also depends in part on our ability to increase deployment of our solutions to existing customers. Our ability to increase sales to existing customers depends on several factors, some of which are outside our control. These factors may include our customers’ experience with implementing and using our platform, user demand for our platform, their ability to integrate our solutions with existing technologies and our pricing model. A failure to increase sales to existing customers could adversely affect our business, operating results and financial condition.
If we do not successfully anticipate market needs and develop products, services and software enhancements that meet those needs, or if those products, services and software enhancements do not gain market acceptance, our business, operating results and financial condition will be adversely impacted.
We may not be able to anticipate future market needs or be able to improve our products or platform or to develop new products, services or software enhancements to meet such needs on a timely basis, if at all. In addition, our inability to diversify beyond our current offerings could adversely affect our business. Any new
products, applications or software enhancements that we introduce, including by way of acquisitions, may not achieve a significant degree of market acceptance from current or potential customers, which would adversely affect our business, operating results, financial condition and profitability. In addition, the introduction of new products, applications or software enhancements may decrease customers and user engagement with our platform or future purchases of our hardware or software, thereby offsetting the benefit of even a successful product or service introduction. Any of the foregoing could adversely impact our business, operating results and financial condition.
We must incur significant expense in technology and content development to launch a new product or software application, and we may not generate sufficient revenue from new offerings to offset our costs.
We invest, and plan to continue to invest, significant resources in developing new products and attracting new customers, including sales and marketing, and other costs and we may not recoup these costs. In addition, delays in the implementation of a new application could negatively impact our revenue and operating results.
The time that it takes for us to recover our investment in a new product or application depends on a variety of factors including our customer acquisition costs and customer retention rate. Because of the lengthy period of time required to recoup our investment, unexpected developments beyond our control could occur that result in the customer ceasing or significantly curtailing the scope of the applications it utilizes on our platform before we generate any revenue therefrom. In addition, third-party software partners generally do not grant us exclusive rights to their content. Even when they do, such arrangements are typically of limited duration. As such, partners may choose to offer the same or similar content on one of our competitors’ platforms, which could limit the number of customers willing to purchase such products and solutions from us. In addition, if a third-party developer were to terminate our use of their application(s), customers whose subscriptions include such application(s) may stop using our platform, which in turn could negatively impact customer adoption generally. As a result of any of the foregoing, we may ultimately be unable to recover the full investment that we make in a new offering or achieve any level of profitability from such offering.
If we fail to manage our inventory and supply chain effectively, our business, financial condition and results of operations may be materially and adversely affected.
Our business requires us to manage a large volume of inventory, including a large number of stock-keeping units (“SKUs”) stored at multiple sites globally. We depend on our forecasts of demand for, and popularity of, various products to make purchasing decisions and to manage our supply and inventory of SKUs. To assist in management of manufacturing operations and in order to minimize inventory costs, we forecast anticipated product sales to predict our inventory needs up to six months (and for certain select items, up to twelve months) in advance and enter into purchase orders on the basis of these forecasts, subject to limitations on the lead time of our product components and items with long lead times. We also accept safety stock of long lead time items. If we overestimate our requirements, we and our contract manufacturers will have excess inventory, increasing our costs and the amount of our capital tied up in inventory. If we underestimate our requirements, we and our OEM partners and/or contract manufacturers may have inadequate components and materials inventory, which could interrupt, delay or prevent delivery of our products to our customers. The occurrence of any of these risks related to inventory and supply chain management could adversely affect our business, operating results and financial condition.
We also depend on limited source suppliers for some of our product components and sub-assemblies. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors including severe weather events, earthquakes and pandemics, such as COVID-19. While we believe we could obtain replacement components from alternative suppliers, we may be unable to do so. If we cannot secure on a timely basis sufficient quantities of the materials we depend on to manufacture our products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, then manufacturing our products may be disrupted, which could increase our costs, prevent or impair our development or commercialization efforts, and have a material adverse effect on our business, financial condition, and results of operations.
We were involved in a SPAC transaction that was terminated in June 2023. The outcome of the termination remains uncertain and may result in negative impact to us.
On May 16, 2022, we entered into a merger agreement (the “EdtechX Merger Agreement”) with EdtechX Holdings Acquisition Corp II (“EdtechX”), a Special Purpose Acquisition Company (“SPAC”). Subsequently, on June 21, 2023, the EdtechX Merger Agreement was terminated by EdtechX. On February 8, 2024, we received a letter from EdtechX threatening legal action, alleging that we breached the EdtechX Merger Agreement as a result of (i) our failure to complete a PCAOB audit by the agreed upon deadline and the failure to deliver interim financial information, as required by the EdtechX Merger Agreement, (ii) our incurrence of additional debt and (iii) our failure to use reasonable best efforts to obtain $20 million in equity financing. We may become subject to legal action arising from this dispute, and the outcome of this matter could adversely affect our business, operating results and financial condition.
We intend to focus on growth rather than short term results, which may negatively impact our results of operations in the near term.
We believe our long-term value will be greater if we focus on longer-term growth over short-term results. As a result, our results of operations may be negatively impacted in the near-term relative to a strategy focused on maximizing short-term profitability. Significant expenditures on sales and marketing efforts, developing and enhancing our platform, including through targeted acquisitions of new applications and software developers, and expanding our research and development efforts may not ultimately grow our business or lead to expected long-term results. If our strategy does not lead to expected growth or if we are ultimately unable to achieve results of operations at the levels we expect to, our business, financial condition and results of operations may suffer.
If we fail to maintain, enhance or protect our brand, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer.
Our reputation and brand, and the network effects among customers on our platform are important to our success, and if we are not able to maintain and continue developing our reputation, brand and network effects, our business, financial condition and results of operations could be adversely affected.
We believe that building a strong reputation and brand as an innovative and effective educational tool and continuing to increase the strength of the network effects among customers on our platform are critical to our ability to attract and retain customers. The successful development of our reputation, brand and network effects will depend on a number of factors, many of which are outside our control.
Negative perception of us or our platform may harm our reputation, brand and networks effects, including as a result of:
•
complaints or negative publicity about us, our partners, our product offerings, including our practices and policies, even if factually incorrect or based on isolated incidents;
•
illegal, negligent, reckless or otherwise inappropriate behavior by our partners, customers, employees or third parties;
•
actual or perceived disruptions or defects in our platform, such as manufacturing or design defects in our products, payment disruptions or other incidents that impact the reliability of our offerings;
•
litigation involving, or investigations by regulators into, our platform or business;
•
inadequate or unsatisfactory customer support service experiences;
•
negative responses by resellers and customers to new offerings on our platform;
•
unfavorable media coverage of us, our products or the actions of other companies that provide products and services similar to ours;
•
disruptions to global supply chains;
•
political or social policies or activities; or
•
any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or our industry as a whole.
A regional or global health pandemic, such as the COVID-19 pandemic, could severely affect our business, results of operations and financial condition.
A regional or global health pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For example, the COVID-19 pandemic has had numerous effects on the global economy. Governmental authorities around the world implemented measures to reduce the spread of COVID-19 and these measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental authorities or otherwise elected by companies as a preventive measure, adversely affected workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, led to an economic downturn.
In response to the COVID-19 pandemic, we modified our business practices (including employee travel, recommending that all non-essential personnel work from home and canceling or reducing physical participation in meetings, events and conferences), and implemented additional safety protocols for essential workers. If significant portions of our workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with a regional or global health pandemic, our operations will be negatively impacted. Further, it is possible that an increase in the remote working environment could have a negative impact on the execution of our business plans and operations.
To the extent any regional or global health pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
If we need additional capital in the future, it may not be available on favorable terms or at all.
We have historically relied on outside financing to fund our operations, capital expenditures and expansion. We expect to continue to require additional capital from equity or debt financing in the future to support our growth, fund our operations or to respond to competitive pressures or strategic opportunities. We may not be able to secure additional financing on favorable terms or at all. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our stockholders, including you, could suffer significant dilution in their percentage ownership of us, and any new securities that we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms that are satisfactory to us, if and when required, our ability to grow or support our business and to respond to business challenges that we may face could be significantly limited.
Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.
As of March 31, 2024, we had outstanding indebtedness in the aggregate principal amount of approximately $18.1 million with maturity dates ranging from August 2024 through June 2026. This level of indebtedness could:
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unless refinanced, require us to dedicate a substantial portion of funds to be received in this offering to the payment of principal and interest on our indebtedness, thereby reducing the amount of funds to be used for working capital, acquisitions, product development, capital expenditures and other general corporate purposes;
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limit our ability to obtain additional financing;
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limit our ability to refinance indebtedness or cause the associated costs of such refinancing to increase;
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increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations; and
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place us at a competitive disadvantage compared to our competitors with proportionately less debt or comparable debt at more favorable interest rates which, as a result, may be better positioned to withstand economic downturns.
Any of the foregoing impacts could have a material adverse effect on us.
We plan to continue to make acquisitions, which could negatively impact our financial condition or results of operations and may adversely affect the price of our common stock.
As part of our business strategy, we have made, and intend to make, acquisitions to add new software offerings, specialized employees and complementary companies, products or technologies, and enter new geographic regions. Our previous and future acquisitions may not achieve our goals, and we may not realize benefits from acquisitions we make in the future. If we fail to successfully integrate companies, products or technologies we acquire, our business, operating results and financial condition could be harmed. Any integration process will require significant time and resources, and we may not be able to manage the process successfully. Our acquisition strategy may change over time and any future acquisitions we complete could be viewed negatively by customers, partners, investors or other parties with whom we do business. We may not successfully evaluate or utilize acquired technology and accurately forecast the financial impact of an acquisition, including accounting charges. We may also incur unanticipated liabilities that we assume as a result of acquiring companies. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, any of which could affect our financial condition or the value of our common stock. In the future, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms or at all. Our acquisition strategy could require significant management attention, disrupt our business and harm our business, operating results and financial condition.
Our business depends largely on our ability to attract and retain talented employees, including senior management. If we lose the services of Paul Kellenberger, our Chief Executive Officer, or other members of our senior management team or other key personnel, we may not be able to execute on our business strategy.
Our future success depends on the continuing ability to attract, train, integrate and retain highly skilled personnel, including software engineers and sales personnel with experience in the education market. We face intense competition for qualified individuals from numerous software and other technology companies. We may not be able to retain current key employees or attract, train, integrate or retain other highly skilled personnel in the future. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. As we move into new geographies, we will need to attract and recruit skilled personnel in those areas. If we are unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business, operating results and financial condition may be adversely affected.
Our future success also depends in large part on the continued services of our senior management and other key personnel. In particular, we are dependent on the services of Paul Kellenberger, our Chief Executive Officer, who is critical to the future vision and strategic direction of our business. We rely on our leadership team and key employees in the areas of engineering, sales and product development, design, marketing, operations, strategy, security, and general and administrative functions. Even though we have employment agreements with our executive officers, our executive officers and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice. We do not currently maintain key-person life insurance policies on any of our officers or employees. If we lose the services of senior management or other key personnel, our business, operating results, and financial condition could be adversely affected.
Volatility or lack of appreciation in our stock price may also affect our ability to attract and retain key employees. Employees may be more likely to leave us if the common stock they own or the common stock underlying their vested options have significantly appreciated in value relative to the original purchase price of the common stock or the exercise price of the options, or conversely, if the exercise price of the options that
they hold are significantly above the market price of our common stock. If we are unable to retain employees, or if we need to increase our compensation expenses to retain our employees, our business, operating results and financial condition could be adversely affected.
If we fail to effectively expand our sales and marketing capabilities, we could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
Our ability to broaden our customer base and achieve broader market acceptance of our platform will depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate customer and partner relationships to drive revenue growth. Our marketing efforts include industry event participation, the use of search engine optimization, paid search, and custom website development and deployment.
We plan to expand our sales and marketing organizations in the future, both domestically and internationally. Identifying, recruiting and training sales personnel will require significant time, expense, and attention. If we are unable to hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel are unable to achieve desired productivity levels in a reasonable period of time (including as a result of working remotely), or if our sales and marketing programs are not effective, our ability to broaden our customer base and achieve broader market acceptance of our platform could be harmed. In addition, the investments we make in our sales and marketing organization will occur in advance of experiencing benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources in these areas.
Adverse general and industry-specific economic and market conditions, reductions in IT spending, supply chain disruptions, geopolitical conflicts, rising fuel prices, inflation, increasing interest rates, instability in the global banking system or changes in the spending policies or budget priorities for government funding of K-12 schools may reduce demand for our products and platform, which could harm our results of operations.
Our revenue, results of operations and cash flows depend on the overall demand for our platform and solutions. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally) and instability in the global banking system, geopolitical conflicts, inflation or the availability and cost of credit could lead to increased market volatility, decreased consumer confidence and diminished growth expectations in the United States economy and abroad, which in turn could result in reductions in spending by our existing and prospective customers. Prolonged economic slowdowns may result in customers delaying purchases or canceling subscriptions with us, choosing to focus on less expensive educational tools or seeking to lower their costs by requesting to renegotiate existing contracts on terms less advantageous to us or defaulting on payments due on existing contracts or not renewing at the end of existing contract terms. Economic uncertainty and associated macroeconomic conditions may also make it difficult for us and our customers to accurately forecast and plan future activities. As a result, an economic downturn could harm our business, revenue, results of operations and cash flows.
Further, a portion of our revenue is derived from sales to K-12 schools, which are heavily dependent on federal, state, and local government funding. In addition, the school appropriations process is often slow, unpredictable and subject to many factors outside of our control. Budget cuts, curtailments, delays, changes in leadership, shifts in priorities or general reductions in funding could reduce or delay our revenue. Funding difficulties experienced by schools, which have been exacerbated by the recent economic downturn, the impacts of the COVID-19 pandemic and state budget deficits, could also slow or reduce purchases, which in turn could materially harm our business.
Our business may be adversely affected by changes in available educational funding, resulting from changes in legislation, both at the federal and state levels, changes in the state procurement process, changes in government leadership, declines in K-12 school enrollment, emergence of other priorities and changes in the condition of the local, state or United States economies. Moreover, future reductions in federal funding and the state and local tax bases could create an unfavorable environment, leading to budget shortfalls resulting in a decrease in educational funding. Any decreased funding for schools may harm our revenue renewals and new business materially.
Additionally, permanent shifts in student enrollment from traditional K-12 education models toward online and home schooling or other alternative educational models that do not use our solutions could materially harm our business. In addition, our revenue coming from career training education might decline if such organizations experience a decline in enrollment rates.
Our platform and internal systems rely on software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these systems, or failures to address or mitigate technical limitations in our systems, could adversely affect our business.
Our platform and internal systems rely on software and hardware, including software and hardware developed or maintained internally and/or by third parties, that is highly technical and complex. In addition, our platform and internal systems depend on the ability of such software and hardware to store, retrieve, process and manage immense amounts of data. The software and hardware on which we rely has contained, and will in the future contain, errors, bugs or vulnerabilities, and our systems are subject to certain technical limitations that may compromise our ability to meet our objectives. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Any errors, bugs, vulnerabilities or defects in our systems or the software and hardware on which we rely, failures to properly address or mitigate the technical limitations in our systems or associated degradations or interruptions of service or failures to fulfill our commitments to our customers, have in the past led to, and may in the future lead to, outcomes including delays in bringing new products to market, damage to our reputation, loss of customers, loss of revenue, regulatory inquiries, litigation, or liability for fines, damages, or other remedies, any of which could adversely affect our business, operating results, and financial condition.
We have benefitted from the United States federal government’s stimulus packages focused on educational initiatives approved as a result of the COVID-19 pandemic. However, additional funding may not be approved, which may adversely affect our business, financial condition and results of operations.
As a result of the COVID-19 pandemic, the United States federal government approved certain fiscal stimulus packages, including $82.0 billion in December 2020 and $130.0 billion in March 2021, in part, to support reopening plans for K-12 schools and $35.0 billion in March 2021, in part, for public Higher Education institutions to assist in reopening efforts, such as distance learning programs, the implementation of safety protocols and emergency financial assistance (together, the “COVID Stimulus Funds”). Many of our current and potential customers were the recipients of COVID Stimulus Funds, and approximately 10% of our revenue in 2023 came from our customers spending COVID Stimulus Funds. We expect that in the absence of future stimulus packages similar to the COVID Stimulus Funds, our customers will be able to obtain funds from other sources; however, there can be no guarantee that this will be the case or that our customers will choose to use any such funds to purchase our products. In addition, we are unable to predict the extent, implementation and effectiveness of any government-funded benefit programs and stimulus packages in the future and the corresponding effect on demand for our platform. If such government-funded benefit programs and stimulus packages are not approved, our results may not be comparable to past or future periods. Further, as a result of the stimulus packages, if potential competitors are attracted to our industry and develop and market new technologies that render our existing or future solutions less competitive, unmarketable or obsolete, our business and operating results may be adversely affected.
We face risks related to our contracts with state and local government entities as well as difficulties with contracting with large customers with substantial negotiating leverage, and in the past have faced risks related to contracts with federal government agencies, any of which could harm our results of operations.
We have in the past entered into, and expect to continue to enter into, agreements with local, state and federal education agencies. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our products to such governmental entity. Government entities may require contract terms that differ from our standard arrangements. In addition, government demand and payment for our products may be more volatile as they are affected by public sector budgetary cycles, funding authorizations, and the potential for funding reductions or delays, making the time to close such transactions more difficult to predict. This risk is enhanced as the size of such sales to government entities increases. As we expand our customer
base and the application/solution coverage of our existing customers, we may be subject to increased scrutiny, potential reputational risk or potential liability should our platform and products fail to perform as contemplated in such deployments or should we not comply with the terms of our government contracts or government contracting requirements.
If we fail to maintain relationships with third-party software developer partners or fail to expand our partnerships with industry partners, our ability to grow our business and revenue will suffer.
The success of our business depends in large part on the continued and increased development and volume of compelling content and on continuing to recruit and work with third-party developers. We may face several challenges in establishing and expanding these relationships. For instance, third-party developers who contribute to our platform must invest significant time and resources to adjust the manner in which they develop their applications for an AR/VR learning environment. The delivery of AR/VR educational programs at educational institutions is still growing in acceptance, and it is possible that administrators and faculty members may have concerns regarding such services. We cannot be certain that AR/VR educational programs, such as those offered on our platform, will ever achieve significant market acceptance, and industry partners may therefore decline to continue to create content for our platform. Further, if we were to lose certain key third-party developers, or otherwise lose a significant number of third-party developers, our growth and revenue would be negatively impacted.
We depend on a limited number of third-party partners to produce, resell and distribute our products.
We rely on a limited number of third parties to produce the hardware and software for our platform and solutions and rely on certain third-party resellers and distributors to resell and distribute our products. If we are unsuccessful in maintaining existing relationships with third parties and, if needed, establishing new relationships with third parties, our ability to efficiently operate existing services or develop new products and services could be impaired, and as a result, our competitive position or our results of operations could suffer. In August 2021, we entered into an agreement to work with a major PC OEM to build Inspire, a proprietary laptop, which allowed us to leverage the OEM’s supply chain network. Our master agreement with this PC OEM partner is subject to a one-year automatic renewal term, and either party is permitted to terminate the agreement upon written notice delivered to the other party not later than three months prior to the expiration of the applicable term. In addition, during 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. If either PC OEM partner, decides to discontinue its partnership with us and we are unable to replace the products manufactured by such partner with another PC OEM that we currently work with or a new PC OEM partner, our business, operating results and financial condition could be materially and adversely impacted. We also rely upon one third-party partner located in China to manufacture our stylus. If our manufacturing partners or resellers and distributors that we rely upon decide to discontinue their relationship with us and we are unable to replace such parties on similar terms or at all, our business could be materially and adversely impacted.
Failure of our resellers or other commercial partners to use acceptable ethical business practices or comply with applicable laws could negatively impact our business.
As part of our sales and marketing strategy, we rely on third-party resellers and other commercial partners to distribute and market our products and outside of the United States, we rely exclusively on resellers to distribute and market our products. We expect these resellers and partners to operate in compliance with applicable laws, rules, and regulations, but we cannot control their conduct. If any of our resellers or partners violate applicable laws or implements business practices that are regarded as unethical, the distribution of our products in those jurisdictions could be interrupted, usage of our platform could decline, our reputation could be damaged, and we may be subject to liability. Any of these events could have a negative impact on our business, financial condition, and results of operations.
Risks Related to Financial and Accounting Matters
Our operating results may fluctuate significantly, which makes our future results difficult to predict.
Our quarterly and annual operating results have fluctuated in the past and are expected to fluctuate in the future. Additionally, we have a limited operating history with the current scale of our business, which makes it
difficult to forecast our future results and subjects us to a number of uncertainties, including our ability to plan for and anticipate future growth. As a result, you should not rely upon our past quarterly and annual operating results as indicators of future performance. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly evolving markets, such as the risks and uncertainties described herein. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictable or are outside of our control, including:
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our ability to generate revenues from our platform;
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our ability to attract and retain customers;
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our ability to recognize revenue or collect payments from customers or other third parties in a particular period;
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the ability of our third-party partners to manufacture and deliver our hardware, including due to global supply chain issues;
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fluctuations in spending by our customers due to availability of government funding and subsidies, episodic regional or global events, or other factors;
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the pricing of our product offerings;
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the timing, cost of and mix of our new and existing sales and marketing and promotional efforts;
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changes to our platform or the development and introduction of new products or services by our competitors;
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changes in local, state or federal regulations regarding education, particularly the introduction of limitations on education products or topics for the K-12 school population, including, for example, Florida’s Parental Rights in Education bill, which became effective as of July 1, 2022;
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system failures, disruptions, breaches of security or privacy, whether on our platform or on those of third parties, and the costs associated with any such breaches and remediation;
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negative publicity associated with our products;
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health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses;
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the timing of incurring additional expenses, such as increases in sales and marketing or research and development expenses;
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adverse litigation judgments, settlements or other litigation-related costs;
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other changes in the legislative or regulatory environment, including with respect to education standards and privacy and cybersecurity, or actions by governments or regulators, including fines, orders or consent decrees;
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changes in United States generally accepted accounting principles; and
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changes in domestic and global business and macroeconomic conditions, including as a result of increasing interest rates, inflation, instability in the global banking system, and global unrest including the wars in Gaza and Ukraine.
The impact of one or more of the foregoing or other factors may cause our operating results to vary significantly. As such, quarter-to-quarter comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. If we fail to meet or exceed the expectations of investors or securities analysts, the trading price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.
We have identified material weaknesses in our internal control over financial reporting, and the failure to achieve and maintain effective internal controls over financial reporting could harm our business and negatively impact the value of our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the preparation of our financial statements for the year ended
December 31, 2023, we concluded that there were five material weaknesses in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that were identified related to:
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lack of segregation of duties;
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certain information technology general controls, including controls review of user access roles and administrative access;
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account reconciliations and cutoff;
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analysis of significant and unusual transactions, and
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lack of a formal risk assessment policy for entity level controls.
We are currently in the process of implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including:
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hiring additional financial personnel with accounting and financial reporting expertise;
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implementing user access policies, reviews and procedures;
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improving our ongoing account reconciliations and variance analyses;
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reviewing significant and unusual financing transactions; and
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establishing a formal and documented risk assessment policy.
As of March 31, 2024, these material weaknesses have not been fully remediated. Although we are targeting completion of the remediation measures within twelve months of the closing of this offering, we cannot be certain that our efforts will successfully remediate our material weaknesses by this date, or at all, or prevent restatements of our financial statements in the future. Due to the nature of the remediation process and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing and cost of full remediation. The material weaknesses will be fully remediated when, in the opinion of our management, the revised control processes have been operating for a sufficient period of time.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. To date, we have enhanced our business documentation process and are providing training to help with management’s self-assessment and testing of internal controls. We are implementing new workflow functionality and accounting systems that will help with ongoing account reconciliation, variance analysis and efficient review of significant financing transactions. With the hire of additional financial personnel, allocating other employees’ and consultants’ time to the implementation of user access controls and increased accounting oversight and implementation of new accounting system applications, we have incurred approximately $0.2 million and we expect to incur approximately $0.4 million in additional costs over the next twelve months to remediate these control deficiencies, though we cannot be certain that our efforts will be successful at remediating the material weaknesses or at avoiding potential future material weaknesses. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial
statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products to new and existing customers.
There is uncertainty regarding our ability to continue as a going concern.
Our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2023, which stated that management has concluded that substantial doubt exists about our ability to continue as a going concern for one year after the date our consolidated financial statements are issued. As discussed in Note 1 to our consolidated financial statements, we have suffered recurring losses from operations, negative cash flows from operations, non-compliance with certain debt covenants and have a net working capital deficiency that raises substantial doubt about our ability to continue as a going concern. Further, we had an accumulated deficit of approximately $(281.8) million as of March 31, 2024. To address our shortage of working capital necessary to fund our operations, management is developing a remediation plan that includes refinancing existing debt facilities and raising new sources of capital. As a result of the uncertainty regarding our ability to continue as a going concern, there is increased risk that you could lose the entire amount of your investment in us. The financial statements included in the registration statement of which this prospectus is a part do not include any adjustments that might result from the outcome of this uncertainty.
Our business is subject to seasonal sales and customer growth fluctuations which could result in volatility in our operating results, some of which may not be immediately reflected in our financial position and results of operations.
Our business may be affected by the general seasonal trends common to education, tutoring and standardized testing markets. These include but are not limited to increased new subscriptions and expansions to existing subscriptions in connection with annual budgetary decisions made at the local, state and governmental level.
This seasonality may adversely affect our business and cause our results of operations to fluctuate.
If currency exchange rates fluctuate substantially in the future, our operating results, which are reported in United States dollars, could be adversely affected.
As we continue to expand our operations, we may become more exposed to the effects of fluctuations in currency exchange rates. A substantial majority of our revenues to date have been denominated in United States dollars and, therefore, we have not historically been subject to foreign currency risk. Fluctuations in the exchange rates between the United States dollar and other currencies could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our operating results. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks or have any plans to do so.
Our ability to use our United States federal and state net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability.
As of December 31, 2023, we had United States federal net operating loss (“NOL”) carryforwards of approximately $34.1 million and state NOL carryforwards of approximately $22.9 million after Section 382 limitations. Under the 2017 Tax Cuts and Jobs Act (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act, unused United States federal NOLs generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely, but the deductibility of such federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of current year taxable income. NOLs arising in taxable years ending before 2018 are generally limited to a 20-year carryforward period.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation that undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to utilize its pre-change NOL carryforwards to offset its
post-change income or taxes may be limited. We have completed an initial Section 382 analysis, and it is most likely that we have previously undergone one or more ownership changes so that our use of NOLs is currently subject to limitation.
We may also experience ownership change(s) in the future as a result of subsequent shifts in our stock ownership, some of which may be outside our control. Therefore, it is possible that such an ownership change could limit the amount of NOLs we can use to offset future taxable income. Our current NOL carryforwards, and any NOL carryforwards of companies we acquire in the future, may be subject to limitations, thereby increasing our overall tax liability. Our NOL carryforwards may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related to our United States federal and state NOL carryforwards and other net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. Our NOL carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income. Any future changes in United States tax laws in respect of the utilization of NOL carryforwards may further affect the limitation in future years. In addition, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited at the state level, which could also impact our ability to utilize NOL carryforwards. As a result, even if we attain profitability, we may be unable to use all or a material portion of our NOLs, which could adversely affect our business, operating results, financial condition, and cash flows.
We could be subject to changes in tax rates, the adoption of new United States or international tax legislation, or exposure to additional tax liabilities.
We operate in a number of tax jurisdictions, including in the United States at the federal, state and local levels, and certain foreign countries, and we may expand the scale of our operations in the future. We are subject to review and potential audit by a number of tax authorities. A change in law or in our global operations could result in higher effective tax rates, reduced cash flows and lower overall profitability.
In addition, taxing authorities in the United States and in foreign jurisdictions may successfully assert that we should have collected or in the future should collect sales and use, gross receipts, value-added or similar taxes, and may successfully impose additional obligations on us. The application of indirect taxes, such as sales, use, value-added, and goods and services taxes, to businesses like ours is a complex and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and e-commerce. Significant judgment is required on an ongoing basis to evaluate applicable tax obligations and as a result amounts recorded are estimates and are subject to adjustments. In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business.
Tax authorities may question, challenge or disagree with our calculation, reporting or collection of taxes and may require us to collect taxes in jurisdictions in which we do not currently do so or to remit additional taxes and interest, and could impose associated penalties and fees. Any such assessments or obligations could adversely affect our business, operating results and financial condition.
Due to shifting economic and political conditions, tax policies, laws, or rates in various jurisdictions may be subject to significant changes in ways that impair our financial results. Various jurisdictions have enacted or are considering digital services taxes, which could lead to inconsistent and potentially overlapping tax regimes. Such taxes, if enacted, could adversely affect our business, operating results, and financial condition.
We may have exposure to greater-than-expected tax liabilities, which could seriously harm our business.
We have entered into transfer pricing arrangements that establish transfer prices for our intercompany operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any jurisdiction has made a determination as to whether or not we are operating in compliance with such authority’s transfer pricing laws. Accordingly, taxing authorities in any of these jurisdictions could challenge our transfer prices and require us to adjust them to reallocate our income. Any change to the allocation of our income as a result of review by such taxing authorities could have a negative effect on our operating results and financial condition. In addition, the determination of our provision for income taxes and other uncertain tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Tax authorities may disagree with and
may challenge our tax positions. If our tax positions were not sustained, we could be required to pay additional taxes, interest, penalties or other costs, or have other material consequences.
Risks Related to Legal and Regulatory Matters
State or local legislation has been and may continue to be adopted that limits or bans instruction in public schools that includes or promotes social or emotional learning, which could limit our ability to operate in those states and/or localities and have an adverse impact on our business, operating results and financial condition.
We offer learning experiences on our platform that are designed to support social and emotional learning competencies, including self-awareness, social awareness, self-management and relationship skills. Recently, certain state and local legislatures in the United States have been critical of social and emotional learning and have proposed or taken action to limit social or emotional learning in public schools. For example, Florida recently passed the Parental Rights in Education Act, which places limitations on the subjects that may be taught to students in kindergarten through third grade, requires school districts to adopt certain procedures to notify parents of such children of certain social and emotional learning topics being discussed in public schools, and provides for injunctive relief and monetary damages for parents who successfully assert a claim that the school district has violated the act. Similar measures have been proposed in other states, including Georgia and Oklahoma. It is difficult to fully predict the potential effects of such legislation on the education technology industry, and on our business in particular. If our customers are impacted by such legislation and are unable to, or do not, renew their subscription agreements, or if we are unable to attract new customers because of such local and state legislation, our business, financial condition and operating results may be adversely affected.
Our failure to comply with laws and regulations that are or may become applicable to us as a technology provider for K-12 schools, community colleges and other educators could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.
We may become subject to regulations and laws specific to the education sector because we offer our platform, solutions and services to educational institutions. Data privacy and security with respect to the collection of personally identifiable information from students continues to be a focus of worldwide legislation and regulation. This includes significant regulation in the European Union (the “EU”), and legislation and compliance requirements in various jurisdictions around the world. Within the United States, several states have enacted legislation that goes beyond any federal requirements relating to the collection and use of personally identifiable information and other data from students. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business through a decrease in customers and revenue. These decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before students can utilize our services. We do not currently believe that such regulations and laws pose a material risk to our business because we do not currently collect or use the information of students or educators as part of our platform. We post our privacy policies and practices concerning the use and disclosure of student data on our website. However, any failure by us to comply with our posted privacy policies, FTC requirements or other privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies or by private litigants that could potentially harm our business, results of operations, and financial condition.
Our business may also become subject to laws specific to students, such as the Family Educational Rights and Privacy Act, the Delaware Higher Education Privacy Act and a California statute which restricts the access by postsecondary educational institutions of prospective students’ social media account information. Compliance requirements include obtaining government licenses, disclosures, consents, transfer restrictions, notice and access provisions for which we may in the future need to build further infrastructure to further support. We cannot guarantee that we or any companies we acquire have been or will be fully compliant in every jurisdiction, due to lack of clarity concerning how existing and future laws and regulations governing educational institutions affect our business and lengthy governmental compliance process timelines. Moreover, as the education industry continues to evolve, increasing regulation by federal, state and foreign agencies becomes more likely. Certain states have also adopted statutes, such as California Education Code § 66400, which prohibits the preparation or sale of material that should reasonably be known will be submitted for academic credit. While these statutes are currently directed at enterprises selling term papers, theses,
dissertations and the like, which we do not offer, and were not designed for services like ours, which are designed to help students understand the relevant subject matter, other states may adopt similar or broader versions of these types of statutes, or the interpretation of the existing or future statutes may impact whether they are cited against us or where we can offer our services.
The adoption of any laws or regulations that adversely affect the popularity or growth in the use of the Internet particularly for educational services, including laws limiting the content and learning programs that we can offer, and the audiences that we can offer that content to, may decrease demand for our service offerings and increase our cost of doing business. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also hinder our operational flexibility, raise compliance costs and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and results of operations.
While we expect and plan for new laws, regulations, and standards to be adopted over time that will be directly applicable to the Internet and to our student-focused activities, any existing or new legislation applicable to our business could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations and potential penalties or fees for non-compliance, and could negatively impact the growth in the use of the Internet for educational purposes and for our services in particular. We may also run the risk of retroactive application of new laws to our business practices that could result in liability or losses. Due to the global nature of the Internet, it is possible that the governments of other states and foreign countries might attempt to change previous regulatory schemes or choose to regulate transmissions or prosecute us for violations of their laws. We might unintentionally violate such laws, such laws may be modified, and new laws may be enacted in the future. Any such developments could harm our business, results of operations, and financial condition.
Our business is subject to complex and evolving United States and foreign laws, regulations and industry standards, many of which are subject to change and uncertain interpretation, which uncertainty could harm our business, operating results and financial condition.
We are subject to many United States federal and state and foreign laws, regulations and industry standards that involve matters central to our business, including laws and regulations that involve data privacy, cybersecurity, intellectual property (including copyright and patent laws), content, rights of publicity, advertising, marketing, competition, protection of minors, consumer protection, taxation and telecommunications. These laws and regulations are constantly evolving and may be interpreted, applied, created, or amended, in a manner that could harm our business. In addition, the introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations or other government scrutiny.
We collect, store, use and otherwise process data, some of which contains personal information about our employees, customers and business partners, including contact details, network details, and location data. Therefore, we are or may become subject to United States (federal, state, local) and foreign laws and regulations regarding data privacy and security and the processing of personal information and other data from customers, end users or business partners. The regulatory framework for privacy, information security, data protection and processing worldwide and interpretations of existing laws and regulations is likely to continue to be uncertain and current or future legislation or regulations in the United States and other jurisdictions, or new interpretations of existing laws and regulations, could significantly restrict or impose conditions on our ability to process data we use in our business operations.
While we have made efforts to comply with these laws and regulations, the uncertainty surrounding enforcement and changing privacy landscapes in the United States and abroad could change our compliance status. Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business.
The costs of complying with these laws and regulations are high and likely to increase in the future, particularly as the degree of regulation increases and our business grows and our geographic scope expands. The impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the education technology sector that have greater resources. Any failure or perceived failure of
compliance on our part to comply with the laws and regulations may subject us to significant liabilities or penalties, or otherwise adversely affect its business, financial condition or operating results. Furthermore, it is possible that certain governments may seek to block or limit our platform and products or otherwise impose other restrictions that may affect the accessibility or usability of any or all our platform and products for an extended period of time or indefinitely.
We could be involved in legal disputes that are expensive and time consuming, and, if resolved adversely, could harm our business, operating results and financial condition.
From time to time, we may be involved in actual and threatened legal proceedings, claims, investigations and government inquiries arising in the ordinary course of our business, including intellectual property, data privacy, cybersecurity, privacy and other torts, illegal or objectionable content, contractual rights, false or misleading advertising, or other legal claims relating to content or information that is provided to us or published or made available on our platform. Any proceedings, claims or inquiries involving our company, whether successful or not, may be time consuming, result in costly litigation, unfavorable outcomes or increased costs of business, require us to change our business practices or platform, require significant amount of management’s time or may harm our reputation or otherwise harm our business, operating results, and financial condition.
We are currently involved in litigation to protect our patents, trademarks, copyrights and other intellectual property rights, and may be subject to intellectual property litigation and threats thereof in the future. Specifically, a number of competitors based in China have created clones of our original all-in-one product. To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and we cannot assure that we will be successful in such action. Companies in the Internet, technology and education industries typically own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and grow our business and platform offerings, the possibility of receiving a larger number of intellectual property claims against us grows. In addition, various “non-practicing entities” that own patents and other intellectual property rights may in the future attempt to assert intellectual property claims against us to extract value through licensing or other settlements.
From time to time, we receive letters from patent holders alleging that our platform infringes on their patent rights and from trademark holders alleging infringement of their trademark rights. We also receive letters from holders of copyrighted content alleging infringement of their intellectual property rights. Our technologies and content, including the content that partners may create for use on our platform, may not be able to withstand such third-party claims, and could have a material adverse effect on our business.
With respect to any intellectual property claims, we may have to seek a license to continue using technologies or engaging in practices found to be in violation of a third-party’s rights, which may not be available on reasonable terms and may significantly increase our operating expenses (for example, by being required to pay significant royalties in connection with such licenses). A license to continue using such technologies or practices may not be available to us at all and we may be required to discontinue use of such technologies or practices or to develop alternative non-infringing technologies or practices. The development of alternative non-infringing technologies or practices could require significant effort and expense or may not be achievable at all. our business, operating results and financial condition could be harmed as a result. If we cannot license or develop alternative non-infringing substitutes for any infringing technology used in any aspect of our business, we would be forced to limit use of our platform. Any of these results would adversely affect our business, operating results and financial condition.
We are susceptible to illegal or improper uses of our educational platform, which could expose us to additional liability and harm our business.
Our educational platform is susceptible to unauthorized use, copyright violations and unauthorized copying and distribution (whether by students, schools or otherwise), theft, employee fraud and other similar breaches and violations. These occurrences may harm our business and consequently negatively impact our
results of operations. Additionally, we may be required to employ a significant number of resources to combat such occurrences and identify those responsible.
The legal system of the PRC is not fully developed and there are inherent uncertainties that may affect the protection afforded to our business.
Although a decreasing portion of our revenue is derived from business that we do in the PRC, and that percentage is expected to continue to decrease, as long as a portion of our revenue and other business activities are derived from business in the PRC, our activities in the PRC are and will be governed by the PRC legal system that is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, as these laws and regulations are relatively new and continue to evolve, interpretation and enforcement of these laws and regulations involve significant uncertainties and different degrees of inconsistency. Some of the laws and regulations are still in the developmental stage and are therefore subject to policy changes. Many laws, regulations, policies and legal requirements have only been recently adopted by PRC central or local government agencies, and their implementation, interpretation and enforcement may involve uncertainty due to the lack of established practice available for reference. We cannot predict the effect of future legal developments in the PRC, including the promulgation of new laws, changes in existing laws or their interpretation or enforcement, or the pre-emption of local regulations by national laws. As a result, as long as a portion of our revenue is derived from business that we do in the PRC, there is substantial uncertainty as to the legal protection available to us relating to such business. Moreover, due to the limited volume of published cases and the non-binding nature of prior court decisions, the outcome of dispute resolution may not be as consistent or predictable as in other more developed jurisdictions, which may limit the legal protection available to us. In addition, any litigation in the PRC may be protracted and result in substantial costs and the diversion of resources and management attention.
The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.
The PRC Labor Contract Law became effective and was implemented on January 1, 2008, which was amended on December 28, 2012. It has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. In addition, according to the PRC Social Insurance Law, which became effective on July 1, 2011 and was amended on December 29, 2018, and the Administrative Regulations on the Housing Funds, which became effective on April 3, 1999 and was amended on March 24, 2002 and March 24, 2019, companies operating in China are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance and housing funds plans, and the employers must pay all or a portion of the social insurance premiums and housing funds for their employees. Although we do not currently have any employees located in the PRC , we did in the past have employees in our subsidiary, zSpace Technologies (Shanghai) Ltd. (“zSpace Shanghai”). In March 2023, zSpace Shanghai terminated six employees. Three of these former employees have instituted actions related to post-employment disputes alleging they were not provided appropriate severance and have filed disputes with the Shanghai employment bureau and the Jing’an People’s Court. The Jing’an People’s Court determined that zSpace Shanghai owed these three employees a total amount of 849,153 Chinese yuan renminbi (or approximately $117,000), 71,852 (or approximately $10,000) of which has been paid to date. We currently expect that the total amount that we will be required to pay to resolve these three disputes, including penalties, fees and expenses, will be approximately $125,000. If we become subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and results of operations may be adversely affected.
Regulation and censorship of information disseminated over the internet in China may adversely affect our business and reputation and subject us to liability for information displayed on our website.
The PRC government has adopted regulations governing internet access and the distribution of news and other information over the internet. Under these regulations, internet content providers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and regulations,
impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide Internet content and other licenses in China, and the closure of the concerned websites in China. The website operator may also be held liable for such censored information displayed on or linked to the websites. If our websites, including our website in China, are found to be in violation of any such requirements, we may be penalized by relevant authorities, and our operations or reputation could be adversely affected.
If we fail to conduct our marketing activities in compliance with the advertisement regulations in China / PRC, our results of operations and financial condition may be materially and adversely affected.
Under the Advertisement Law of the PRC, an advertisement for education or training shall not contain any of the following items: (i) any promise relating to progression, passing examinations, or obtaining a degree or qualification certificate, or any express or implied guaranteed promise relating to education or training results; (ii) express or implied statement that the relevant examination agency or its personnel or any examination test designer will be involved in the education or training; and (iii) the use of the names or images of research institutes, academic institutions, education institutions, industry associations, professionals or beneficiaries for recommendation or as proof. Publishing advertisements for education and training in violation of these provisions may subject us to orders to cease publishing advertisements, orders to mitigate the impacts of such advertisements, or to fines of one to five times the advertising fees, or to a revocation of the business licenses and approval documents for advertisement review.
The PRC government has turned its attention toward greater regulation of advertising, and more recently, of online advertising and has issued the SAIC Interim Measures for the Administration of Internet Advertising, which came into effect on September 1, 2016. The new regulation clarifies what content is considered “internet advertising,” lays out rules for “publishers” of online advertisements, and outlines investigation measures and penalties for violators. In practice, any digital content placed on any online platform with the intent of promoting a product or service could be subject to the regulation. Given the ubiquity of online advertising in China, the regulations may have a widespread impact on the actions of advertisers and platform operators. The regulation identifies individual or corporate publishers as responsible for complying with the online advertising rules and subjects them to penalties when in violation. Although we are decreasing our business in China, for so long as we conduct advertising and marketing activities in China, any failure to do so in compliance with the advertisement regulations therein could adversely affect our results of operations and financial condition.
We are subject to laws and regulations, including governmental export and import controls, sanctions and anti-corruption laws, that could subject us to liability if we are not in full compliance with applicable laws.
We are subject to laws and regulations, including governmental export and import controls, that could subject us to liability. Our products are subject to United States export controls, including the United States Department of Commerce’s Export Administration Regulations (“EAR”), and we and our employees, representatives, distributors, resellers, contractors, agents, intermediaries, and other third parties are also subject to various economic and trade sanctions regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Furthermore, United States export control and economic sanctions laws and regulations prohibit the shipment of certain hardware and software to certain countries, governments and persons targeted by United States sanctions and for certain end-uses. As an example, following Russia’s invasion of Ukraine, the United States and other countries imposed economic sanctions and severe export control restrictions against Russia and Belarus. The United States and its allies could expand and strengthen these sanctions and export restrictions and take other actions should the conflict further escalate. These restrictions, or any similar restrictions, would further impact our ability to do business in certain parts of the world, including selling our products and services and using local developers. While we have implemented certain procedures to facilitate compliance with applicable laws and regulations, we cannot be certain that we or third parties have complied with all laws or regulations in this regard. Failure by our employees, representatives, distributors, resellers, contractors, third-party resellers agents, intermediaries or other third parties to comply with applicable laws and regulations in the collection and distribution of this information also could have negative consequences to us, including reputational harm, government investigations and penalties.
Although we take precautions to prevent our products and services from being provided in violation of such laws and regulations and have no knowledge of any past violations of such laws and regulation, our products and services may have been in the past, and could in the future be, provided in violation of such laws. If we or our employees, representatives, distributors, resellers, contractors, third-party resellers agents, intermediaries or other third parties fail to comply with these laws and regulations, we could be subject to civil or criminal penalties, including the possible loss of export privileges and fines. We may also be adversely affected through reputational harm, loss of access to certain markets or otherwise. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.
We are also subject to the United States Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the United Kingdom Bribery Act 2010 (the “Bribery Act”), and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws in the United States and other countries in which we operate. Anti-corruption and anti-bribery laws, which have been enforced aggressively and are interpreted broadly, prohibit companies and their employees, agents, intermediaries and other third parties from promising, authorizing, making or offering improper payments or other benefits to government officials and others in the public, and in certain cases, private sector. We leverage third parties, including intermediaries, distributors, resellers and agents, to conduct our business and to distribute and resell our products in the United States, and outside of the United State, we rely exclusively such on third parties to conduct our business and to distribute and resell our products. We and these third parties may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we may be held liable for any corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, distributors, resellers, agents, intermediaries and other third parties, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with FCPA, Bribery Act and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws, we cannot be certain that they will be effective, or that all of our employees, representatives, contractors, distributors, resellers, agents, intermediaries or other third parties have not taken, or will not take actions, in violation of our policies and applicable law, for which we may be ultimately held responsible. If we increase our international sales and business, including our business with government organizations, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, severe criminal or civil sanctions, settlements, prosecution, loss of export privileges, suspension or debarment from United States government contracts, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, whistleblower complaints, adverse media coverage and other consequences. Any investigations, actions or sanctions could harm our reputation, business, operating results, and financial condition.
The obligations associated with operating as a public company following this offering will require significant resources and management attention and will cause us to incur additional expenses, which will adversely affect our results of operations.
Following this offering, our expenses will increase as a result of the additional accounting, legal and various other additional expenses usually associated with operating as a public company and complying with public company disclosure obligations. After the consummation of this offering, we will be required to comply with certain requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and other applicable securities rules and regulations. The Exchange Act requires, among other things, us to file annual, quarterly, and current reports with respect to our business and operating results with the SEC. We will also be required to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. As a public company, we will be required to, among other things:
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prepare and file periodic public reports and other stockholder communications in compliance with our obligations under the United States federal securities laws;
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create or expand the roles and duties of our board of directors and committees of our board of directors;
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institute more comprehensive financial reporting and disclosure compliance functions; and
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establish new and enhance existing internal policies, including those relating to disclosure controls and procedures.
These changes, and the additional involvement of accountants and legal advisors, will require a significant commitment of additional resources. We might not be successful in complying with these obligations and the significant commitment of resources required for complying with them could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, in connection with this offering, we intend to increase our directors’ and officers’ insurance coverage, which will increase our insurance cost. In the future, it may be more expensive or more difficult for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
Risks Related to Intellectual Property
Failure to register, protect or enforce our proprietary technology and intellectual property rights could substantially harm our business, operating results and financial condition.
We rely on a combination of confidentiality, assignment and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection and other intellectual property laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property, and we currently hold issued patents and copyrights in the United States and foreign jurisdictions, and multiple trademark registrations in the United States and other foreign countries. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future applications covering our intellectual property rights may not be issued.
Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us. Patent applications in the United States are typically not published until at least 18 months after filing, or, in some cases, not at all. We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. The uncertainty and changing landscape regarding the patentability of software and the interpretation of the United States patent laws with respect thereto may also bring into question the validity of certain software patents and may make it more difficult and costly to prosecute patent applications. Such changes may lead to uncertainties or increased costs and risks surrounding the prosecution, validity, ownership, enforcement, and defense of our issued patents and patent applications and other intellectual property rights, the outcome of third-party claims of infringement, misappropriation, or other claims of intellectual property violations brought against us and the actual or enhanced damages (including treble damages) that may be awarded in connection with any such current or future claims, and could have a material adverse effect on our business.
We rely on our trademarks, trade names, and brand names to distinguish our platform from the products of our competitors. However, third parties may have already registered identical or similar marks for products or solutions that also address the software market in which we operate. Efforts by third parties to limit use of our brand names or trademarks and barriers to the registration of brand names and trademarks may restrict our ability to promote and maintain a cohesive brand throughout our key markets. We cannot be certain that pending or future United States or foreign trademark applications will be approved in a timely manner or at all, or that such registrations will effectively protect our brand names and trademarks. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our platform, which would result in loss of brand recognition and would require us to devote resources to advertising and marketing new brands.
In addition, effective intellectual property protection may not be available in every country in which we conduct or intend to conduct our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have generally taken measures to protect our proprietary rights, others may offer products or concepts that are substantially similar to ours and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brands and other intangible assets may be diminished and competitors may be able to mimic our platform and methods of operations more effectively.
To prevent substantial unauthorized use of our intellectual property and proprietary rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and we cannot be certain that we would be successful in any such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights (or to contest claims of infringement) than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from knowingly or unknowingly infringing upon, misappropriating or circumventing our intellectual property rights. If we are unable to protect our proprietary rights (including aspects of our software and platform protected other than by patent rights), we will find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create our platform. Moreover, we may need to expend additional resources to defend our intellectual property rights in foreign countries, and our inability to do so could impair our business, results of operations and financial condition or adversely affect our business, operating results, and financial condition.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and proprietary information.
We have devoted substantial resources to the development of our intellectual property and proprietary rights. To protect our intellectual property and proprietary rights, we rely in part on confidentiality agreements with our employees, vendors, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Effective trade secret protection may also not be available in every country in which our platform is used or where we have employees or independent contractors. The loss of trade secret protection could make it easier for third parties to compete with our platform by copying functionality. In addition, any changes in, or unexpected interpretations of, the trade secret and employment laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property and proprietary rights. In addition, others may independently discover trade secrets and proprietary information and in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Third parties may claim that our platform infringes their intellectual property rights, and this may create liability for us or otherwise adversely affect our business, operating results and financial condition.
Third parties may claim that our platform infringes their intellectual property rights, and such claims may result in legal claims against us and our technology partners and customers. These claims may damage our brand and reputation and create liability for us. We expect the number of such claims to increase as the functionality of our platform and services overlaps with that of other products and services, and as the volume of our software patents and patent applications continues to increase.
Companies in the software and technology industries own large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights, and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, patent holding companies, non-practicing entities, and other adverse patent owners that are not deterred by our existing intellectual property protections may seek to assert patent claims against us. We have in the past received immaterial, and may in the future receive material or immaterial, claims we have misappropriated,
misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market visibility, we may face a higher risk of being the subject of intellectual property infringement claims.
We may also face exposure to third-party intellectual property infringement, misappropriation or violation actions if we engage software engineers or other personnel who were previously engaged by competitors or other third parties and those personnel inadvertently or deliberately incorporate proprietary technology and intellectual property of third parties into our products. This could also result in us losing valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to develop, market and support potential products or enhancements, which could severely harm our business. Any intellectual property claims, with or without merit, could be very time-consuming, could be expensive to settle or litigate, and could divert our management’s attention and other resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could also result in us having to stop using technology found to be in violation of a third party’s rights. We might be required to seek a license for these intellectual property rights, which may not be available on reasonable terms or at all. Even if a license were available, we could be required to pay significant royalties, which would increase our operating expenses. Alternatively, we could be required to develop alternative non-infringing technology, which could require significant time, effort and expense, and may affect the performance or features of our platform. If we cannot license or develop alternative non-infringing substitutes for any infringing technology used in any aspect of our business, we would be forced to limit use of our platform. Any of these results would adversely affect our business, operating results and financial condition.
Our use of “open source” software could subject us to possible litigation or could prevent us from offering products that include open source software or require us to obtain licenses on unfavorable terms.
A portion of the technologies we use incorporates “open source” software, and we may incorporate open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our products that incorporate the open source software for no cost, that we make publicly available the source code for any modifications or derivative work we create based upon, incorporating or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license. From time to time, companies that use third-party open source software have also faced claims challenging the use of such open source software and their compliance with the terms of the applicable open source license. We may be subject to suits by parties claiming ownership of open source software or claiming non-compliance with the applicable open source licensing terms.
In addition to using open source software, we also license to others some of our software through open source projects. Open sourcing our own software requires us to make the source code publicly available, and therefore can affect our ability to protect our intellectual property rights with respect to that software. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification or derivative work of such licensed software. If an author or other third-party that distributes open source software that we use or license alleges that we did not comply with the conditions of the applicable license, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from offering our products that contained the open source software, required to release proprietary source code, required to obtain licenses from third parties or required to comply with the conditions unless and until we can re-engineer the product so that it complies with the open source license or does not incorporate the open source software.
Neither the United States nor foreign courts have interpreted a large number of open source licenses, and accordingly, there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our platform. In that event, we could be required to seek licenses from third parties in order to continue offering our platform, to re-develop our platform or to release our proprietary source code under the terms of an open source license, any of which could harm our business. Enforcement activity for open source licenses can also be unpredictable. Were it determined that our use was not in compliance with a particular license, we could be required to release our proprietary source code, defend claims, pay damages for breach of contract or copyright infringement, grant licenses to our
patents, re-engineer our platform, or take other remedial action that may divert resources away from our product development efforts, any of which could negatively impact our business. Open source compliance problems can also result in damage to our reputation and challenges in recruitment or retention of engineering personnel. Further, given the nature of open source software, it may be more likely that third parties might assert copyright and other intellectual property infringement claims against us based on our use of these open source software programs. Litigation could be costly for us to defend, have a material adverse effect on our business, results of operations and financial condition, or require us to devote additional development resources to change our platform.
We license technology from third parties, and our inability to maintain those licenses could harm our business.
We incorporate technology that we license from third parties, including software, into our platform. Licensing technologies from third parties exposes us to increased risk of being the subject of intellectual property infringement claims due to, among other things, our lower level of visibility into the development process with respect to such technology and the care taken to safeguard against infringement risks. We cannot be certain that our licensors do not or will not infringe on the intellectual property rights of third parties or that our licensors have or will have sufficient rights to the licensed intellectual property in all jurisdictions in which we conduct business. Some of our agreements with our licensors may be terminated by them for convenience, or otherwise provide for a limited term. If we are unable to continue to license technology because of intellectual property infringement claims brought by third parties against its licensors or against us, or if we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our ability to develop our platform that is dependent on that technology would be limited, and our business could be harmed. Additionally, if we are unable to license technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all and which may require us to use alternative technology of lower quality or performance standards. As a result, our business, operating results and financial condition would be adversely affected.
The failure of our information technology (“IT”) systems or a security breach involving customer or employee personal data, and the remediation of any such failure or breach, could materially impact our reputation and adversely affect our business, results of operations or financial condition.
Our business operations utilize a variety of IT systems. Although we have established appropriate contingency plans to mitigate the risks associated with a failure of our IT systems or a security breach, if one of our key IT systems were to suffer a failure or security breach, this could have a material adverse effect on our business, results of operations or financial condition. Further, we rely on third parties for certain IT services. If an IT service provider were to fail or the relationship with us were to end, we might be unable to find a suitable replacement in a timely manner, and our business, results of operations or financial condition could be materially adversely affected. We continually modify and enhance our IT systems and technologies to increase productivity and efficiency. As new systems and technologies are implemented, we could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to our business processes. When implemented, the systems and technologies may not provide the benefits anticipated and could add costs and complications to ongoing operations, which may have a material adverse effect on our business, results of operations or financial condition.
Any security breach of our IT systems or those of our IT service providers could result in disruptions to our operations. To the extent that such a breach results in a loss or damage to our data, or an inappropriate disclosure of confidential or personal information, it could cause significant damage to our reputation, affect our relationships, lead to claims against us and ultimately materially adversely affect our business, results of operations or financial condition.
Any interruptions in our operations due to cyberattacks or to our failure to maintain adequate security and supporting infrastructure as we scale, could damage our reputation, business, operating results, and financial condition.
We have been the target of attempted cyber-attacks in the past, and we may be subject to unauthorized access of digital data with the intent to misappropriate information, corrupt data or cause operational disruptions in the future. Computer malware, viruses, physical or electronic break-ins and similar disruptions
could lead to interruption and delays in our services and operations and loss, misuse or theft of data. Computer malware, viruses, ransomware, hacking and phishing attacks against online networks have become more prevalent and may occur on our systems in the future. Any successful attempts by cyber attackers to disrupt our services or systems could result in mandated user notifications, litigation, government investigations, significant fines and expenditures, divert management’s attention from operations, deter people from using our platform, damage our brand and reputation, and materially adversely affect our business and results of operations. Insurance may not be sufficient to cover significant expenses and losses related to cyber-attacks. Efforts to prevent cyber attackers from entering computer systems are expensive to implement, and we may not be able to avoid attacks that arise through computer systems of our third-party vendors. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of systems and technical infrastructure may, in addition to other losses, harm our reputation, brand and ability to attract customers.
We have not previously experienced, but may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity constraints. State-supported and geopolitical-related cyberattacks may increase in connection with Russia’s invasion of Ukraine and any related political or economic responses and counter-responses. The war in Ukraine and associated activities in Ukraine and Russia have increased the risk of cyberattacks on various types of infrastructure and operations, and the United States government has warned companies to be prepared for a significant increase in Russian cyberattacks in response to the sanctions on Russia. If our services are unavailable when end users attempt to access them, our customers may seek other services, which could reduce demand for our solutions from target customers.
We have processes and procedures in place designed to enable us to recover from a disaster or catastrophe and continue business operations and have tested this capability under controlled circumstances. Although we believe we maintain cybersecurity and data privacy programs sufficient for our current operations and intend to expand such programs as our operations grow, as an early-stage company, we have not made significant investments in such programs. Further, there are several factors ranging from human error to data corruption that could materially impact the efficacy of such processes and procedures. It may be difficult or impossible to perform some or all recovery steps and continue normal business operations due to the nature of a particular disaster or catastrophe, especially during peak periods, which could cause additional reputational damages, or loss of revenues, any of which would adversely affect our business and financial results.
Risks Related to our Common Stock and this Offering
The price of our common stock may be volatile.
Upon consummation of this offering, the price of our common stock, may fluctuate due to a variety of factors, including:
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actual or anticipated fluctuations in our user growth, retention, engagement, revenue or other operating results;
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developments involving our competitors;
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variations between our actual operating results and the expectations of securities analysts, investors and the financial community;
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actual or anticipated fluctuations in quarterly or annual operating results;
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any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information;
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publication of research reports by securities analysts about us, our competitors or our industry;
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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
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additional shares of common stock being sold into the market by us or our stockholders, or the anticipation of such sales, or the sale of shares by existing stockholders subject to lock-up agreements into the market, when applicable “lock-up” periods end;
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additions and departures of key personnel;
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commencement of, or involvement in, litigation involving us;
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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the number of shares of common stock available for public sale;
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announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
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announcements by us or estimates by third parties of actual or anticipated changes in the number of our customers or the level of user engagement;
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changes in operating performance and stock market valuations of technology companies in our industry, including our partners and competitors;
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price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole, including interest rate changes and inflation;
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developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and
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other events or factors, including those resulting from wars, recessions, instability in the global banking system, local and national elections, international currency fluctuations, corruption, political instability and acts of terrorism.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and seriously harm our business.
We will have broad discretion in how we may use the net proceeds in connection with this offering, and we may not use them effectively.
Our management will have broad discretion in applying the net proceeds we receive in connection with this offering. We may use the net proceeds for the acquisition of software applications and software company acquisitions and to fund sales and marketing efforts, working capital and general corporate purposes. We may use these proceeds in a way with which our stockholders disagree. If our management fails to use these funds effectively, our business could be seriously harmed. For a discussion on how we currently intend to use the proceeds from this offering, see “Use of Proceeds.”
We will be classified as a “controlled company” for purposes of the Nasdaq Listing Rules and therefore qualify for certain exceptions from certain corporate governance requirements. As a result, in the event we rely on such exceptions, our stockholders would not have the same protections afforded to stockholders of companies that are not controlled companies.
Currently, dSpace Investments Limited controls a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of the Nasdaq Listing Rules. Under the Nasdaq Listing Rules, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain stock exchange corporate governance requirements, including:
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the requirement that a majority of a company’s board of directors consist of independent directors;
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the requirement that nominating matters be decided solely by independent directors; and
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the requirement that executive and officer compensation matters be decided solely by independent directors.
Accordingly, in the event that we decide to rely on the “controlled company” exemption to reduce our corporate governance requirements, our stockholders would not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may remain an emerging growth for up to five years following the fifth anniversary of the date of our initial public offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. The reduced disclosure and other requirements that we may take advantage of include:
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not being required to have our registered independent public accounting firm attest to management’s assessment of our internal control over financial reporting;
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presenting reduced disclosure about our executive compensation arrangements;
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not being required to hold non-binding advisory votes on executive compensation or golden parachute arrangements;
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being exempt from any rule adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation and identification of critical audit matters, and
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relying on extended transition periods for complying with new or revised accounting standards, a result of which is that our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements.
We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or be more volatile.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reports on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
We do not intend to pay cash dividends for the foreseeable future, and as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
Following this offering, we currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If any of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If few analysts cover us, demand for our common stock could decrease and the price and trading volume of our common stock may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, in certain instances companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business.
Future sales of our common stock could cause the market price of our common stock to decline.
The price of our common stock could decline if there are substantial sales of our common stock, particularly by our directors, our executive officers or their affiliates, or when there is a large number of shares of our common stock available for sale. The perception in the public market that our stockholders might sell shares of our common stock could also depress the market price of our common stock. In connection with this offering, Gulf Islamic Investments, LLC, dSpace Investments Limited and bSpace Investments Limited have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 365 days following the closing date of this offering, except with the prior written consent of Roth Capital Partners, LLC. In addition, in connection with this offering, Kuwait Investment Authority and our officers and directors, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days following the closing date of this offering, at which point such persons may and dispose of or hedge 50% of the shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them, and not to dispose of or hedge the remaining shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them for 365 days following the closing date of this offering, except, in each case, with the prior written consent of Roth Capital Partners, LLC. Additionally, our employees have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days following the closing date of this offering. Consequently, 180 days after the closing of this offering, additional shares of common stock will be eligible for sale in the public market (or shares if the underwriters exercise their over-allotment option in full) and 365 days after the closing of this offering, additional shares of common stock will be eligible for sale in the public market (or shares if the underwriters exercise their over-allotment option in full). The market price of our common stock may drop significantly when the restrictions on resale lapse and these stockholders are able to sell their shares into the market.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
We are not currently subject to Section 404 of the Sarbanes-Oxley Act. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of privately held companies. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as following this offering. If we are not able to implement the requirements of Section 404, as well as any additional requirements once we are no longer an emerging growth company, in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and
could harm investor confidence and the market price of our common stock. Additionally, once we are no longer an emerging growth company, we will be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
Provisions in our charter documents and under Delaware law, including anti-takeover provisions, could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.
Our second amended and restated certificate of incorporation (our “Charter”) and second amended and restated bylaws (our “Bylaws”) that will become effective immediately prior to the consummation of this offering include anti-takeover provisions, which may have the effect of delaying or preventing a merger, acquisition or other change of control of us that our stockholders may consider favorable. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, the Charter and Bylaws include provisions that:
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require super-majority voting to amend provisions in the Charter and Bylaws;
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provide that stockholders holding more than 40% of our voting securities will be entitled to nominate two persons for election to our board of directors and stockholders holding 40% or less but more than 25% of our voting securities will be entitled to nominate one person for election to our board of directors;
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provides that our board of directors will be classified, such that the initial term of our independent directors will expire at our first annual meeting of stockholders following this offering and the initial term of our non-independent directors will expire at the second annual meeting of stockholders following this offering;
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provide that only a majority of our board of directors, the chairman of our board of directors, our chief executive officer, our President or stockholders collectively holding more than 30% of our voting securities will be authorized to call a special meeting of stockholders;
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do not provide for cumulative voting;
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provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders entitled to vote at an election of directors;
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prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
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provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws, subject to DGCL requirements; and
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establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.
Our Charter following this offering will contain exclusive forum provisions for certain claims, which may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Charter following the offering will provide that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, the Charter, the Bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.
Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our Charter will provide that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that a Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholders’ ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or employees, which may discourage lawsuits against us and our directors, officers, and employees. Alternatively, if a court were to find the choice of forum provision contained in our Charter or Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and operating results.
Investors in this offering will experience immediate dilution upon the closing of the offering.
If you purchase shares of our common stock in this offering, you will experience immediate dilution of $ per share because the price that you pay will be greater than the pro forma net asset value per share of the common stock you acquire. This dilution is in large part due to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. You may experience additional dilution if we issue shares of our common stock under the zSpace, Inc. 2017 Equity Incentive Plan adopted in February 16, 2017 (the “2017 Stock Plan”) or the 2024 zSpace Equity Incentive Plan (the “2024 Stock Plan”) we expect to adopt in connection with this offering, or if the Representative’s Warrant is exercised, or we otherwise issue additional shares of our common stock at a price below the initial public offering price. For more information, see “Dilution” beginning on page 53.
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that a market for our common stock will develop or that the market price of shares of our common stock will not decline following the offering.
We cannot assure you that a trading market will develop for our common stock after this offering or, if one develops, that such trading market can be sustained. We intend to apply to have our common stock listed on Nasdaq, but we cannot assure you that our application will be approved. In addition, we cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters based on numerous factors, including the information set forth in this prospectus, our prospects and the prospects of our industry, an assessment of our management, our prospects for future earnings, the general condition of the securities markets, the recent market prices of, and demand for, publicly traded common stock of generally comparable companies and other factors deemed relevant by the underwriters and us. Neither we nor the underwriters can assure you that the initial public offering price will bear any relationship to the market price at which our common stock may trade after our initial public offering. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and commissions and related offering expenses.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements can be identified by words such as “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, information concerning possible or projected future results of our operations; business strategies; prospects; future cash flows; financing plans; plans and objectives of management; or any other statements regarding future cash needs, future operations and future financial results.
Forward-looking statements are not guarantees of performance and speak only as of the date hereof. While we believe that these forward-looking statements are reasonable, there can be no assurance that we will achieve or realize these plans, intentions or expectations. You should understand that the following important factors could affect our future results prior to and following the offering and could cause those results to differ materially from those expressed or implied by the forward-looking statements in this prospectus. These risks include but are not limited to:
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any delay in consummating this offering;
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risks related to disruption of management’s time from ongoing business operations due to this offering;
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litigation, complaints, product liability claims and/or adverse publicity;
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the impact of changes in customer spending patterns, customer preferences, local, regional and national economic conditions, inflation, instability in the global banking system, global unrest, and global health epidemics, such as the COVID-19 pandemic;
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changes in federal and state contracting policies and shifts in educational policy priorities;
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the failure to maintain relationships with third-party software developer partners or failure to expand our partnerships with industry partners; and
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privacy and data protection laws, privacy or data breaches, or the loss of data.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described under the heading “Risk Factors” and elsewhere in this prospectus. The risks described under the heading “Risk Factors” are not exhaustive. New risk factors may emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of our common stock in this offering will be approximately million, (or $ million if the underwriters exercise their over-allotment option in full), after deducting underwriting discounts and commissions and estimated offering expenses. This estimate assumes a public offering price of $ per share, which is the mid-point of the offering price range indicated on the cover of this prospectus.
We intend to use the net proceeds from this offering for the acquisition of software applications and software company acquisitions and to fund sales and marketing efforts, working capital and for general corporate purposes.
Based on our current operating plan, we believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations and our planned development through at least .
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering or the amounts we actually spend on the uses set forth above. Pending the use of net proceeds we receive from this offering, we plan to invest the net proceeds in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the United States government. Our management will have broad discretion in the application of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of the proceeds. Currently, we do not have any agreements or commitments to enter into any acquisitions.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the assumed initial public offering price of $ per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions.
For additional information, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
DIVIDEND POLICY
We currently intend to retain all available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
CAPITALIZATION
The following table sets forth our cash, cash equivalents, available-for-sale marketable securities and our capitalization as of March 31, 2024:
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on an actual basis;
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on a pro forma basis after giving effect to the conversion of (i) 3,874,946 shares of Series A preferred stock into shares of our common stock immediately prior to the consummation of this offering, (ii) 109,142 shares of NCNV 1, NCNV 2 and NCNV 3 preferred stock into shares of our common stock immediately prior to the consummation of this offering and (iii) the conversion of $10.0 million, plus accrued interest, in convertible notes into shares of our common stock immediately prior to the consummation of the offering;
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on a pro forma basis after giving effect to the stock-based compensation expense of $ associated with stock options for which the service-based vesting condition was satisfied or partially satisfied as of March 31, 2024, after giving effect of shares withheld to satisfy the associated withholding tax obligations (based on the assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and an assumed % tax withholding rate).
•
on a pro forma as adjusted basis to give effect to our issuance and sale of shares of our common stock in the offering at an assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds from this offering to us as described under “Use of Proceeds,” in each case, as if such event had occurred on March 31, 2024.
The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the information in this table together with our consolidated financial statements and the sections titled “Prospectus Summary — Summary Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following amounts are in thousands, except per share data.
| |
|
|
As of March 31,
|
|
|
(In Thousands)
|
|
|
2024
|
|
|
Pro
Forma(1)(2)
|
|
|
Pro Forma
as Adjusted(3)
|
|
|
Debt Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
10,000 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Other current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
6,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
1,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$
|
18,066
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Temporary Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
3,000 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
NCNV 1, NCNV 2 and NCNV 3 preferred stock . . . . . . . . . . . . .
|
|
|
|
|
109,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporary Redeemable Preferred Stock
|
|
|
|
$
|
112,142
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Stockholder’s Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.00001 par value; shares . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
— |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
146,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . .
|
|
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(281,825) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholder’s Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$
|
(135,391)
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
(1)
The pro forma capitalization data gives effect to the stock-based compensation expense of $ associated with stock options for which the service-based vesting condition was satisfied or partially satisfied as of March 31, 2024, after giving effect to shares
withheld to satisfy the associated withholding tax obligations (based on the assumed initial public offering price of $ per share and an assumed % tax withholding rate).
(2)
The pro forma capitalization data gives effect to (i) the conversion of the Series A Preferred Stock outstanding as of March 31, 2024 on a one-for-one basis into shares of our common stock, (ii) the conversion of 109,142 shares of the NCNV1, NCNV 2, and NCNV 3 preferred stock outstanding as of March 31, 2024 into shares of our common stock, which is the number of shares of common stock as is determined by dividing (a) $1,000, which is the original issue price of the NCNV 1, NCNV 2, and NCNV 3 preferred stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (b) an assumed public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus and (iii) the conversion of $10.0 million, plus accrued interest, of convertible notes held by Fiza Investments Limited (“Fiza”) into an aggregate of shares of our common stock, consisting of $5.0 million of convertible notes plus accrued interest issued to Fiza on November 3, 2022 that will convert into shares of our common stock, which is the outstanding amount thereof divided by the assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and $5.0 million of convertible notes plus accrued interest issued to Fiza on March 9, 2024 that will convert into shares of our common stock, which is the outstanding amount thereof divided by 85% of the assumed initial public offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus).
(3)
The pro forma as adjusted capitalization data gives effect to the issuance and sale by us of shares of our common stock in this offering at the assumed initial public offering price of $ per share, after deducting the underwriting discounts and commission and estimated offering expenses payable by us and the application of the net proceeds from this offering to us as described under “Use of Proceeds,” in each case, as if such event had occurred on March 31, 2024.
The number of shares of our common stock that will be outstanding after this offering is based on shares of our common stock outstanding as of and (i) excludes shares of common stock issuable upon exercise of outstanding options to purchase shares of common stock granted under our 2017 equity plan at a weighted average exercise price of $ per share, (ii) excludes shares of common stock reserved for issuance following this offering under our 2017 equity plan, (iii) excludes shares of common stock reserved for issuance following this offering under our 2024 equity plan, (iv) excludes shares of our common stock issuable upon the exercise of the Representative’s Warrants with an exercise price of $ , (v) assumes the automatic conversion of all outstanding shares of our Series A Preferred Stock into an aggregate of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering, (vi) assumes the automatic conversion of all outstanding shares of our NCNV 1, NCNV 2 and NCNV 3 preferred stock into an aggregate of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering, (vii) assumes the conversion of $10.0 million in aggregate principal amount, plus interest, of convertible notes into shares of our common stock immediately prior to the consummation of this offering, (viii) gives effect to amendments to our amended and restated certificate of incorporation and amended and restated bylaws to be adopted immediately prior to the completion of this offering and (ix) assumes no exercise of the underwriters’ option to purchase additional shares of common stock in this offering.
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering.
An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the amount of cash and cash equivalents, stockholders’ equity and total capitalization by approximately $ million, assuming the assumed initial public offering price per share remains the same, and after deducting underwriting discounts and commissions. The pro forma information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
DILUTION
If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value (deficit) per share of our common stock after giving effect to this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the net tangible book value (deficit) per share attributable to our existing stockholders.
Historical net tangible book value (deficit) per share represents our total tangible assets less our liabilities and preferred stock divided by the total number of shares of common stock outstanding. Our net tangible book deficit as of March 31, 2024 was approximately $(135.4) million, or $(0.78) per share of our common stock outstanding as of March 31, 2024. Our pro forma net tangible book value (deficit) as of March 31, 2024, was approximately $ million, or $ per share, after giving effect to (a) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of shares of common stock immediately prior to the completion of this offering and (b) the conversion of $10.0 million in aggregate principal amount, plus interest, of convertible notes into shares of our common stock immediately prior to the consummation of this offering.
After giving effect to (i) the pro forma adjustments set forth above, (ii) the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and (iii) the use of proceeds therefrom, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2024 would have been $ million, or $ per share of our common stock. This amount represents an immediate decrease in net tangible book value (deficit) of $ per share of common stock to our existing stockholders and immediate dilution in net tangible book value (deficit) of $ per share of common stock to new investors purchasing shares in this offering.
We calculate dilution per share to new investors by subtracting the pro forma net tangible book value (deficit) per share from the initial public offering price paid by the new investor. The following table illustrates this dilution on a per share of common stock basis assuming the underwriters do not exercise their option to purchase additional shares of common stock in this offering:
| |
Assumed initial public offering price per share of common stock
|
|
|
|
$ |
|
|
|
| |
Pro forma net tangible book value (deficit) per share of common stock as of March 31,
2024
|
|
|
|
$ |
|
|
|
| |
Increase in pro forma net tangible book value (deficit) per share of common stock attributable
to investors in this offering
|
|
|
|
$ |
|
|
|
| |
Decrease in pro forma net tangible book value (deficit) attributable to excluding deferred offering costs for this offering
|
|
|
|
$ |
|
|
|
| |
Pro forma as adjusted net tangible book value (deficit) per share of common stock after giving effect to this offering
|
|
|
|
$ |
|
|
|
| |
Dilution per share of common stock to investors in this offering
|
|
|
|
$ |
|
|
|
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $ per share, and dilution in pro forma as adjusted net tangible book value (deficit) per share to new investors by approximately $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value( deficit) per share after this offering by approximately $ per share and the dilution to new investors participating in this offering by $ per share, assuming that the assumed initial public offering price of $ per share remains the
same after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, the Pro forma, As adjusted net tangible book value (deficit) per share after giving effect to this offering would be $ per share, representing an immediate increase to existing stockholder of $ per share, and immediate dilution to new investors in this offering of $ per share.
The foregoing discussion and tables (i) exclude shares of common stock issuable upon exercise of outstanding options to purchase shares of common stock granted under our 2017 equity plan at a weighted average exercise price of $ per share as of , (ii) exclude shares of common stock reserved for issuance following this offering under our 2017 equity plan (as of ), (iii) exclude shares of common stock reserved for issuance following this offering under our 2024 equity plan, (iv) exclude shares of our common stock issuable upon the exercise of the Representative’s Warrants with an exercise price of $ , (v) assume the automatic conversion of all outstanding shares of our Series A Preferred Stock into an aggregate of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering, (vi) assume the automatic conversion of all outstanding shares of our NCNV 1, NCNV 2 and NCNV 3 preferred stock into an aggregate of shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering, (vii) assume the conversion of $10.0 million in aggregate principal amount, plus interest, of convertible notes into shares of our common stock immediately prior to the consummation of this offering, (viii) give effect to amendments to our amended and restated certificate of incorporation and amended and restated bylaws to be adopted immediately prior to the completion of this offering and (ix) assume no exercise of the underwriters’ option to purchase additional shares of common stock in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, or any options or warrants are exercised, or new awards granted under our equity compensation plans, new investors will experience further dilution.
The following table summarizes, on the same as adjusted basis as of March 31, 2024, the total number of shares of common stock purchased from us, the total cash consideration paid to us, and the average price per share of common stock paid by our existing stockholders and by new investors purchasing shares of common stock in this offering.
| |
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average
Price Per
Share
|
|
| |
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
| |
|
|
(in thousands)
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
|
New investors in this offering
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
|
|
|
%
|
|
|
|
|
$ |
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” or in other sections of this prospectus. This discussion should be read in conjunction with “Prospectus Summary — Summary Financial Data” and our unaudited consolidated and audited consolidated financial statements and the notes thereto included elsewhere in this prospectus.
In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as “Prospectus Summary — Summary Financial Data.” Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.
Overview
We are a leading provider of augmented and virtual reality educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and the CTE markets.
From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it, and interact with it as if it were real. We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries.
Since 2014, we have been developing and delivering hardware and software technology focused on improving education in K-12 and CTE classrooms. We believe that our platform leads to (i) deeper understanding of content, (ii) increased motivation of students to learn (iii) additional engagement of students with content and (iv) improved preparedness for the workforce. We believe that we have significant growth potential and that we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors, including scaling in the United States, expanding internationally, investing in research and development (“R&D”), and acquiring software, both specific
software applications and third party software developers, in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenues.
We estimate using data from national government sources specifying the number of schools within their regions that our total addressable market (TAM) for the K-12 market is approximately $21.4 billion in the United States, $29.0 billion in Europe, Middle East and Africa region (EMEA) and $5.6 billion in the Asia Pacific region (APAC) and that our TAM for the CTE market is approximately $6.2 billion in the United States, $5.4 billion in EMEA and $0.8 billion in APAC, with an overall global TAM of greater than $68 billion. Our TAM for the K-12 market is an estimate of the revenue that we would receive over a five year period assuming that each public school in the applicable region purchases one “lab” (consisting of 25 laptops and one cart) at our current prices. Such estimates include recurring annual revenue per laptop based on the average software subscription revenue we receive per unit per year from K-12 customers and assumes an 80% renewal rate. Our TAM for the CTE market is an estimate of the revenue that we would receive over a five year period assuming that each school that offers vocational/CTE programs (including community colleges) in the applicable region purchases one “lab” (consisting of 27 laptops and one cart) at our current prices. Such estimates include recurring annual revenue based on the average software subscription revenue we receive per unit per year from CTE customers in such region and assumes an 80% renewal rate. We have estimated the number of schools in the K-12 market and the CTE market in the US/Canada region, EMEA region and APAC region based on data sourced from third parties, including the Institute of Education Science, the British Educational Suppliers Association, Statista, various governmental instrumentalities, articles and published papers.
As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $281.8 million and $269.6 million, respectively. Our net losses were $12.2 million, $13.0 million and $15.2 million for the three months ended March 31, 2024 and years ended December 31, 2023 and 2022, respectively. A portion of our net losses in the three months ended March 31, 2024 related to $7.3 million in stock compensation expense from options issued during the period and $1.7 million of our net losses in the year ended December 31, 2023 resulted from costs incurred in connection with our terminated EdtechX Merger Agreement.
As of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $1.2 million and $3.1 million, respectively. In three months ended March 31, 2024 and the year ended December 31, 2023, we raised $5.0 million and $11.4 million, respectively, for an aggregate of $16.4 million through debt and financing arrangements, including $9.3 million under loan and security agreements with Fiza Investments Limited (“Fiza”). In May 2024 and June 2024, we entered into multiple loan agreements from an existing lender to borrow a total of $3.5 million secured by certain of our assets. Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern. The recurring losses and negative cash flows from operations, working capital deficiency, the need for additional financing, uncertainties frequently encountered by companies in the technology industry and the dependency on closing this offering are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were issued. See Note 1 to our consolidated financial statements for the three months ended March 31, 2024 and year ended December 31, 2023 included elsewhere in this prospectus for additional information on our assessment.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the preparation of our financial statements for the year ended December 31, 2023, we concluded that there were five material weaknesses in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that were identified related to:
•
lack of segregation of duties;
•
certain information technology general controls, including controls review of user access roles and administrative access;
•
account reconciliations and cutoff;
•
analysis of significant and unusual transactions, and
•
lack of a formal risk assessment policy for entity level controls.
We are currently in the process of implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including:
•
hiring additional financial personnel with accounting and financial reporting expertise;
•
implementing user access policies, reviews and procedures;
•
improving our ongoing account reconciliations and variance analyses;
•
reviewing significant and unusual financing transactions; and
•
establishing a formal and documented risk assessment policy.
As of March 31, 2024, these material weaknesses have not been fully remediated. Although we are targeting completion of the remediation measures within twelve months of the closing of this offering, we cannot be certain that our efforts will successfully remediate our material weaknesses by this date, or at all, or prevent restatements of our financial statements in the future. Due to the nature of the remediation process and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing and cost of full remediation. The material weaknesses will be fully remediated when, in the opinion of our management, the revised control processes have been operating for a sufficient period of time.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. To date, we have enhanced our business documentation process and are providing training to help with management’s self-assessment and testing of internal controls. We are implementing new workflow functionality and accounting systems that will help with ongoing account reconciliation, variance analysis and efficient review of significant financing transactions. With the hire of additional financial personnel, allocating other employees’ and consultants’ time to the implementation of user access controls and increased accounting oversight and implementation of new accounting system applications, we have incurred approximately $0.2 million and we expect to incur approximately $0.4 million in additional costs over the next twelve months to remediate these control deficiencies, though we cannot be certain that our efforts will be successful at remediating the material weaknesses or at avoiding potential future material weaknesses. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products to new and existing customers.
Our Business Model
We generate revenue by selling software to customers, selling our products, including our flagship product, the Inspire laptop, and by providing services to customers from our professional development team. We are focused on driving substantial annual growth in software applications revenue and product revenue while maintaining modest growth in services revenue.
We serve K-12 schools, as well as community colleges, technical colleges and trade colleges, and we see opportunities for growth across all of our current customer segments. We are particularly focused on increasing sales efficiency, driving customer growth, particularly in the CTE market, and renewable revenue growth, particularly through our software offerings.
Product Revenue
Our platform is designed to work with a wide range of learning applications, for both K-12 education and CTE, that come to life by having 3D models projected out of the screen. Our flagship product is Inspire, our latest laptop product built in partnership with a major PC OEM. It is our first product offering 3D stereo visualization without the need to utilize glasses/eyewear. Our initial original edition product offerings (OE) used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US. Product revenue accounted for between 63% and 66% of our total revenue for the periods presented.
Software Applications Revenue
Our platform allows for immersive experiential learning experiences across science, math technology, engineering and career training applications. We derive software applications revenue from the sale of licenses and subscription plans to the software applications available on our platform.
Our software applications are priced based on the number of devices or users and length of the contract. We offer discount programs based on increases in volume of devices or users and the length of the contract. We believe the wide variety and flexibility of our software applications help us retain existing customers and acquire additional customers. Software applications revenue accounted for between 25% and 30% of our total revenue for each of the periods presented. We expect that going forward our software applications revenue will grow faster in absolute dollars and as a percentage of our total revenue than our product or service revenues.
We typically invoice our customers annually in advance of providing software and services. Software sales consist of licenses of our functional intellectual property that are materially satisfied at a point in time when key codes are provided to allow customers to access the software. In transactions where a third-party is involved in providing software licenses to a customer, we recognize the revenue from the third-party ratably on a straight-line basis.
Services Revenue
Our services are a “turn-key” solution that aids customers with configuring purchased products with software and license keys specific to the customer’s use. This service allows the applicable school to quickly get started with an out-of-the-box ready system. We derive services revenue from installation and/or training services for products, both of which are separate performance obligations and typically are satisfied within a short period of time, often less than one month delivered remotely or on-site at the customer’s location. Additionally, we offer one- and two-year extended warranty contracts that customers can purchase at their option, which are also separate performance obligations. Services revenue accounted for between 6% and 9% of our total revenue for the periods presented.
Key Metrics
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. The calculation of the key metrics discussed below may differ significantly from other similarly titled metrics used by other companies, analysts, investors and other industry participants.
Bookings Growth
We track the bookings growth in our business very closely and we believe this is a key indicator of our business. Bookings represent customer orders that have hardware, software and service components. Bookings indicate future revenue, which lags based on product shipping date, monthly recognition of certain
subscription revenue and service delivery completion. Our bookings growth is represented below for each of the periods presented:
| |
|
|
Three months ended
March 31,
|
|
|
Year Ended
December 31,
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
|
Bookings
|
|
|
|
$ |
8,903 |
|
|
|
|
$ |
10,922 |
|
|
|
|
$ |
42,721 |
|
|
|
|
$ |
36,956 |
|
|
United States CTE & K-12 Bookings
We believe our ability to retain and grow our product and software revenue will be dependent on our ability to grow in both our United States CTE and K-12 market segments. We track our performance in this area by measuring our bookings from customers in each of these markets. We calculate this metric on a quarterly basis by comparing the aggregate number of bookings in each market for the most recent quarter divided by the number of bookings attributable to the same market for the same quarter in the previous fiscal year. CTE bookings accounted for approximately 40% and 43% for the three months ended March 31, 2024 and 2023, respectively; 44% and 29% of our total United States bookings for the years ended December 31, 2023 and 2022, respectively, while K-12 bookings accounted for approximately 60% and 57% for the three months ended March 31, 2024 and 2023, respectively; and 56% and 71% of our total United States bookings for the years ended December 31, 2023 and 2022, respectively.
International Bookings
We track our performance in international sales by measuring bookings from our international reseller partners relative to total bookings. We calculate this metric on a quarterly basis by comparing the aggregate amount of bookings attributable to international partners for the most recent quarter compared to the number of bookings attributable to international partners for the same quarter in the previous fiscal year and the prior quarter. International bookings accounted for approximately 30% and 9% for the three months ended March 31, 2024 and 2023, respectively; and 15% and 10% of our total bookings for the years ended December 31, 2023 and 2022, respectively.
Software Subscription Renewable Revenue Growth
We believe that our ability to renew and increase the software revenues on our platform from existing customers is an indicator of market penetration, adoption, the growth of our business and future revenue trends. Software sales of our solutions are purchased on an annual or multi-year basis, as well as one-time licenses to allow (i) an unlimited number of users on a particular device or (ii) a particular number of users to access our applications. We include subscriptions for both device and user-based applications and services in our measure of renewing revenue. Our customers typically enter into annual licenses or subscriptions with us, although some enter into multi-year agreements. Customers have no contractual obligation to renew their licenses or subscriptions with us after the completion of their initial term.
We believe the level of renewing revenue is an important indicator of future business success, as it is an indicator of sales growth of customer expansion accounts, utilization of our platform and future margin improvement. Our renewing revenue includes:
(i)
renewal of prior customer agreements in whole or in part, plus
(ii)
additional software titles added to existing customer agreements, and
(iii)
software revenues related to sales of new systems as part of an expansion of the customer footprint.
The above aspects of software revenue are captured in the annualized contract value (ACV) and net dollar revenue retention rate (NDRR) metrics described below under “Retention and Expansion of Customers.” We believe that these annualized measures provide important context to understanding the strength and growth of our software license revenue. We expect to accelerate the transition of our revenue mix to software from hardware through continued improvement in renewing revenue from the retention and expansion of our customers.
Retention and Expansion of Customers
Our ability to increase revenue depends in part on retaining our existing customers and expanding their use of our platform. We offer an integrated, comprehensive set of solutions that cover K-12/STEM and CTE. We have a variety of software bundles targeted at different areas of learning and grade levels. Retaining and expanding our existing customer base is critical to our success.
To monitor our ability to retain and grow our customer base for our software we monitor the annualized contract value of active software licenses, with particular attention to customers with at least $50,000 in annualized contract value (“ACV”). Our ACV for the quarters ended March 31, 2024 and March 31, 2023 was approximately $10.6 million and $9.3 million, respectively, and our ACV for the year ended December 31, 2023 and December 31, 2022 was approximately $10.6 million and $9.0 million, respectively. We calculate our Dollar-Based Retention Rate as of a given period end by starting with the ACV from all customers as of 12 months prior to such period end (“Prior Period ACV”) and calculating the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or attrition over the trailing 12 months but excludes revenue from new customers in the current period. We then divide the total Current Period ACV by the total Prior Period ACV to arrive at our Dollar-Based Retention Rate. For the years ended December 31, 2023 and December 31, 2022, our Net Dollar Retention Rate (“NDRR”) on customers with at least $50,000 of ACV was 112% and 101%, respectively. For the trailing twelve-month period ended March 31, 2024 and March 31, 2023, our NDRR on customers with at least $50,000 of ACV was 112% and 95%, respectively.
Average Term Length
We measure the ACV dollar-weighted term length of our renewable software license agreements. We believe, an increase in term length is a signal that customers are adopting our products for long-term use, which decreases the risk that a customer will choose not to renew their software licenses. CTE agreements are typically longer-term than K-12 agreements, and as a result, the dollar-weighted term length measure can reflect a mix shift of license agreements between these product lines.
Non-GAAP Financial Measures
We use non-GAAP financial measures in addition to our results of operations reported in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income (loss). We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries.
Adjusted EBITDA
We calculate Adjusted EBITDA as GAAP net loss adjusted for interest expense, depreciation and amortization expense, write-off of deferred offering costs, stock-based compensation, forgiveness of paycheck protection program loan, loss on debt extinguishment and income tax expense. We believe this measure provides our management and investors with consistency and comparability with our past financial performance and is an important indicator of the performance and profitability of our business.
The following table presents our Adjusted EBITDA from operations for each of the periods presented:
| |
|
|
Three Months Ended
March 31,
|
|
|
Year Ended December 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
|
GAAP Net Loss
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
Add back (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
729 |
|
|
|
|
|
599 |
|
|
|
|
|
2,900 |
|
|
|
|
|
3,696 |
|
|
|
Depreciation and amortization
|
|
|
|
|
4 |
|
|
|
|
|
11 |
|
|
|
|
|
32 |
|
|
|
|
|
49 |
|
|
|
Income tax expense (benefit)
|
|
|
|
|
(5) |
|
|
|
|
|
— |
|
|
|
|
|
3 |
|
|
|
|
|
44 |
|
|
|
Write-off of deferred offering costs
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
Stock-based compensation
|
|
|
|
|
7,253 |
|
|
|
|
|
— |
|
|
|
|
|
1 |
|
|
|
|
|
20 |
|
|
|
Forgiveness of paycheck protection program loan
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(2,012) |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
52 |
|
|
|
|
|
— |
|
|
|
|
|
1,541 |
|
|
|
|
|
3,346 |
|
|
|
Adjusted EBITDA
|
|
|
|
$ |
(4,214) |
|
|
|
|
$ |
(2,807) |
|
|
|
|
$ |
(6,876) |
|
|
|
|
$ |
(10,030) |
|
|
Factors Affecting Our Performance
We believe that our growth and financial performance are dependent upon many factors, including the key factors described below which are in turn subject to significant risks and challenges, including those discussed below and in the section of this prospectus entitled “Risk Factors.”
Supply Chain Challenges
The COVID-19 pandemic, and its persisting effects, significantly altered the supply chain delivery capability that existed prior to the onset of the pandemic and on which suppliers of physical products previously relied. During the COVID-19 pandemic, our manufacturing partners experienced challenges delivering against our product demand, given component shortages, labor shortages and ongoing intermittent lockdowns in China, the primary country where our products or components are manufactured. During 2023, global supply chain challenges have become less severe, but any future disruption of global supply chains may have a material impact on our business and operations.
Retention of Key Employees
In 2020, in response to concerns relating to the COVID-19 pandemic, we made significant changes to our business, including changes to our structure and employee base. We moved to a remote working environment at the onset of the pandemic and have transitioned to a hybrid working environment. In many respects, we believe these changes have better positioned our workforce and our company for profitability. However, we believe we have many employees that are key to our operations, and in the event some of these key employees were to leave our company, it would have a detrimental effect on our business and operations.
Strategic PC OEM Partnerships
Prior to our most recent laptop product, Inspire, we worked exclusively with tier-one Original Development Manufacturers (“ODMs”) to manufacture our products. In 2021, we made the strategic decision to partner with a major PC OEM, working together to build Inspire, a proprietary laptop product, which allowed us to leverage the OEM’s supply chain network and volumes. As of March 31, 2024, approximately 14,000 Inspires have been shipped under our agreement with this PC OEM. Our master agreement with our PC OEM partner is subject to an initial one-year term, with automatic renewal for subsequent one-year terms. Either party is permitted to terminate the agreement upon written notice delivered to the other party not later than three months prior to the expiration of the applicable term. During 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. If either PC OEM decided to discontinue their relationship with us, our business could be materially and adversely impacted. We also rely upon one third-party partner located in China to manufacture our stylus. If our manufacturing partners that
we rely upon decide to discontinue their relationship with us and we are unable to replace such parties on similar terms or at all, our business could be materially and adversely impacted.
Scaling in the United States
Our fundamental go-to-market model is built upon a solution-oriented selling approach. We believe it is critical that we continue to grow and scale our business in the United States in order to be successful. School districts can at times be prone to long sales cycles as a result of the bureaucratic purchasing process. In addition, education funding is subject to change based on political, policy or economic variables at the federal, state or local level, which can impact a school district’s funding, both positively and negatively, and impact our business in the United States.
Software Acquisitions for Growth
An important component to our future growth plan going forward is the acquisition of key software companies and/or intellectual property in specific areas within the education market. We believe that the completion and successful integration of such companies and assets will be important to our success.
Components of Results of Operations
Revenue
Our revenue consists of hardware revenue, software applications revenue and services revenue. We recognize revenue at the amount to which we expect to be entitled when control of the products, software or services is transferred to its customers as described below. We have elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Hardware Revenue — Hardware revenue is generated from the sale of our learning stations bundled with pre-loaded perpetual license software, accessories necessary for full use of our products, including stylus, eyewear (if needed) and power adapters, and a standard assurance type warranty. Hardware accessories are also sold on a stand-alone basis. Customers place orders for the hardware and we fulfill the order and ship the hardware directly to the customer or authorized resellers. Generally, we receive payment from customers or authorized resellers at the time of hardware delivery; however, in certain circumstances our United States customers may remit payment at a later date pursuant to the terms of their agreement with us. We recognize hardware revenue associated with a sale in full at the time of shipment. Customers purchasing hardware from us also typically purchase our enabled software applications for use on their devices.
Software Applications Revenue — Software applications revenue is generated from the sale of internally developed and third-party applications enabled for use on our products licensed over specified contractual terms. Most software applications reside on our products and require license keys to activate, although certain applications are web-based and require user log-ins. Customers who license our software use it on our products under different subscription terms based on the number of devices or users and length of the contract. We do not require customers to license software applications when purchasing our products.
We typically invoice our customers annually in advance based on their subscription. Software sales that consist of licenses of functional intellectual property are satisfied at a point in time when key codes are provided to allow customers to access the software, which is the contract start date and we recognize revenue ratably over the length of the contract. In transactions where we provide user-based software licenses to a customer, we recognize software revenue ratably on a straight-line basis. For the sale of third-party applications where we obtain control of the application before transferring it to the customer, we recognize revenue based on the gross amount billed to customers.
Services Revenue — We derive services revenue from implementation, professional development and technical services delivered remotely or on-site at the customer’s location and extended service type warranties. Services are either delivered by our personnel or our qualified third-party representatives. Under the third-party arrangements, we will pay the third-party for their delivery services and bill the customer directly. We will also repair our products for a fee if the nature of the repair is outside the scope of the applicable warranty, but this is not a significant source of revenue. Each service type does not significantly impact the
functionality of the others, or the hardware/software being provided. Services are typically invoiced in advance and revenue is recognized based on the passage of time during the contract period. We believe that the passage of time corresponds directly to the satisfaction of the performance obligations.
Cost of Goods Sold
Cost of goods sold consists of cost of hardware sold, cost of software sold and cost of services sold. Overall cost of revenue is largely dependent on a combination of revenue types, hardware component supply and pricing and cost of third-party software applications.
Cost of Hardware Sold — Cost of hardware sold consists primarily of costs associated with the manufacture of our products and personnel-related expenses associated with manufacturing employees, including salaries, benefits, bonuses, overhead and stock-based compensation.
All of our products are manufactured by manufacturers located primarily in China. We have entered into agreements for the supply of many components; however, there can be no guarantee that we will be able to extend or renew these agreements on similar terms, or at all. Although most components in the products essential to our business are generally available from multiple sources, certain custom and new technology components are currently obtained from single or limited sources. We compete for various components with other participants in the markets for personal computers, tablets and accessories. Therefore, many components, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
Cost of hardware sold also includes costs of acquiring third-party devices and components, and costs associated with shipping devices to customers. We have outsourced much of our transportation and logistics management for the distribution of products. While these arrangements can lower operating costs, they also reduce our direct control over distribution. During the COVID-19 pandemic, certain of our logistical service providers experienced disruptions. Refer to “Supply Chain Challenges” for more information.
Cost of goods sold related to delivered hardware and bundled software, including estimated standard warranty costs, are recognized at the time of sale.
Cost of Software Sold — Cost of software sold consists primarily of fees paid to third parties for software licenses, costs associated with the technical support of software applications and the cost of our customer success operations. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
Cost of Services Sold — Cost of services sold consists primarily of personnel costs associated with the development and delivery of the services. Some of these costs are internal resources while others are associated with third parties engaged to develop or deliver the services. Other costs include travel and technology used in the development or delivery of the services. Cost of services revenue, including those for extended service type warranty and repair expenses relating to our products, are recognized as cost of sales as incurred or upon completion of the service obligation.
Operating Expenses
Our operating expenses consist primarily of selling, general and administrative expenses and product engineering and R&D expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and sales commissions. Operating expenses also include overhead costs, including rent, utilities, insurance, legal and office supplies.
Selling and marketing — Selling and marketing expenses consist of labor and other costs directly related to the promotion of our products, including compensation for our marketing team and travel expense incurred in connection with promotional efforts.
General and administrative expenses — General, and administrative expenses consist primarily of personnel-related expenses associated with our finance, legal, information technology, human resources, facilities and administrative employees, including salaries, benefits, bonuses, sales commissions and stock-based compensation. Commissions paid on the sale of hardware and short-term software licenses are
recognized upon delivery. Commissions paid on the sale in which at least a portion of the goods and services will be satisfied over a period of time (services primarily consisting of extended warranties) are not material and are expensed when incurred. General and administrative expenses also include external legal, accounting and other professional services fees, operational software and subscription services and other corporate expenses.
Other operating expenses — Other operating expenses consist of offering costs incurred as part of the terminated EdtechX Merger Agreement that were initially deferred but then expensed upon termination of the EdtechX Merger Agreement. Following the closing of this offering, we expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to remediating our material weaknesses and compliance and reporting obligations, and increased expenses for insurance, investor relations and professional services. In addition, we expect that our selling, general and administrative expenses will increase in absolute dollars as our business grows.
Research and development expenses — Research and development expenses consist primarily of product engineering and personnel-related expenses associated with our hardware and software engineering employees, including salaries, benefits, bonuses and stock-based compensation. R&D expenses also include third-party contractor or professional services fees, and software and subscription services dedicated for use by our engineering organization. We expect that our R&D expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform and products. In addition, R&D expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period-to-period.
Interest Expense
Interest expense consists primarily of changes in accrued interest expense, interest payments and amortization of debt issuance costs for our debt facilities. See “Liquidity and Capital Resources — Debt and Financing Arrangements.”
Income Tax Benefit (Expense)
Income tax benefit (expense) consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We record income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.
We record a valuation allowance to reduce our deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.
Results of Operations
The following table sets forth our results of operations for the three months ended March 31, 2024 and 2023 and the years ended December 31, 2023 and 2022:
| |
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
|
2023
|
|
|
2022
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
|
|
5,195 |
|
|
|
|
$ |
4,756 |
|
|
|
|
$ |
439 |
|
|
|
|
|
9% |
|
|
|
|
$ |
27,461 |
|
|
|
|
$ |
23,038 |
|
|
|
|
$ |
4,423 |
|
|
|
|
|
19% |
|
|
|
Software
|
|
|
|
|
1,961 |
|
|
|
|
|
2,235 |
|
|
|
|
|
(274) |
|
|
|
|
|
(12)% |
|
|
|
|
|
13,229 |
|
|
|
|
|
10,697 |
|
|
|
|
|
2,532 |
|
|
|
|
|
24% |
|
|
|
Services
|
|
|
|
|
685 |
|
|
|
|
|
558 |
|
|
|
|
|
127 |
|
|
|
|
|
23% |
|
|
|
|
|
3,232 |
|
|
|
|
|
2,049 |
|
|
|
|
|
1,183 |
|
|
|
|
|
58% |
|
|
|
Total Revenues
|
|
|
|
|
7,841 |
|
|
|
|
|
7,549 |
|
|
|
|
|
292 |
|
|
|
|
|
4% |
|
|
|
|
|
43,922 |
|
|
|
|
|
35,784 |
|
|
|
|
|
8,138 |
|
|
|
|
|
23% |
|
|
|
Cost of goods sold(1)
|
|
|
|
|
5,139 |
|
|
|
|
|
4,266 |
|
|
|
|
|
873 |
|
|
|
|
|
20% |
|
|
|
|
|
27,028 |
|
|
|
|
|
22,656 |
|
|
|
|
|
4,372 |
|
|
|
|
|
19% |
|
|
|
Gross profit
|
|
|
|
|
2,702 |
|
|
|
|
|
3,283 |
|
|
|
|
|
(581) |
|
|
|
|
|
(18)% |
|
|
|
|
|
16,894 |
|
|
|
|
|
13,128 |
|
|
|
|
|
3,766 |
|
|
|
|
|
29% |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
|
|
1,977 |
|
|
|
|
|
1,113 |
|
|
|
|
|
864 |
|
|
|
|
|
78% |
|
|
|
|
|
4,218 |
|
|
|
|
|
4,666 |
|
|
|
|
|
(448) |
|
|
|
|
|
(10)% |
|
|
|
Selling and marketing(1)
|
|
|
|
|
5,505 |
|
|
|
|
|
3,278 |
|
|
|
|
|
2,227 |
|
|
|
|
|
68% |
|
|
|
|
|
12,898 |
|
|
|
|
|
11,585 |
|
|
|
|
|
1,313 |
|
|
|
|
|
11% |
|
|
|
General and administrative(1)
|
|
|
|
|
6,609 |
|
|
|
|
|
1,715 |
|
|
|
|
|
4,894 |
|
|
|
|
|
285% |
|
|
|
|
|
6,710 |
|
|
|
|
|
6,780 |
|
|
|
|
|
(70) |
|
|
|
|
|
(1)% |
|
|
|
Other operating expenses
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
100% |
|
|
|
Total operating expenses
|
|
|
|
|
14,091 |
|
|
|
|
|
6,106 |
|
|
|
|
|
7,985 |
|
|
|
|
|
131% |
|
|
|
|
|
25,509 |
|
|
|
|
|
23,031 |
|
|
|
|
|
2,478 |
|
|
|
|
|
11% |
|
|
|
Loss from operations
|
|
|
|
|
(11,389) |
|
|
|
|
|
(2,823) |
|
|
|
|
|
(8,566) |
|
|
|
|
|
303% |
|
|
|
|
|
(8,615) |
|
|
|
|
|
(9,903) |
|
|
|
|
|
1,288 |
|
|
|
|
|
(13)% |
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(729) |
|
|
|
|
|
(599) |
|
|
|
|
|
(130) |
|
|
|
|
|
22% |
|
|
|
|
|
(2,900) |
|
|
|
|
|
(3,696) |
|
|
|
|
|
796 |
|
|
|
|
|
(22)% |
|
|
|
Other income (expense), net
|
|
|
|
|
(82) |
|
|
|
|
|
5 |
|
|
|
|
|
(87) |
|
|
|
|
|
(1,740)% |
|
|
|
|
|
23 |
|
|
|
|
|
(196) |
|
|
|
|
|
219 |
|
|
|
|
|
112% |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
(52) |
|
|
|
|
|
— |
|
|
|
|
|
(52) |
|
|
|
|
|
(100)% |
|
|
|
|
|
(1,541) |
|
|
|
|
|
(3,346) |
|
|
|
|
|
1,805 |
|
|
|
|
|
(54)% |
|
|
|
Forgiveness of paycheck protection program loan
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
2,012 |
|
|
|
|
|
(2,012) |
|
|
|
|
|
(100)% |
|
|
|
Loss before income taxes
|
|
|
|
|
(12,252) |
|
|
|
|
|
(3,417) |
|
|
|
|
|
(8,835) |
|
|
|
|
|
259% |
|
|
|
|
|
(13,033) |
|
|
|
|
|
(15,129) |
|
|
|
|
|
2,096 |
|
|
|
|
|
(14)% |
|
|
|
Income tax (expense) benefit
|
|
|
|
|
5 |
|
|
|
|
|
— |
|
|
|
|
|
5 |
|
|
|
|
|
100% |
|
|
|
|
|
(3) |
|
|
|
|
|
(44) |
|
|
|
|
|
41 |
|
|
|
|
|
(93)% |
|
|
|
Net loss
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
|
$ |
(8,830) |
|
|
|
|
|
258% |
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
|
$ |
2,137 |
|
|
|
|
|
14% |
|
|
(1)
Includes stock-based compensation expense as follows:
| |
|
|
Three Months Ended
March 31,
|
|
|
Year Ended
December 31,
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
| |
|
|
(unaudited)
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
$ |
116 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
1 |
|
|
|
Research and development
|
|
|
|
|
693 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
5 |
|
|
|
Sales and marketing
|
|
|
|
|
2,561 |
|
|
|
|
|
— |
|
|
|
|
|
1 |
|
|
|
|
|
16 |
|
|
|
General and administrative
|
|
|
|
|
3,883 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(1) |
|
|
|
Total stock-based compensation expense
|
|
|
|
$ |
7,253 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
1 |
|
|
|
|
$ |
20 |
|
|
Revenue
| |
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
|
$ |
5,195 |
|
|
|
|
$ |
4,756 |
|
|
|
|
$ |
439 |
|
|
|
|
|
9% |
|
|
|
Software
|
|
|
|
|
1,961 |
|
|
|
|
|
2,235 |
|
|
|
|
|
(274) |
|
|
|
|
|
(12)% |
|
|
|
Services
|
|
|
|
|
685 |
|
|
|
|
|
558 |
|
|
|
|
|
127 |
|
|
|
|
|
23% |
|
|
|
Total Revenues
|
|
|
|
$ |
7,841 |
|
|
|
|
$ |
7,549 |
|
|
|
|
$ |
292 |
|
|
|
|
|
4% |
|
|
|
Retention and Expansion Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Contract Value (ACV)
|
|
|
|
$ |
10,570 |
|
|
|
|
$ |
9,342 |
|
|
|
|
$ |
1,228 |
|
|
|
|
|
13% |
|
|
|
Net Dollar Retention Rate (NDRR)
|
|
|
|
|
112% |
|
|
|
|
|
95% |
|
|
|
|
|
17% |
|
|
|
|
|
|
|
|
As our education customers come back from the extended U.S. holiday break, the first three months of the year is typically the lowest revenue quarter. Total revenue increased by $0.3 million, or 4%, for the three months ended March 31, 2024 to $7.8 million as compared to the three months ended March 31, 2023.
Our key software retention metrics are as follows: (1) ACV for the quarter ended March 31, 2024 improved to $10.6 million as compared to the quarter ended March 31, 2023 of $9.3 million and (2) NDRR for the trailing twelve-month period ended March 31, 2024 was 112% and for March 31, 2023 was 95%.
| |
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2023
|
|
|
2022
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
|
$ |
27,461 |
|
|
|
|
$ |
23,038 |
|
|
|
|
$ |
4,423 |
|
|
|
|
|
19% |
|
|
|
Software
|
|
|
|
|
13,229 |
|
|
|
|
|
10,697 |
|
|
|
|
|
2,532 |
|
|
|
|
|
24% |
|
|
|
Services
|
|
|
|
|
3,232 |
|
|
|
|
|
2,049 |
|
|
|
|
|
1,183 |
|
|
|
|
|
58% |
|
|
|
Total Revenues
|
|
|
|
$ |
43,922 |
|
|
|
|
$ |
35,784 |
|
|
|
|
$ |
8,138 |
|
|
|
|
|
23% |
|
|
|
Retention and Expansion Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Contract Value (ACV)
|
|
|
|
$ |
10,621 |
|
|
|
|
$ |
8,982 |
|
|
|
|
$ |
1,639 |
|
|
|
|
|
18% |
|
|
|
Net Dollar Retention Rate (NDRR)
|
|
|
|
|
112% |
|
|
|
|
|
101% |
|
|
|
|
|
11% |
|
|
|
|
|
|
|
|
Total revenue increased by $8.1 million, or 23%, to $43.9 million for the year ended December 31, 2023, from $35.8 million for the year ended December 31, 2022. This increase in revenue is primarily attributable to an increase in revenue in each of the revenue categories of hardware, software and services through the acquisition of new public school district customers and an increase in year over year software renewals.
Hardware revenue increased by $4.4 million or 19%, to $27.3 million for the year ended December 31, 2023, from $23.0 million for the year ended December 31, 2022. The increase in revenue is attributable to increased sales of Inspire.
Software revenue increased by $2.5 million or 24%, to $13.2 million for the year ended December 31, 2023, from $10.7 million for the year ended December 31, 2022. The increase in revenue is attributable to third-party annual software sales. Our key retention metrics are as follows: (1) ACV for the year ended December 31, 2023 improved to $10.6 million as compared to the year ended December 31, 2022 of $9.0 million and (2) NDRR for the trailing twelve-month period ended December 31, 2023 was 112% and for December 31, 2022 was 101%.
Service revenue increased by $1.2 million or 58%, to $3.2 million for the year ended December 31, 2023, from $2.0 million for the year ended December 31, 2022. The increase in revenue is attributable to increased sales of extended warranty and technology support services.
Cost of Goods Sold
| |
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
| |
|
|
(unaudited)
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
5,139 |
|
|
|
|
|
4,266 |
|
|
|
|
|
873 |
|
|
|
|
|
20% |
|
|
For the three months ended March 31, 2024, total cost of goods sold increased by $0.9 million, or 20%, to $5.1 million compared to $4.3 million for the three months ended March 31, 2023. This increase was primarily attributable to increased costs for higher laptops and services delivered and the decrease in software revenue due to lower renewal volumes typically seen in the first quarter of the year. In addition, $0.1 million, or 12%, of the increase was due to stock-based compensation expense incurred during the period, which was not present in same period ending March 31, 2023.
| |
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2023
|
|
|
2022
|
|
|
$
|
|
|
%
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
|
$ |
19,740 |
|
|
|
|
$ |
16,850 |
|
|
|
|
$ |
2,890 |
|
|
|
|
|
17% |
|
|
|
Software
|
|
|
|
|
5,545 |
|
|
|
|
|
3,864 |
|
|
|
|
|
1,681 |
|
|
|
|
|
44% |
|
|
|
Services
|
|
|
|
|
779 |
|
|
|
|
|
616 |
|
|
|
|
|
163 |
|
|
|
|
|
26% |
|
|
|
Excess and obsolete
|
|
|
|
|
948 |
|
|
|
|
|
1,320 |
|
|
|
|
|
(372) |
|
|
|
|
|
(28)% |
|
|
|
Other
|
|
|
|
|
15 |
|
|
|
|
|
6 |
|
|
|
|
|
9 |
|
|
|
|
|
150% |
|
|
|
Total cost of goods sold
|
|
|
|
$ |
27,028 |
|
|
|
|
$ |
22,656 |
|
|
|
|
$ |
4,371 |
|
|
|
|
|
19% |
|
|
For the year ended December 31, 2023, total cost of goods sold increased by $4.4 million, or 19%, to $27.0 million as compared to $22.7 million for the year ended December 31, 2022. The increase in cost of goods sold is primarily attributable to an increase in the cost of hardware directly related to an increase in sales of Inspire laptops.
Cost of hardware sold increased by $2.9 million, or 17%, to $19.7 million for the year ended December 31, 2023, from $16.8 million for the year ended December 31, 2022. The increase in cost of hardware sold is attributable to the 19% increase in hardware revenue driven primarily by increased sales of Inspire.
Cost of software sold increased by $1.7 million or 44%, to $5.5 million for the year ended December 31, 2023, from $3.9 million for the year ended December 31, 2022. The increase in cost of software sold corresponds to increased sales of point-in-time software recognized upon the sale of higher Inspire units and overall software application sales.
Cost of services sold increased by $0.2 million or 26%, to $0.8 million for the year ended December 31, 2023, from $0.6 million for the year ended December 31, 2022. The increase in cost of services sold is attributable to purchases of extended warranty contracts and delivery costs for increased sales of Inspire laptops and technology support services, respectively.
Excess and obsolete write-downs decreased by $0.4 million or 28% to $0.9 million for the year ended December 31, 2023, from $1.3 million for the year ended December, 2022. The decrease in write-downs is attributable to less product and component inventory supply disruptions correlated to the reduced impact of the COVID-19 pandemic.
Operating Expenses
| |
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
| |
|
|
(unaudited)
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
$ |
1,977 |
|
|
|
|
$ |
1,113 |
|
|
|
|
$ |
864 |
|
|
|
|
|
78% |
|
|
|
Selling and marketing
|
|
|
|
|
5,505 |
|
|
|
|
|
3,278 |
|
|
|
|
|
2,227 |
|
|
|
|
|
68% |
|
|
|
General and administrative
|
|
|
|
|
6,609 |
|
|
|
|
|
1,715 |
|
|
|
|
|
4,894 |
|
|
|
|
|
285% |
|
|
|
Total operating expenses
|
|
|
|
$ |
14,091 |
|
|
|
|
$ |
6,106 |
|
|
|
|
$ |
7,985 |
|
|
|
|
|
131% |
|
|
For the three months ended March 31, 2024, operating expenses increased by $8.0 million, or 131%, to $14.1 million from $6.1 million for the three months ended March 31, 2023. In March 2024, we granted employees and other service providers stock options to purchase a total of approximately 5.0 million shares of common stock. The issuance of these stock options incurred $7.3 million of stock-based compensation expense, or 90% of the total increase, which was not present in the same period ending March 31, 2023. The remaining increase of $0.7 million was primarily the result of increases in expenses for (1) research and development related to next generation technology development, (2) sales travel and go-to-market activities and (3) general and administrative accounting and legal fees associated with public company readiness.
| |
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
4,218 |
|
|
|
|
|
4,666 |
|
|
|
|
|
(448) |
|
|
|
|
|
(10)% |
|
|
|
Selling and marketing
|
|
|
|
|
12,898 |
|
|
|
|
|
11,585 |
|
|
|
|
|
1,313 |
|
|
|
|
|
11% |
|
|
|
General and administrative
|
|
|
|
|
6,710 |
|
|
|
|
|
6,780 |
|
|
|
|
|
(70) |
|
|
|
|
|
(1)% |
|
|
|
Other operating expenses
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
|
|
1,683 |
|
|
|
|
|
100% |
|
|
|
Total operating expenses
|
|
|
|
|
25,509 |
|
|
|
|
|
23,031 |
|
|
|
|
|
2,478 |
|
|
|
|
|
11% |
|
|
For the year ended December 31, 2023, total operating expenses increased by $2.5 million, or 11%, to $25.5 million, from $23.0 million for the year ended December 31, 2022. The increase in expenses is attributable to the expensing of deferred offering costs and additional selling and marketing activities.
Research and development expenses decreased by $0.4 million or 10%, to $4.2 million for the year ended December 31, 2023, from $4.7 million for the year ended December 31, 2022. The decrease in expenses is attributable to decreased focus on hardware development in favor of existing hardware and software offerings.
Selling and marketing expenses increased by $1.3 million or 11%, to $12.9 million for the year ended December 31, 2023, from $11.6 million for the year ended December 31, 2022. The increase in expenses is attributable to increased marketing expenditures to pursue additional customers and education markets.
General and administrative expenses decreased by $0.1 million or 1%, to $6.7 million for the year ended December 31, 2023, from $6.8 million for the year ended December 31, 2022. The decrease in expenses is attributable to a reduction in outside services.
Other operating expenses increased by $1.7 million or 100%, to $1.7 million for the year ended December 31, 2023, from zero for the year ended December 31, 2022. The increase in expenses is due to expensed deferred offering costs related to the terminated EdtechX Merger Agreement, which were previously capitalized.
Interest Expense
| |
|
|
Three Months Ended
March 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
$
|
|
|
%
|
|
|
2023
|
|
|
2022
|
|
|
$
|
|
|
%
|
|
| |
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(729) |
|
|
|
|
|
(599) |
|
|
|
|
|
(130) |
|
|
|
|
|
22% |
|
|
|
|
|
(2,900) |
|
|
|
|
|
(3,696) |
|
|
|
|
|
796 |
|
|
|
|
|
(22)% |
|
|
For the three months ended March 31, 2024, interest expense increased by $0.1 million, or 22 %, to $0.7 million, from $0.6 million for the three months ended March 31, 2023. The increase in interest expense is attributable to entering into an additional $9.3 million of Fiza loans after March 31, 2023.
For the year ended December 31, 2023, interest expense decreased by $0.8 million, or 22 %, to $2.9 million, from $3.7 million for the year ended December 31, 2022. The decrease in expense is attributable to the May 2022 restructurings of our related party debt, which were accounted for as troubled debt restructurings. The restructurings also resulted in the forgiveness of $67.1 million of accrued interest and repayment premiums, in exchange for the issuance of NCNV preferred stock which occurred in August 2022.
Income Tax Benefit (Expense)
The increase in income tax benefit for the three months ended March 31, 2024 and for the year ended December 31, 2023 was immaterial. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 2023 and 2022 was zero. No federal or state income taxes are expected outside of immaterial state tax payments.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| |
|
|
March 31,
|
|
|
December 31,
|
|
|
(in thousands)
|
|
|
2024
|
|
|
2023
|
|
|
2023
|
|
|
2022
|
|
|
Net cash used in operating activities
|
|
|
|
$ |
(5,414) |
|
|
|
|
$ |
(4,366) |
|
|
|
|
$ |
(6,410) |
|
|
|
|
$ |
(8,902) |
|
|
|
Net cash used in investing activities
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(5) |
|
|
|
|
$ |
(11) |
|
|
|
Net cash provided by financing activities
|
|
|
|
$ |
3,714 |
|
|
|
|
$ |
2,798 |
|
|
|
|
$ |
5,587 |
|
|
|
|
$ |
6,942 |
|
|
Operating Activities
For the three months ended March 31, 2024, net cash used in operating activities increased by $1.0 million compared to the three months ended March 31, 2023. The increase in cash used in operating activities was primarily due to the following:
•
$1.6 million increase in net loss after adjusting for $7.3 million of non-cash stock-based compensation expense;
•
$1.6 million increase in accounts receivable due to late order fulfillment in March;
•
$0.8 million increase in deferred revenue from increased software licenses during the period;
•
$1.0 million increase in accounts payable; and
•
$0.5 million decrease in prepaids and other current assets.
For the year ended December 31, 2023, net cash used in operating activities decreased by $2.5 million compared to the year ended December 31, 2022. The decrease in cash used in operating activities was primarily due to the following:
•
$2.1 million decrease in net loss driven by the increase in year over year revenue and gross profit;
•
$3.9 million decrease in accounts receivable due to higher collections;
•
$1.3 million decrease in inventory due to the increase in product fulfillments;
•
$2.4 million increase in deferred revenue from increased software licenses;
•
$1.8 million decrease in accounts payable; and
•
$0.8 million decrease in accrued interest for debt service.
Investing Activities
For the three month periods ended March 31, 2024 and March 31, 2023 and years ended December 31, 2023 and December 31, 2022, net cash used in investing activities was immaterial due to our low capital equipment requirements.
Financing Activities
For the three months ended March 31, 2024, net cash provided by financing activities increased by $0.9 million as compared to the three months ended March 31, 2023. The increase in cash provided by financing activities was primarily due to (i) $1.4 million less in net proceeds from entering into debt issuances and (ii) $2.4 million less in repayment of existing debt obligations.
For the year ended December 31, 2023, net cash provided by financing activities decreased by $1.4 million as compared to the year ended December 31, 2022. The decrease in cash provided by financing activities was primarily due to lower debt issuances as compared to issuances under our convertible debt during 2022.
Liquidity and Capital Resources
During the three months ended March 31, 2024, we incurred a net loss of $12.2 million and Adjusted EBITDA of ($4.2) million and negative cash flows from operations of $5.4 million. For the years ended December 31, 2023 and 2022, we incurred net losses of $13.0 million and $15.2 million, respectively, and incurred negative cash flows from operations of $6.4 million and $8.9 million, respectively. We had combined cash and cash equivalents of $3.1 million and $4.1 million as of December 31, 2023 and December 31, 2022, respectively. We have incurred operating losses and negative cash flows from operations since inception. Our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the technology industry. These risks include, but are not limited to, the uncertainty of successfully developing our products, availability of additional financing, gaining customer acceptance and uncertainty of achieving future profitability among other factors discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”. Our success depends on the outcome of our research and development activities, scale-up and successful partnering and commercialization of our products and product candidates. Based on our current operating plan, we believe that our existing cash and cash equivalents and marketable securities are adequate to fund our ongoing activities through July 31, 2024.
Management has projected cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements if we are unable to raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. Further financings may have a dilutive effect on stockholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital at a reasonable cost and at the required times, or at all, we may not be able to continue our business operations or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations.
Sources of Liquidity
We have historically funded our operations through the issuance of common stock and preferred stock to private investors and debt financing. Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. The recurring losses and negative cash flows from operations, working capital deficiency, the need for
additional financing, uncertainties frequently encountered by companies in the technology industry and the dependency on closing this offering are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were issued. The conditions identified above raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.
Redeemable Preferred Stock
As of December 31, 2023, we are authorized to issue 3,874,946 shares of Series A preferred stock with a par value of $0.00001 per share and 140,000 shares of NCNV preferred stock designated as NCNV preferred stock, NCNV 1, NCNV 2 and NCNV 3 (together, “New NCNV Preferred Stock”). The New NCNV Preferred Stock is entitled to non-cumulative dividends in an amount equal to five percent per annum of the original issue price of $1,000 per share. The New NCNV Preferred Stock has liquidation preference over our Series A Preferred Stock and common stock. Immediately prior to the closing of this offering, all of the outstanding New NCNV Preferred Stock and Series A Preferred Stock will automatically convert into shares of our common stock. Once converted, all New NCNV Preferred Stock and Series A Preferred Stock shall be retired and cancelled. The New NCNV Preferred Stock and Series A Preferred Stock is classified outside of stockholders’ deficit in temporary equity as a result of their respective redemption rights.
Debt and Financing Arrangements
Fiza Loan. In November 2022, we entered into a loan agreement with Fiza for a principal amount of $5.0 million, with $2.5 million disbursed in advance on September 12, 2022, and an additional $2.5 million disbursed on November 10, 2022. Husain Zariwala, the Chief Financial Officer of Gulf Islamic Investments, LLC (“GII”) and Imran Ladhani, the Head of Operations & Investor Relations of GII, each own 50% of the equity interests and voting control of Fiza. The loan was due on or before September 12, 2023 bearing interest at 13% per annum. In May 2023, we entered into an additional short form loan agreement with Fiza for a principal amount of $3.0 million. The loan was due on or before June 20, 2023 bearing interest at 25% per annum on the amount of outstanding principal plus interest. Both loans are secured by our assets. In November 2023, we entered into a short form loan agreement with Fiza to borrow an additional $1.3 million. As of March 31, 2024, we have not made any payments to Fiza and continued to work toward amendments to the loans or toward the execution of definitive agreements to extend the maturity date of the loans to 24 months from their disbursement dates.
In March 2024, we entered into a convertible promissory note to borrow an additional $5.0 million from Fiza. The loan has an annual interest rate of 20% that is accrued daily, compounds annually, and is due on March 11, 2026, subject to acceleration in an event of default. If we have not paid the entire balance of the convertible promissory note prior to the completion of this offering, then upon the consummation of this offering, the outstanding amount under the loan will automatically convert into shares of our common stock at a conversion rate equal to (i) 85% of the price to the public of our common stock issued in this offering if the conversion occurs before December 31, 2024 and (ii) 100% of the price to the public of our common stock issued in this offering if the conversion occurs on or after January 1, 2025, subject to the terms and conditions of the convertible promissory note. If we sell capital stock in a private offering prior to the completion of this offering, whether in a single transaction or in a series of related transactions (for the same terms), for an aggregate gross purchase price no less than $20 million (a “Next Financing”), then, upon the occurrence of the Next Financing, the loan will automatically convert into shares of a new series of our capital stock having identical rights, privileges, preferences and restrictions as the capital stock sold by us in the Next Financing, subject to the terms and conditions of the convertible promissory note.
bSpace Investments Loan. In May 2019, we entered into a loan and security agreement (the “LSA”) with a related party, bSpace Investments Limited (“bSpace”). bSpace is 100% owned by Mohammed Al Hassan, the Co-CEO of GII. The LSA included an initial term loan of $25.0 million, and a second tranche commitment of $5.0 million (“Tranche 2”). The loan had a stated interest rate of 11.0% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. We granted bSpace a first- priority perfected security interest in all of our collateral. Amendments during 2020 added additional tranches to the debt and modified the repayment terms.
Throughout 2020, we borrowed an additional $3.5 million under various loan commitments and amendments to the LSA. In April and June 2021, we borrowed an additional $3.0 million under the existing terms of the LSA.
On February 26, 2020, we and bSpace amended the terms and provisions of the LSA. In connection with the amendment all loans became due on November 6, 2020. The amendment also added a change of control provision, whereby upon the occurrence of a Change of Control (as defined in the LSA), the loan would become immediately due and payable, including any make-whole amount, along with a premium of $0.1 million plus 1.9095% of the proceeds to us from the Change of Control.
Additionally, on February 26, 2020, we drew an additional $1.0 million and amended the terms of $2.0 million of the Tranche 2 draws, collectively referred to as the “Tranche 3 loan”. The Tranche 3 loan had a stated interest rate of 5.5% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 6, 2020. In April 2020, we and bSpace amended the LSA to allow for the incurrence of certain Paycheck Protection Program loans. In November 2020, we and bSpace amended the LSA to extend the maturity date from November 6, 2020 to December 15, 2020.
In December 2020, we and bSpace amended the LSA for all tranches to (1) extend the maturity date to December 31, 2022; (2) add a repayment premium of 150.0% due under all repayment scenarios; (3) add a Tranche 4 loan commitment of $3.0 million; (4) change the repayment terms such that all principal, interest, fees and the repayment premium are due at maturity; (5) add a redemption option upon the occurrence a qualified public offering or equity financing; (6) add a conversion option; and (7) remove the premium associated with the Change of Control embedded derivative.
In April and June 2021, we drew the $3.0 million Tranche 4 loans under the same terms and conditions as existed during the December 2020 LSA modifications.
In September 2021, we and bSpace amended the LSA in connection with the Revolving Line-of-Credit (as defined below). The amendment subordinated the loan to the Revolving Line-of-Credit and extended the maturity date of the loan under the LSA to February 2024.
As of December 31, 2021, the conversion feature within the loan included a contingent beneficial conversion feature, subject to the establishment of preferred stock.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, we and bSpace entered into an Amendment and Conversion Agreement (the “bSpace Conversion Agreement”). The terms of the LSA were amended such that: (a) $90.5 million would be due to bSpace, including the repayment premium and accrued interest through March 15, 2023, (b) the interest rate on the loan was reduced to 5% from January 1, 2023 to March 15, 2023, (c) $59.0 million of our indebtedness would convert into 58,972 shares of New NCNV Preferred Stock no more than 90 days from the date of the bSpace Conversion Agreement, (d) $11.5 million of our indebtedness would convert into 11,500 shares of New NCNV Preferred Stock immediately prior to the closing of the merger and (e) approximately $20.0 million owed to bSpace would be retired in conjunction with a purchase of 1,970,443 shares of EdtechX by bSpace pursuant to a private placement to occur in connection with the consummation of the merger. On June 21, 2023 the EdtechX Merger Agreement was terminated. As a result, no conversions contingent upon the merger with EdtechX occurred.
In August 2022, we issued 58,972 shares of New NCNV Preferred Stock to bSpace in exchange for the forgiveness of $59.0 million of our indebtedness in accordance with the terms of the bSpace Conversion Agreement.
As of December 31, 2022, the gross principal amount due under the LSA was $31.5 million.
On December 30, 2023, we entered into a loan termination agreement with bSpace (the “Termination Agreement”) under which all amounts outstanding under the LSA, plus unearned interest calculated post the maturity date through July 31, 2024 of $1.5 million, were exchanged for 36,918 shares of New NCNV Preferred Stock. The Termination Agreement relieves us of any further obligations under the LSA.
dSpace Equity Financings and Related Agreements
On December 29, 2023, dSpace acquired 47,250 shares of our NCNV 1 preferred stock and 2,750 shares of our NCNV 3 preferred stock from bSpace in exchange for a promissory note with an aggregate principal amount of $37.5 million, which is secured by the pledge of all of dSpace’s equity in us. In December 2020, we sold an aggregate of 3,874,946 shares of our Series A Preferred Stock to dSpace for an aggregate purchase price of $3.0 million, which purchase price was paid through conversion of an outstanding secured convertible promissory note that was previously issued to dSpace. In December 2020, in connection with the issuance of Series A Preferred Stock, we entered into Voting and Rights Agreement with certain of our stockholders, including dSpace, KIA and Paul Kellenberger, our Chief Executive Officer, pursuant to which the parties agreed to vote their shares in a certain way with respect to certain matters (including the election of directors), and also agreed to certain drag along, tag along and information rights. The Voting and Rights Agreement will terminate upon the closing of this offering. See “Management — Voting Agreement.”
Kuwait Investment Authority Loan. In February 2019, we entered into a promissory note (the “KIA Note”) with the Kuwait Investment Authority (“KIA”). The KIA Note had an initial principal amount of $5.0 million, accrued interest at 2.8% per year, and was due on-demand at any point after December 31, 2020. Principal and interest were due at maturity and would be accelerated upon an event of default or a change in control. We granted KIA a warrant to purchase shares of common stock in the event of certain dilutive issuances, which warrant expired December 31, 2020.
In December 2020, we and KIA amended the KIA Note to (1) extend the earliest maturity date to December 31, 2022, (2) remove the change of control redemption and anti-dilution features, (3) add a repayment premium of 150.0%, (4) add a redemption option upon the occurrence of a qualified public offering or equity financing, (5) add a conversion option and (6) execute a subordination agreement to clarify that the KIA Note was subordinate to the bSpace loans under the LSA. Upon the occurrence of a qualified public offering or equity financing the KIA Note would automatically convert into shares of our common stock at the original issue price of the qualified public offering or equity financing. Upon the occurrence of a non-qualified public offering or other equity financing, the KIA Note converted into shares of our common stock issued in the event at the issuance price of such non-qualified public offering or other equity financing, should bSpace elect to convert its loan. Additionally, the KIA Note was convertible into a new class of preferred stock at a conversion price equal to the greater of (a) $110.0 million or (b) four times our trailing 12-month revenue divided by the sum of (1) the total number of shares of our common stock outstanding, and (2) the total number of shares of our common stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. In connection with the modification, we granted KIA a warrant to purchase shares of common stock. The warrants had a fair value of $0.4 million at issuance. All issued warrants expired December 31, 2020.
In September 2021, we and KIA amended the KIA Note to extend the maturity date of the KIA Note to February 2024 and further amended the KIA Note in May 2022 to enable the conversion or exchange of portions of the KIA Note for common stock, contingent upon the occurrence of certain events.
As of December 31, 2021, gross principal amounts due under the KIA loan, including the repayment premium, were $12.5 million and interest accrued on the KIA loan at 2.75% per annum.
As of December 31, 2021, the KIA Note contained a contingent beneficial conversion feature, subject to the establishment of a new class of preferred stock.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, we and KIA entered into an Amendment and Conversion Agreement (“KIA Conversion Agreement”). The terms of the KIA Note were amended to provide that (a) $8.1 million of our indebtedness would convert into 8,062 shares of New NCNV Preferred Stock no more than 90 days from the date of the KIA Conversion Agreement and (b) approximately $5.0 million of our indebtedness would be retired in conjunction with a purchase of 492,610 shares of EdtechX by KIA pursuant to a private placement to occur in connection with the consummation of a private investment in a public entity . On August 12, 2022, $8.1 million of the amounts outstanding under the KIA Note was converted into 8,062 shares of New NCNV Preferred Stock. On June 21, 2023 the EdtechX Merger Agreement was terminated. As a result, no conversions contingent upon the merger with EdtechX will occur.
On January 10, 2024, the balance of approximately $5.2 million under the KIA Note was converted into 5,190 shares of New NCNV Preferred Stock pursuant to the terms of a debt conversion agreement between KIA and us and all obligations and commitments under the KIA Note were terminated. In connection with the conversion, 8,062 of KIA’s then-existing shares of NCNV preferred stock were reclassified as or exchanged for an equivalent number of New NCNV Preferred Stock.
Other Term Loans. In January 2023, we signed term loan agreements to borrow $4.0 million (“Term Loan 1”) and $2.5 million (“Term Loan 2”) at interest rates of 13.0% and 34.0% per year, respectively. Term Loan 1 will be repaid in monthly installments through February 2026, and the Term Loan 2 will be repaid in monthly installments through September 2024. The loans are secured by our assets.
In April 2023, we signed an additional agreement to borrow $0.7 million (“Term Loan 3”) at an interest rate of 18.0% per year. Term Loan 3 is secured with our assets and expected proceeds from Employee Retention Tax Credits (“ERTC”). The loan will mature by April 17, 2026, but it must be repaid upon receipt of the ERTC in an amount sufficient to fully repay the loan. No terms of the Term Loan 1 or Term Loan 2 were changed as a result of the April 2023 agreement. We determined that the lender did not grant a concession upon signing the Term Loan 3 agreement and accounted for the April 2023 agreement as a modification of the loans. The modification does not change the accounting for the prior loans, and no gains or losses were recognized on the restructuring.
The outstanding balance of other term loans as of March 31, 2024 and December 31, 2023 is $4.2 million and $4.9 million, respectively. The effective interest rates of Term Loan 1, Term Loan 2 and Term Loan 3 are 14.2%, 38.2%, and 20.1%, respectively.
During May and June 2024, we entered into multiple loan agreements from an existing lender to borrow a total of $3.5 million secured by certain assets. In May, the loans totaled $2.0 million at an annual interest rate of 17.0%. The June loan was for $1.5 million and has an annual interest rate of 18.0%. The interest on the May loan is subject to adjustment for default and on the June loan for prepayment and default. The loans have periodic principal and interest payments of 24 equal monthly payments beginning in June and July 2024.
Contractual Obligations
Our principal commitments consist of obligations for office space under a non-cancelable operating lease that expires in January 2026, as well as repayment of borrowings under other financing arrangements as described above under “— Liquidity and Capital Resources — Debt and Financing Arrangements.” In addition, we have agreements with certain hardware suppliers to purchase inventory; as of March 31, 2024, we had approximately $10.2 million in purchase obligations outstanding under such agreements, all of which are scheduled to come due on or before December 31, 2024.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We evaluated the development and selection of our critical accounting estimates and believe that the following involve a higher degree of judgement or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting estimates reflect the significant estimates and judgements used in the preparation of our consolidated financial statements. Actual results could differ materially from those estimates and assumptions, and those differences could be material to our consolidated financial statements.
We re-evaluate our estimates on an ongoing basis. For information on our significant accounting policies, refer to Note 2 — Summary of Significant Accounting Policies to our audited consolidated financial statements contained elsewhere in this prospectus.
Revenue Recognition
We recognize revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Some of our contracts have one clearly identifiable performance obligation. However, many contracts provide
the customer several promises that include hardware, software and professional services. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.
If a contract has more than one performance obligation, the transaction price is allocated based on the relative standalone selling price (“SSP”). The establishment of an SSP for all performance obligations requires significant judgment and the analysis of historical selling prices. In situations when there is not adequate historical selling data, we estimate the SSP considering the cost-plus margin approach.
Discounts in certain contracts with customers are deemed variable consideration but are known at the time of invoicing. However, the nature of variable consideration could change in the future.
We sell extended warranties that require us to estimate and accrue for expected future warranty fulfillment cost. Historically, warranty costs have not been material.
Inventory
Our inventory, which includes raw materials and finished goods is valued using the weighted average cost method for hardware inventory while software inventory is recorded at actual cost. We periodically review the value of items in inventory and provides writedowns or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Fair Value of Equity
Given the absence of a public trading market for our common stock and preferred stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation, our board of directors along with management exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our common and preferred stock, including:
•
the prices at which we or other holders sold our common and convertible preferred stock to outside investors in arms-length transactions;
•
independent third-party valuations of our common and preferred stock;
•
the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;
•
our financial condition, results of operations and capital resources;
•
the industry outlook;
•
the valuation of comparable companies;
•
the lack of marketability of our common and preferred stock;
•
the fact that option and RSU grants have involved rights in illiquid securities in a private company;
•
the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions;
•
the history and nature of our business, industry trends and competitive environment; and
•
general economic outlook including economic growth, inflation and unemployment, interest rate environment and global economic trends.
Following the completion of this offering, the fair value of our common stock will be based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.
Convertible Debt
We have issued convertible debt under numerous convertible promissory notes. We evaluate embedded conversion and other features within convertible debt to determine whether any embedded features should be
bifurcated from the host instrument and accounted for as a derivative at fair value, with changes in fair value recorded in the consolidated statement of operations. No material embedded features have been bifurcated as of the financial statement dates. Due to the extinguishment of certain debt in November 2022, we recorded the debt at fair value in September 2022. The fair value resulted in a $3.3 million premium that was recorded in Additional Paid-In Capital. Key inputs included the fair value of the shares to be received upon conversion and likelihood of future liquidity events.
Income Taxes
We use the asset and liability method under FASB ASC Topic 740, Income Taxes, when accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing tax planning strategies in assessing the need for a valuation allowance.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
JOBS Act
The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
We are also a smaller reporting company meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700.0 million and our annual revenue was less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. To the extent we continue to qualify as a smaller reporting company after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
BUSINESS
Our Company
We are a leading provider of augmented reality (AR) and virtual reality (VR) educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and Career & Technical Education (CTE) markets. Our proprietary hardware and software platform provides the unique ability to deliver an interactive, stereoscopic three-dimensional (3D) learning experience to our users without the need to utilize VR goggles or specialty glasses. Our hands-on “learning by doing” solutions have been shown to enhance the learning process and drive higher student test scores, as evidenced by a study on the utility of 3D virtual reality technologies for student knowledge gains published in the Journal of Computer Assisted Learning in 2021. We allow students and teachers to experience learning in the classroom that may otherwise be dangerous, impossible, counterproductive, or expensive using traditional techniques. Our platform serves a broad range of critical educational tools designed for K-12 science, technology, engineering and math (STEM) lessons as well as training skilled trades in areas such as health sciences, automotive engineering/repair, Unity3D® software programming and advanced manufacturing.
We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries. We believe the applicability of our platform in education environments provides an opportunity for significant scale.
Since 2014, we have been developing and delivering hardware and software technology focused on improving education in K-12 and CTE classrooms. We believe that our platform leads to (i) deeper understanding of content, (ii) increased motivation of students to learn, (iii) additional engagement of students with content and (iv) improved preparedness for the workforce. We believe that we have significant growth potential and that we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors, including scaling in the United States, expanding internationally, investing in research and development (“R&D”), and acquiring software, both specific software applications and third party software developers, in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenues.
From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it and interact with it as if it were real.
Our Industry and Market Opportunity
We estimate using data from national government sources specifying the number of schools within their regions that our total addressable market (TAM) for the K-12 market is approximately $21.4 billion in the United States, $29.0 billion in Europe, Middle East and Africa region (EMEA) and $5.6 billion in the Asia Pacific region (APAC) and that our TAM for the CTE market is approximately $6.2 billion in the United States, $5.4 billion in EMEA and $0.8 billion in APAC, with an overall global TAM of greater than $68 billion. Our TAM for the K-12 market is an estimate of the revenue that we would receive over a five year period assuming that each public school in the applicable region purchases one “lab” (consisting of 25 laptops and one cart) at our current prices. Such estimates include recurring annual revenue per laptop based on the average software subscription revenue we receive per unit per year from K-12 customers and assumes an 80% renewal rate. Our TAM for the CTE market is an estimate of the revenue that we would receive over a five year period assuming that each school that offers vocational/CTE programs (including community colleges) in the applicable region purchases one “lab” (consisting of 27 laptops and one cart) at our current prices. Such estimates include recurring annual revenue based on the average software subscription revenue we receive per unit per year from CTE customers in such region and assumes an 80% renewal rate. We have estimated the number of schools in the K-12 market and the CTE market in the US/Canada region, EMEA region and APAC region based on data sourced from third parties, including the Institute of Education Science, the British Educational Suppliers Association, Statista, various governmental instrumentalities, articles and published papers.
According to market analysis by Grand View Research, the global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 13.6% from 2023 to 2030. Further, according to Insight Partners, the global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028 compared to $28 billion in 2021. Markets and Markets Research predicts that spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).
Over the past several years, a significant portion of our revenue was generated in the United States. For the year ended December 31, 2022, our revenue in the United States was $27.3 million and our revenue outside of the United States was $8.4 million, representing 76% and 24% of our total revenue, respectively. For the year ended December 31, 2023, our revenue in the United States was $38.7 million and our revenue outside of the United States was $5.2 million, representing 88% and 12% of our total revenue, respectively. In 2022, our revenue in China was $6.4 million, representing 18% of our total revenue and in 2023, our revenue in China was $2.8 million, representing 6% of our total revenue. We are in the process of focusing on expanding our business in the United States and elsewhere, and we expect the percentage of our total revenue generated from China in 2024 to be lower than in 2023.
Our Learning Platform
Key elements of our platform include:
The ability for users to easily understand abstract concepts. Our products have the ability to deliver an interactive, autostereoscopic 3D experience, allowing students to interact directly with complex, spatial, and abstract concepts. Our products integrate the latest AR/VR technology with science, math, and career training applications that empower students to learn in a 3D world without the fear of making mistakes.
An immersive 3D experience using familiar hardware. Traditionally, AR/VR technology has required complicated hardware, including glasses or goggles, that is difficult to incorporate into a classroom setting and limits collaboration. Our 3D experience uses a laptop without the need for any external eyewear. Using our patented hand-held stylus device, which functions like a pen, interactions are designed to be simple and familiar so customers can feel more comfortable bringing the latest technology into classrooms. Our platform is designed to work with natural gestures and movements to allow learners to manipulate objects in a 360-degree experience outside the confines of the screen.
Effective kinesthetic learning tools. Our products leverage hands on, kinesthetic learning (i.e., using body movements to interact with learning environments). With built-in eye-tracking technology and our patented hand-held stylus device, learners naturally move their heads and rotate their wrists as they pick-up, dissect, and interact with virtual objects. We believe that engaging tactile learning with movement, testing, and trial and error in a non-traditional learning environment can support retention and recall of information.
Our Products
Our platform consists of three key components — proprietary hardware, software and services.
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Hardware. Our hardware is the enabler of the 3D learning experience on our platform. We work closely with original equipment manufacturers (OEMs) to produce devices that deliver a 3D experience.
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Inspire. Inspire is our second-generation laptop product launched in early 2022 and built in partnership with a major PC OEM. It is our first product that delivers autostereoscopic 3D graphics, not requiring any eyewear or headset. With a specialized optical lens and eye-tracking technology, a set of images for each eye is created and directly projected through the lens to where the eyes are looking for a unique 3D experience. We deliver each Inspire laptop with our patented hand-held stylus, which allows users to interact with and manipulate 3D images. When not being used in 3D stereo, the screen provides 2D color accuracy, including 100% Adobe RGB color gamut and Delta E<2 color accuracy, allowing the user to see minute details on the 15.6” 4K UHD narrow bezel display.
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Tracked stylus. Our tracked stylus allows users to interact with the projection of the 3D information to provide a comfortable and realistic experience as well as the precise interaction with the virtual objects in open space. Our patented hand-held stylus device allows for freedom of movement, enabling students to use our products with familiar movements and interactions that they commonly perform, such as rotating their wrists naturally as they examine and manipulate 3D visuals. It allows students to bring objects out of the screen and interact with them as if they were real objects. Our stylus works together with the eye-tracking technology in our products to read the position of the user’s body and respond to movements throughout the interaction, creating a natural, comfortable and effortless experience. Each stylus includes three buttons designed to map the buttons on a traditional mouse to provide a familiar interface model for the user. The buttons on the stylus perform different actions depending on the application.
Our hand-held stylus device is designed to leverage the experience all students have with using a pen/ pencil. It is sized to be comfortable for both adult and child users when held like a pen/pencil in either the right or left hand. Because the stylus is wired, charging is unnecessary and removal of the stylus from our devices is discouraged. The stylus also supports haptic feedback, allowing applications to provide a physical response to engaging in the learning process, enhancing realism and providing distinct feedback to the user.
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Original Edition (OE) Products. Our all-in-one products and OE laptop were our initial product offerings that used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US.
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Software. We develop and deliver both platform management software, enabling the easy distribution, licensing and management of web enabled applications, and end user applications that students use on our devices. Our platform offers a full range of applications, developed both in-house and by third- party application developers, that provide learning experiences designed for the K-12 STEM and CTE markets. In the K-12 market, we offer applications in areas such as Science, Health and Math, and in the CTE markets we provide applications in key areas such as Automotive, Advanced
Manufacturing, Health and Agri-Sciences. We believe that providing software that offers a range of effective educational experiences for end users is a critical component of our product’s value to our customers.
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In September 2021, to help accelerate user adoption and meet the needs for learning anywhere, anytime, anyplace, we launched StudioA3, which gives every learner access to evidence-based virtual experiences for in-person, remote, and hybrid learning on any device, including non-zSpace devices such as Chromebooks and Apple-based computers. StudioA3 is an application in which teachers can build lessons for almost any subject using thousands of pre-made models, and students can learn and explore.
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Services. Implementation and professional development services are part of the overall solution we offer to our customers so they can quickly use, and be fully trained on, our products. We have developed a network of trainers in the United States with education experience with the goal of making our customers’ experience with our products positive and effective. Internationally, we rely exclusively on resellers to provide these services to our customers.
Our Competitive Strengths
We believe that we have a number of competitive strengths that will enable us to grow our business. Our competitive strengths include:
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Breadth and depth of our platform. Our platform is focused on delivering virtual interactive learning capabilities to the education market. From our technology design to content development, our products have the ability to deliver value across the world-wide education spectrum. The same platform can be used by third grade learners and college students. Our growing range of software content, developed both in house and by third-party software developers, includes hundreds of STEM, Game Design and CTE lessons, including Physical Science, Math, Health, Automotive, Unity3D® Programming, and Advanced Manufacturing.
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Highly Differentiated and Proprietary Technology. Our product offerings are designed to facilitate intuitive, responsive, and comfortable learner experiences, with hardware that includes built-in eye-tracking technology that allows for 3D images without the use of specialized glasses and a hand-held stylus device that allows users to bring objects out of the screen and manipulate them as if they were real objects. We believe our proprietary platform offers a unique solution to educators interested in effective kinesthetic learning tools.
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Brand recognition. We believe we are a trusted brand in the K-12 education market that has a track record of attracting and maintaining customers. We believe we are recognized as a market leader in AR/VR and the “eduverse” for schools. We expect to continue to leverage our position and increase our brand awareness to grow our customer base.
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Leadership and first-mover advantage. We believe we are a leader in the AR/VR educational market with an experienced executive management and sales team and longstanding relationships and significant knowledge regarding the education market. Additionally, our broad patent portfolio is the result of many years of research and development and innovation, and we believe it provides a strong foundation for our business. Innovation has been at the center of our business since inception, and we plan to continue to prioritize investments in R&D to further our position.
Our Growth Strategies
We believe that we have significant growth potential. We believe we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors. These include:
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Targeted software growth via both software acquisitions and application acquisitions. We intend to pursue software acquisitions, both specific software applications and third-party software developers, in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenue.
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Scale within the United States education market. We expect to continue to drive growth by increasing marketing efforts, expanding use cases and introducing new applications within the United States. We are particularly focused on acquiring and retaining both K-12 and CTE users while expanding our sales with our Inspire products. With our large content library and pioneering AR/VR capabilities, we pride ourselves on our ability to deliver value across the education landscape including K-12 schools, community colleges, technical colleges and trade colleges. Going forward, we plan to continue to expand our content library and platform to address the needs of our current and future customers. We also plan to increase investments in specific sales and marketing initiatives to increase sales efficiency and increase users and growth in renewing software revenue.
Our Customers
We sell to education institutions, ranging from K-12 schools to community colleges, technical colleges and trade colleges, both directly and through our resellers. The majority of our customer base is comprised of United States public school districts, who purchase products as a primary K-12 educational tool and also to support career training education at the higher grade levels. With a customer base of over 3,500 United States public school districts as well as a growing number of community colleges and other technical institutions, we believe we are well positioned to strengthen our educational brand and increase our penetration in the education market. We have multi-year relationships with many of the largest public school districts in the United States. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. We expect our global user base to continue to grow as we seek to further establish our platform as the standard for innovative hands-on, experiential learning using evidence-based AR/VR technology.
Our Principal Suppliers
We rely on certain third parties to produce our hardware and software in connection with our platform and solutions. In particular, in August 2021, we entered into an agreement to work with a major PC OEM to build our Inspire laptop for us, which allowed us to leverage the OEM’s supply chain network. In 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. In addition, we rely upon a third-party partner located in China to manufacture our stylus. Certain components of our stylus sensor module are sourced in Asia and manufactured in the United States.
Sales and Marketing
We believe we have developed a scalable go-to-market business built upon the strength of our platform and a targeted sales approach designed for education customers. We have deployed a multi-channel sales approach to reach potential customers. In general, in the United States, we employ a combination of a direct sales approach and a channel partner approach to expand our reach with the aim of providing a frictionless, convenient purchase process for customers. In international markets, we exclusively utilize an indirect partner go-to-market approach, and we have found that these third-party resellers offer strong relationships in particular schools or geographies. We believe this structure allows us to market our solutions effectively and efficiently to public schools of all sizes across the world.
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Direct sales. With regional directors distributed across the United States, we strive to increase adoption among K-12 schools, community colleges, technical colleges and trade colleges in both the core and the career and technical education markets. Our regional directors have domain expertise in education as well as AR/VR technology and are organized geographically in order to address the unique needs of various states. The regional directors also manage their third-party resellers that are active within their regions. We have a dedicated team of career and technical education domain experts that work with the regional directors as well as customers to articulate the value and scope of our offering in the CTE market. We also have a technical support team that works closely with schools to ensure that our products can be integrated seamlessly with each school environment.
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Customer success. Our customer success managers work directly with public school administrators, teachers, and our sales teams to onboard schools, articulate the value and scope of our offering, drive engagement and cross-sell our products and applications.
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Channel sales. In addition to our direct sales efforts, we maintain a robust ecosystem of third-party resellers, which enable us to reach a wider network of public schools both in the United States and internationally. Our third-party resellers are technology and systems integrators with domain expertise in education technology and deep understanding of the unique requirements of their respective geographies. Certain of our third-party resellers have specific expertise in career training education. We work closely with our third-party resellers to understand and address our user’s requirements. In some cases, our third-party resellers are part of Request for Proposals that public school districts utilize to conveniently purchase our products. Outside the United States, we work exclusively with over 18 third-party resellers under reseller agreements that allow the partners to sell and support our products and solutions.
Competition
The markets that we serve are highly competitive. In our experience, potential buyers in the United States K-12 market are typically not evaluating an alternative AR/VR technology purchase, but rather whether to use any available funding for our products or for an entirely different class of purchase, such as student safety, IT products or standard computing devices. In the CTE market, we compete with physical training solutions, for example welding simulators. Additionally, potential customers might evaluate our products against a non-immersive alternative such as a 2D human anatomy web-based experience rather than the immersive content available on our platform.
Competitors in the education technology ecosystem include:
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Companies that provide technology solutions and services to educators and students, such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy;
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CTE companies such as A Cloud Guru Ltd., Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services, Pluralsight, Inc. and Udacity, Inc.;
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Companies that operate in the virtual technology market, such as Apple, Google, Meta Platforms, Matterport Inc and Unity Software;
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Providers of free educational resources such as Khan Academy, Inc., The Wikipedia Foundation, Inc. and Google LLC through its YouTube services; and
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AR/VR focused companies such as ClassVR, Inception XR, Interplay Learning, Umety Solutions Ltd, Transfr VR Victory XR.
Outside the United States, certain Chinese companies have produced replicas of our original edition hardware products that require specialty eyewear, which we no longer produce or sell in the United States. We are currently not aware of any other companies producing or selling solutions substantially similar to our products.
We believe that these alternatives either do not address or only address a portion of the functionality and value that our platform can provide for the education market, and in many cases these alternatives introduce challenges in the education environment. For example, head mounted displays technology is by definition isolating for the user, “removing” the learner from the teacher and other students and limiting the ability to collaborate or engage with others during the learning process. Those devices often also carry age warnings, limiting their use to students in higher grade levels. They also often require limiting the time used by a student to just a few minutes as a result of potential nausea or discomfort that can occur when used for longer periods of time. The content available on head-mounted displays is also often designed for an individual learner, which can be difficult for a teacher to integrate into their curriculum and deliver as a classroom experience. Collaboration within the classroom is also very difficult with the head-mounted displays.
Research and Development
Our Research and Development (“R&D”) team is headquartered in San Jose, California, with engineering resources situated throughout the United States. The R&D team has extensive experience in many key engineering disciplines including electrical engineering, firmware development, software application development and quality assurance.
Intellectual Property
Our ability to drive innovation in our business depends in part upon our ability to protect our core technology and intellectual property. We attempt to protect our intellectual property rights, both in the United States and abroad, through a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees and through non-disclosure agreements with our commercial partners and vendors. Unpatented research, development, know-how and engineering skills make an important contribution to our business, but we pursue patent protection when we believe it is possible and consistent with our overall strategy for safeguarding intellectual property.
As of March 31, 2024, we had 72 United States patents issued, 10 United States patent applications that are pending, six foreign patents that have been issued, and seven foreign patent applications that are pending.
Human Capital Resources
Our employees are critical to our success. As of March 31, 2024, we had 70 full-time employees. We also employ part-time subject matter experts and engage consultants and contractors to supplement our permanent workforce. To date, we have not experienced any work stoppages and consider our relationship with our employees to be in good standing. None of our employees are represented by a labor union or subject to a collective bargaining agreement.
Our board of directors oversees matters relating to managing our human capital resources. Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. We believe we offer competitive compensation and benefits packages, the principal purposes of which are to attract, retain and motivate our employees.
Facilities
Our corporate headquarters is located in a leased facility in San Jose, California. The facility is approximately 6,464 square feet, and our lease of this facility expires in January 2026. We believe this facility is adequate for the needs of our business.
Government Regulation
We are subject to various laws, regulations and permitting requirements of federal, state and local authorities, including those related to the education industry, conducting business on the Internet, data privacy and data security, export controls and other laws of general applicability to employers and companies in general, including laws, regulations, and standards governing issues such as labor and employment, anti-discrimination, payments, whistleblowing and worker confidentiality obligations, personal injury, subscription services, intellectual property, consumer protection and warnings, marketing, taxation, competition, unionizing and collective action, arbitration agreements and class action waiver provisions, terms of service, mobile application and website accessibility, money transmittal, and background checks.
We are further subject to various trade restrictions, including economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade controls and economic sanctions administered by the United States Department of Treasury’s Office of Foreign Assets Control and the United States Department of Commerce, we are prohibited from engaging in certain transactions involving certain persons (individuals and entities) and certain designated countries or territories, including Cuba, Iran, Syria, North Korea, as well as the Crimea, Donestsk People’s Republic and Luhansk People’s Republic regions of Ukraine. In addition, our products are subject to export regulations that can involve significant compliance and administrative time to address. In recent years the United States government has a renewed focus on export matters. Our current and future products may be subject to these heightened regulations, which could increase our compliance costs. We are subject to anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the United States Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business.
The costs of complying with these laws and regulations are high and likely to increase in the future, as our business grows and our geographic scope expands. Further, the impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the education technology sector that have greater resources. Any failure on our part to comply with these laws and regulations may subject us to significant liabilities or penalties, or otherwise adversely affect our business, financial condition or operating results. Further, it is possible that certain governments may seek to block or limit our products or otherwise impose other restrictions that may affect the accessibility or usability of any or all our products for an extended period of time or indefinitely.
See the sections titled “Risk Factors,” including the sections titled “Risk Factors — our business is subject to complex and evolving United States and foreign laws, regulations and industry standards, many of which are subject to change and uncertain interpretation, which uncertainty could harm our business, operating results and financial condition,” and “Risk Factors — our failure to comply with laws and regulations applicable to us as a technology provider for K-12 schools, community colleges and other educators could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.”
Legal Proceedings
We are from time to time subject to claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
MANAGEMENT
Executive Officers and Directors
Effective immediately after the consummation of this offering, our business and affairs will be managed by or under the direction of our board of directors. The following table lists the names, ages as of the date of this prospectus, and positions of the individuals who are expected to serve as our directors and executive officers upon consummation of this offering:
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Name
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Age
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Position
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Paul Kellenberger
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64
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Chief Executive Officer and Director
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Erick DeOliveira
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54
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Chief Financial Officer
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Michael Harper
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57
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Chief Product, Engineering and Marketing Officer
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Ron Rheinheimer
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59
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Chief Sales Officer
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Pankaj Gupta
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49
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Director
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Amit Jain
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44
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Director
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Joanna Morris
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58
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Director
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Abhay Pande
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56
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Director
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Angela Prince
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41
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Director
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Jane Swift
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59
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Director
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Executive Officers
Paul Kellenberger serves as our Chief Executive Officer and as a director. Mr. Kellenberger has served as our Chief Executive Officer of and as a member of our board of directors since December 2006. Prior to his position at zSpace, Mr. Kellenberger was CEO for Chancery Software Ltd., an Enterprise SIS provider, from June 2002 to May 2006. Chancery Software was sold to Pearson PLC in May 2006. Prior to Chancery, Mr. Kellenberger was the CEO of Promeo Technologies, a technology company, from May 2000 to May 2002 and Senior Vice President at Inacom Corporation (acquired by Compaq/Hewlett Packard), a computer service company, from January 1997 to January 1999. Mr. Kellenberger also served as a Vice President and Director of Motorola Inc., a telecommunications company, from January 1994 to January 1997. Mr. Kellenberger holds a B.A. in economics from the University of Western Ontario and an M.B.A. from McMaster University.
Erick DeOliveira serves as our Chief Financial Officer. Mr. DeOliveira has served as our Chief Financial Officers since April 2024, and served as our Deputy Chief Financial Officer from September 2023 until he became our Chief Executive Officer in April 2024. Prior to joining us, he was the Chief Financial Officer of Fernish.com from February 2023 to July 2023 until its acquisition by Vesta Homes. From October 2021 to April 2022, he served as Head of FP&A for Anaplan (acquired by Thoma Bravo). From April 2016 to January 2020, he served 100Plus, a digital health company, as an advisor and subsequently as CFO from January 2020 to October 2021 until its acquisition by Connect America. He was CFO of Ticketfly from April 2016 until the June 2017 acquisition by Eventbrite.com, through Eventbrite’s initial public offering in September 2018, until April 2019. Earlier in his career, he held leadership roles at Amazon.com and Microsoft, as well as military service as a Naval Officer. Mr. DeOliveira holds B. Eng. (Physics) and M.Eng. (Electrical Engineering) degrees from the Royal Military College of Canada, and an MBA from the Tuck School of Business at Dartmouth College.
Michael Harper serves as our Chief Product, Engineering and Marketing Officer. Mr. Harper has served as our Chief Product and Marketing Officer since April 2011. Since December 2005, Mr. Harper has been the Owner of Pathway for Success, LLC, a management consulting company. Earlier in his career, Mr. Harper held executive positions with Fortisphere, Inc., a provider of policy-based management software (acquired by Red Hat Inc.), from March 2007 to July 2009 and Syfact International B.V. (acquired by Nice Ltd./Actimize), a provider of investigative software, from January 2006 to December 2006. Mr. Harper holds a B.S.E.E. from Tulane University and an M.B.A from the Wharton School of Business at the University of Pennsylvania.
Ron Rheinheimer serves as our Chief Sales Officer. Mr. Rheinheimer has served as our Chief Sales Officer since April 2016. Prior to joining us, from March 2013 to April 2016, Mr. Rheinheimer served as the Vice
President of Avantas, LLC, a healthcare technology and consulting company. From June 2006 to March 2013, Mr. Rheinheimer was the Vice President of Strategy and Innovation at Pearson Education, an educational services provider. Earlier in his career, he held leadership roles at Chancery Software Ltd. (acquired by Pearson) and Inacom Corporation (acquired by Hewlett-Packard). Mr. Rheinheimer holds a B.A. from Goshen College and an M.B.A. from Villanova University.
Directors
Pankaj Gupta(1) has served as a director since January 28, 2021, and is expected to continue to serve as one of our directors upon consummation of this offering. Mr. Gupta has over 23 years of experience financial advisory services and is currently Co-Founder & Co-CEO of Gulf Islamic Investments LLC, a UAE-based investment management platform with more than $3 billion in direct investments in real estate, private equity and technology across US, UK, Europe, Middle East and India. Prior to Co-founding Gulf Islamic Investments in 2014, he was Head of Investment Business Development at Allied Investment Partners, a UAE-based investment banking company from 2007 to 2014. In these positions he was responsible for the advisory and management of multi-billion dollar investment portfolios and advisory mandates which included successful debt and equity syndication. Mr. Gupta has a BSc (Math), an MBA, a FT Non-Executive Director Diploma and is a Certified Private Equity Specialist (CPES). Mr. Gupta holds 100% of the equity in dSpace Investment Limited, one of our principal stockholders.
Amit Jain(1) has served as a director since April 2021 and is expected to continue to serve as one of our directors upon consummation of this offering. Mr. Jain is Chief Investment Officer of Gulf Islamic Investments an investment management platform with more than $3 billion in direct investments in real estate, private equity and technology across US, UK, Europe, Middle East and India. Mr. Jain has provided investment and managed portfolio services at a global buy and build platform owned by KKR, a Sovereign Wealth Fund in Oman and family office in UAE. Mr. Jain holds a Computer Science & Engineering degree from the Indian Institute of Technology, Kanpur and an MBA from Insead.
Dr. Joanna Morris is expected to serve as one of our independent directors upon the consummation of this offering. Dr. Morris is Associate Professor of Psychology and Neuroscience at Providence College in Providence, RI. She is a former Rhodes Scholar who holds an A.B. (summa cum laude) from Dartmouth College, an M.Phil. in Theoretical Linguistics and Comparative Philology from the University of Oxford, and a Ph.D. in Psychology from the University of Pennsylvania. From 1998 – 2007, Dr. Morris was an Assistant Professor at Hampshire College, from 2007 – 2018, Dr. Morris was an Associate Professor at Hampshire College and from 2018 – 2023, Dr. Morris was a Professor at Hampshire College. She has also served as the Provosts Fellow in Cognitive Science at RISD before joining the faculty at Providence College in 2020.
Abhay Pande is expected to serve as one of our independent directors upon the consummation of this offering. Mr. Pande is a former Investment Banking Managing Director at Citibank, a position that he held from August 1998 until June 2023, and former private equity Managing Director at American Capital, a position that he held from July 2013 until June 2016. He has also served as a senior advisor with the Albright Stonebridge Group and is currently Managing Director at Princeton Capital Advisors, which provides cross-border transactions and capital advisory services for leading healthcare, energy and infrastructure clients, a position that he has held since 2020. Mr. Pande received an MBA from the University of Chicago Booth School of Business and a B.A. in quantitative economics from Dartmouth College.
Angela Galardi Prince is expected to serve as one of our independent directors upon the consummation of this offering. Ms. Prince is a former CEO, startup founder, and Credit Risk expert with a diverse background in consumer and small business financial services, capital markets, and career and technical education. Since 2023, Ms. Prince has worked as an independent business advisor and executive consultant with a specialty in management, operational finance, risk assessment and strategic planning. Ms. Prince was formerly the CEO of Climb Credit, the leading provider of lending and payments services to Career and Vocational schools in the US from 2017 to 2022. Prior to that, she was the co-founder and COO of Orchard Platform, a data and software business for credit investment managers from 2012 to 2016. She started her
(1)
Pankaj Gupta and Amit Jain are currently employed by GII. Mohammad Al Hassan, the Co-CEO of GII owns 100% of the equity in bSpace, a principal stockholder. Accordingly, Messrs. Gupta and Jain may have interests that are different from the interests of other stockholders generally.
career in risk management at American Express where she worked and led teams from 2005 to 2010 and then in a similar role at Citibank from 2010 to 2012. Ms. Prince received both her BSE and MSE in engineering from the University of Michigan.
Jane Swift is expected to serve as one of our independent directors upon the consummation of this offering. Ms. Swift has over fifteen years of experience in state government, holding the offices of governor, lieutenant governor, secretary of consumer affairs and business regulation, and state senator in the State of Massachusetts. Since leaving public office, Ms. Swift has accumulated a wealth of experience in executive leadership and governance roles including as a chief executive officer; a board chair, member, and committee chair to public, private, and not-for-profit institutions; an adviser to entrepreneurial education companies; and as a partner in a venture capital fund. Since 2007, she has served as a Director and as Chair of the Compensation Committee on the Suburban Propane (NYSE: SPH) board of directors, a publicly traded propane distribution company. Ms. Swift is a National Assessment Governing Board member and more recently, has joined the Advisory Board of the George W. Bush Institute, a non-profit organization that promotes freedom, democracy and health for women and girls around the world. In 2022, Swift founded Cobble Hill Farm Education and Rescue Center.
Appointment of Executive Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Family Relationships
There are no family relationships among any of our current or nominated executive officers or directors.
Controlled Company Exemption
Because our Controlling Stockholders will continue to control a majority of the voting power of our common stock after the completion of this offering, we will be a “controlled company” for purposes of the listing standards of Nasdaq and the rules of the SEC. As a “controlled company”, exemptions under the listing standards of Nasdaq will exempt us from certain of Nasdaq’s corporate governance requirements, including the following requirements if we decide to rely on the “controlled company” exemption:
•
that our board of directors be composed of a majority of “independent directors,” as defined under the rules of Nasdaq,
•
that our compensation committee be composed entirely of independent directors, and
•
that our nominating and corporate governance committee be composed entirely of independent directors.
If we decide to rely on the “controlled company” exemption, for so long as we are a “controlled company” and continue to rely on the “controlled company” exemption,” holders of our common stock may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq’s corporate governance requirements to the extent we elect to take advantage of these exemptions. In the event that we cease to be a “controlled company”, we will be required to comply with these provisions within the transition periods specified in the rules of Nasdaq.
These exemptions do not modify the independence requirements for our audit committee, and we expect to satisfy the member independence requirement for the audit committee upon completion of this offering.
Voting Agreement
On December 4, 2020, we entered into an Amended and Restated Voting and Rights Agreement (the “Voting and Rights Agreement”), pursuant to which, among other things, dSpace Investments Limited has the right to designate all members of our board of directors, and all persons party to such Voting and Rights Agreement agreed to vote to elect such designated members.
The Voting and Rights Agreement terminates upon the first to occur of the following: (a) an agreement in writing by us and dSpace and the holders of at least a majority of our Series A preferred stock or common
stock issued or issuable upon conversion of the Series A preferred stock; (b) immediately prior to the consummation of the closing of the sale of shares of common stock to the public in (i) a public offering which dSpace informs us of the termination of the Voting and Rights Agreement or (ii) a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, and in connection with such offering our common stock is listed for trading on Nasdaq, the New York Stock Exchange or another exchange or marketplace approved our board of directors; or (c) immediately prior to the closing of a “Deemed Liquidation Event” as defined in our Amended and Restated Certificate of Incorporation.
Board Composition
Upon the consummation of the offering, we expect that our board of directors will consist of seven members. Paul Kellenberger, our Chief Executive Officer, is expected to serve as Chairperson of the board of directors. The primary responsibility of our board of directors will be to provide oversight, strategic guidance, counseling and direction to our management. The board of directors will meet on a regular basis and additionally as required.
In accordance with the terms of our Charter and Bylaws, our board of directors will be classified, such that the initial term of our independent directors will expire at our first annual meeting of stockholders following this offering and the initial term of our non-independent directors will expire at the second annual meeting of stockholders following this offering. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Our Charter and Bylaws will authorize only the members of the board of directors to fill vacancies on our board of directors. Stockholders holding more than 40% of our voting securities will be entitled to nominate two persons for election to our board of directors and stockholders holding 40% or less but more than 25% of our voting securities will be entitled to nominate one person for election to our board of directors. In addition, the number of directors constituting the board of directors may be set only by resolution adopted by a majority vote of our entire board of directors.
Director Independence
Upon the consummation of the offering, our board of directors is expected to determine that each of the directors on our board of directors, other than Paul Kellenberger, Pankaj Gupta and Amit Jain qualifies as an independent director under the rules of Nasdaq, and SEC rules and regulations. Under the rules of Nasdaq, unless an explicit exemption exists, independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the board of directors will review and discuss information provided by our directors and by us with regard to each director’s business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of capital stock by each non-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the consummation of the offering. Additionally, compensation committee members must not have a relationship with us that is material to the director’s ability to be independent from management in connection with the duties of a compensation committee member.
Committees of the Board of Directors
Effective upon the consummation of this offering, our board of directors will have three standing committees — an audit committee, a compensation committee and a nominating and corporate governance committee, each of which, pursuant to its respective charter, will have the composition and responsibilities described below. Following the consummation of the offering, copies of the charters for each committee will be available on the investor relations portion of our website. Members serve on these committees until their resignation or until otherwise determined by our board of directors.
Audit Committee
Our audit committee will consist of three individuals and upon the consummation of this offering will be composed of Abhay Pande, Angela Prince and Joanna Morris, with Abhay Pande serving as the chair. Our board of directors is expected to determine that each of the members of the audit committee meets the independence requirements under Nasdaq and SEC rules and is financially literate. In addition, our board of directors is expected to determine that Abhay Pande is an “audit committee financial expert” within the meaning of the SEC regulations and meets the financial sophistication requirements of the Nasdaq listing rules. In making this determination, the board of directors will consider formal education and previous experience in financial roles. This designation does not, however, impose on the individual any supplemental duties, obligations or liabilities beyond those that are generally applicable to the other members of our audit committee and board of directors. Both our independent registered public accounting firm and management periodically will meet privately with our audit committee.
The principal functions of the audit committee are expected to include, among other things:
•
selecting a firm to serve as our independent registered public accounting firm to audit our financial statements;
•
ensuring the independence of the independent registered public accounting firm;
•
discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results;
•
establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters;
•
considering the adequacy of our internal control and internal audit function;
•
reviewing related-party transactions that are material or otherwise implicate disclosure requirements; and
•
approving, or as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm.
The composition and function of the audit committee will comply with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC rules and regulations and with future requirements to the extent they become applicable to us. The audit committee will be governed by a charter that complies with the rules of Nasdaq and will be available on our website.
Compensation Committee
Our compensation committee will consist of three individuals and upon the consummation of this offering will be composed of Jane Swift, Abhay Pande and Angela Prince, with Jane Swift serving as the chair. The board of directors is expected to determine that each of the members of our compensation committee meets the independence requirements under Nasdaq and SEC rules. Each member of this committee will also be a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
The principal functions of the compensation committee are expected to include, among other things:
•
reviewing and approving, or recommending that the board of directors approve, the compensation of our Chief Executive Officer and our other executive officers;
•
reviewing succession plans for our Chief Executive Officer;
•
reviewing and recommending to the board of directors the compensation of our directors;
•
administering our stock and equity incentive plans; and
•
establishing our overall compensation philosophy.
The composition and function of the compensation committee will comply with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC rules and regulations. The Compensation Committee will be governed by a charter that complies with the rules of Nasdaq and will be available on our website.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will consist of three individuals and upon the consummation of this offering will be composed of Angela Prince, Jane Swift and Joanna Morris, with Angela Prince serving as the chair. The board of directors is expected to determine that each of the members of our nominating and corporate governance committee meets the independence requirements under Nasdaq and SEC rules.
The principal functions of the nominating and corporate governance committee are expected to include:
•
identifying and recommending candidates for membership on the board of directors;
•
recommending directors to serve on board committees;
•
reviewing and recommending to our board of directors any changes to our corporate governance principles;
•
reviewing proposed waivers of the code of conduct for directors and executive officers;
•
overseeing the process of evaluating the performance of our board of directors; and
•
advising our board of directors on corporate governance matters.
The composition and function of the nominating and corporate governance committee will comply with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC rules and regulations. The nominating and corporate governance committee will be governed by a charter that complies with the rules of Nasdaq and will be available on our website.
Compensation Committee Interlocks and Insider Participation
None of the nominees of our compensation committee is currently, or has been at any time, one of our officers or employees. Other than Paul Kellenberger, our Chief Executive Officer, none of our executive officers currently serves or has served as a member of our board of directors, or as a member of the compensation committee, or of any entity that has one or more executive officers who served on our board of directors or compensation committee during 2022 or 2023.
Code of Business Conduct and Ethics
Prior to the completion of this offering and in accordance with Nasdaq’s listing requirements and SEC rules, our board of directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior officers. The full text of this code of business conduct and ethics will be posted on the investor relations page of our website. The reference to our website address in this filing does not include or incorporate by reference the information on that website into this filing. We intend to disclose future amendments to certain provisions of this code of business conduct and ethics, or waivers of these provisions, on its website or in public filings to the extent required by the applicable rules.
Whistleblower Policy
Our board of directors has adopted a whistleblower policy to provide employees with a confidential and anonymous method for reporting concerns about our conduct or employees’ conduct free from retaliation. Our whistleblower policy will be available on our corporate website upon the consummation of this offering.
Clawback Policy
Our board of directors has adopted a clawback policy, which provides that in the event we are required to prepare an accounting restatement due to noncompliance with any financial reporting requirements under the securities laws or otherwise erroneous data or we determine there has been a significant misconduct that causes financial or reputational harm, we shall recover a portion or all of any incentive compensation. Our clawback policy will be available on our corporate website upon the consummation of this offering.
Limitations of Liability and Indemnification of Directors and Officers
We are incorporated under the laws of the State of Delaware. Section 145 of the DGCL provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee, or agent of such corporation or is or was serving at the request of such corporation as an officer, director, employee, or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses that such officer or director has actually and reasonably incurred. Our Bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified under this section or otherwise.
Section 102(b)(7) of the DGCL allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation will provide for this limitation of liability.
Section 174 of the DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
EXECUTIVE COMPENSATION
As an emerging growth company under the JOBS Act, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which permit us to limit reporting of executive compensation to our principal executive officer and our two other most highly compensated executive officers.
Summary Compensation Table
The following table presents summary information regarding the total compensation for services rendered in all capacities that was earned by, our principal executive officer and our two most highly compensated executive officers other than our principal executive officer (together, the “NEOs”) for 2023.
|
Name and Principal Position
|
|
|
Base Salary
|
|
|
Bonus(1)
|
|
|
Non-equity
Sales Incentive
Compensation(2)
|
|
|
All other
compensation(3)
|
|
|
Total
|
|
|
Paul Kellenberger
|
|
|
|
$ |
400,000 |
|
|
|
|
$ |
133,000 |
|
|
|
|
|
|
|
|
|
|
$ |
2,900 |
|
|
|
|
$ |
535,900 |
|
|
|
Chief Executive Officer and Director
|
|
|
|
|
|
|
|
Mike Harper
|
|
|
|
$ |
325,000 |
|
|
|
|
$ |
108,000 |
|
|
|
|
|
|
|
|
|
|
$ |
2,900 |
|
|
|
|
$ |
435,900 |
|
|
|
Chief Product, Engineering and Marketing Officer
|
|
|
|
|
|
|
|
Ron Rheinheimer
|
|
|
|
$ |
250,000 |
|
|
|
|
$ |
62,500 |
|
|
|
|
$ |
190,560 |
|
|
|
|
$ |
2,900 |
|
|
|
|
$ |
505,960 |
|
|
|
Chief Sales Officer
|
|
|
|
|
|
|
(1)
Amounts represent annual cash bonuses earned by our NEOs under our executive management annual Non-Equity Incentive Plan.
(2)
Amount represents commissions earned by Mr. Rheinheimer under our Sales/BD Incentive Plan.
(3)
Amounts represent (i) 401(k) company matching contributions of $2,000 and (ii) $900 of monthly mobile phone compensation earned by each NEO.
Narrative Disclosure to Summary Compensation Table
The following describes the material elements of our compensation program for the year ended December 31, 2023 as applicable to our NEOs and reflected in the Summary Compensation Table above. As part of our transition to a publicly traded company in connection with this offering, we will evaluate our post-offering executive compensation program, which may differ in several respects from our historical program. For information on certain elements of our executive compensation program that we intend to adopt in connection with this offering, see “— Executive Compensation Plans” below.
Base Salary
Base salaries for our NEOs were established primarily based on individual negotiations with the executive officers when they joined our company. In determining compensation for our executive officers, we considered salaries provided to executive officers of our peer companies, each executive officer’s anticipated role criticality relative to others at our company, and our determination of the essential need to attract and retain our NEOs.
Annual Incentive Awards
Each of our NEOs is eligible to receive an annual cash bonus, payable based upon the achievement of performance goals set annually by our board of directors.
Employee Benefits and Perquisites
Our NEOs are eligible to participate in our health and welfare plans on the same terms and conditions as those provided to our full-time employees. We also reimburse our NEOs for reasonably incurred and properly documented business expenses.
Retirement Benefits
We maintain a 401(k) plan that provides eligible United States employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain
I.R.S. Code limits, which are updated annually. Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. Employees are immediately and fully vested in their own contributions. We may elect to make matching or other contributions into participants’ individual accounts. We currently match pretax and Roth employee contributions up to $2,000 per participant annually and all matching contributions vest immediately. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings on those amounts are not taxable to the employees until withdrawn or distributed from the 401(k) plan.
Long-Term Incentive Awards
We have granted our NEOs from time to time stock options to purchase shares of our common stock, each with an exercise price equal to the fair market value of a share of our common stock on the date of grant and subject to the terms of the appliable Stock Plans (see “— Equity Plans — 2007 Stock Plan and 2017 Stock Plan” below) and the applicable award agreement. Generally, one fourth (1/4th) of the total number of shares subject to such option vests on the date that is twelve (12) months after the Vesting Commencement Date, and one forty eighth (1/48th) of the total number of shares subject to the option vest each month thereafter, so that all such shares are fully vested on the fourth anniversary of the vesting commencement date. Mr. Rheinheimer’s stock options are also subject to performance goals. For more information on the stock options granted to our NEOs and any applicable performance goals, see “— Outstanding Equity Awards at Fiscal Year-End”.
In the event a NEO’s employment is terminated pursuant to a constructive termination or a termination in connection with a change in control, the options that have not yet been exercisable shall be subject to the applicable NEO’s employment agreement.
Non-Equity Compensation
We have previously granted, and we intend to, from time to time, grant non-equity compensation awards to our NEOs and employees which are subject to reaching certain sales-related performance milestones.
Sales / BD Incentive Plan
Our Sales /BD Incentive plan is designed to provide financial incentives and rewards for sales and business development achievement as measured against individually assigned sales targets and BD goals. For any eligible employee or contractor, we execute an individual target sheet alongside a terms and conditions document.
Bonus Compensation
During 2023, our board of directors approved a bonus with an aggregate value of $303,500 for 2023 for Mr. Kellenberger, Mr. Harper and Mr. Rheinheimer. As of the date of this prospectus, these bonuses have not yet been paid.
Equity Compensation
We have previously granted, and we intend to, from time to time, grant equity awards to our NEOs which grants are generally subject to vesting based on each NEO’s continued service. Each of our NEOs currently holds outstanding options to purchase shares of our common stock that were granted under our 2007 Stock Plan and 2017 Stock Plan, as set forth in the table below entitled “2023 Outstanding Equity Awards at Fiscal Year-End.”
2023 Outstanding Equity Awards at Fiscal Year-End
The following table presents, for each of our NEOs, information regarding outstanding stock options as of December 31, 2023.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Grant Date(1)
|
|
|
Vesting
Commencement
Date(2)
|
|
|
Exercisable
(#)
|
|
|
Exercise Price
($)
|
|
|
Expiration
Date
|
|
|
Paul Kellenberger*
|
|
|
|
|
04/22/2015 |
|
|
|
|
|
02/16/2007 |
|
|
|
|
|
199 |
|
|
|
|
$ |
330.00 |
|
|
|
|
|
04/21/2025 |
|
|
| |
|
|
|
|
07/07/2015 |
|
|
|
|
|
07/07/2015 |
|
|
|
|
|
92 |
|
|
|
|
$ |
330.00 |
|
|
|
|
|
07/07/2025 |
|
|
| |
|
|
|
|
04/22/2015 |
|
|
|
|
|
09/01/2014 |
|
|
|
|
|
1,393 |
|
|
|
|
$ |
330.00 |
|
|
|
|
|
09/01/2024 |
|
|
| |
|
|
|
|
10/24/2017 |
|
|
|
|
|
10/24/2017 |
|
|
|
|
|
233 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
10/23/2027 |
|
|
| |
|
|
|
|
10/24/2017 |
|
|
|
|
|
10/24/2017 |
|
|
|
|
|
266 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
10/23/2027 |
|
|
| |
|
|
|
|
02/27/2018 |
|
|
|
|
|
02/27/2018 |
|
|
|
|
|
3,000 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
02/27/2028 |
|
|
| |
|
|
|
|
04/14/2021 |
|
|
|
|
|
04/14/2021 |
|
|
|
|
|
433,760 |
|
|
|
|
$ |
0.53 |
|
|
|
|
|
04/13/2031 |
|
|
|
Mike Harper
|
|
|
|
|
04/17/2015 |
|
|
|
|
|
02/01/2011 |
|
|
|
|
|
424 |
|
|
|
|
$ |
330.00 |
|
|
|
|
|
04/16/2025 |
|
|
| |
|
|
|
|
04/22/2015 |
|
|
|
|
|
09/01/2014 |
|
|
|
|
|
264 |
|
|
|
|
$ |
330.00 |
|
|
|
|
|
04/21/2025 |
|
|
| |
|
|
|
|
10/24/2017 |
|
|
|
|
|
10/24/2017 |
|
|
|
|
|
71 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
10/23/2027 |
|
|
| |
|
|
|
|
02/27/2018 |
|
|
|
|
|
02/27/2018 |
|
|
|
|
|
333 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
02/27/2028 |
|
|
| |
|
|
|
|
04/14/2021 |
|
|
|
|
|
04/14/2021 |
|
|
|
|
|
97,173 |
|
|
|
|
$ |
0.53 |
|
|
|
|
|
04/13/2031 |
|
|
|
Ron Rheinheimer
|
|
|
|
|
06/23/2016 |
|
|
|
|
|
04/04/2016 |
|
|
|
|
|
578 |
|
|
|
|
$ |
600.00 |
|
|
|
|
|
06/23/2026 |
|
|
| |
|
|
|
|
10/24/2017 |
|
|
|
|
|
02/26/2017 |
|
|
|
|
|
28 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
10/23/2027 |
|
|
| |
|
|
|
|
02/27/2018 |
|
|
|
|
|
02/27/2018 |
|
|
|
|
|
200 |
|
|
|
|
$ |
720.00 |
|
|
|
|
|
02/27/2028 |
|
|
| |
|
|
|
|
04/14/2021 |
|
|
|
|
|
04/14/2021 |
|
|
|
|
|
69,906 |
|
|
|
|
$ |
0.53 |
|
|
|
|
|
04/13/2031 |
|
|
(1)
All of the outstanding equity awards were granted under our 2007 Stock Plan or our 2017 Stock Plan.
(2)
All of the stock options granted are fully vested as of December 31, 2023.
*
Employee Director
Equity Plans
2007 Stock Plan
The 2007 Equity Incentive Plan (the “2007 Stock Plan”) provides for the grant of options, restricted stock and other stock option awards to our directors, employees and consultants and to directors and employees of our subsidiaries or affiliates. As of March 31, 2023, there are a total of 16,587 shares authorized for issuance and a total of 2,093 shares of our common stock are subject to outstanding option awards under the 2007 Stock Plan. Since 2017, we have not granted and do not intend to grant any further awards under the 2007 Stock Plan.
2017 Stock Plan
The 2017 Equity Incentive Plan (the “2017 Stock Plan”) provides for the grant of options, stock appreciation rights, restricted stock and other stock option awards to our directors and employees, and to directors and employees of any of our subsidiaries or affiliates. As of March 31, 2023, the maximum number of shares available for issuance to participants pursuant to awards under the 2017 Plan is 2,739,975. The shares available for issuance under the 2017 Stock Plan may consist, in whole or in part, of authorized and unissued shares or reacquired shares. As of December 31, 2023, a total of 946,371 shares of our common stock are subject to outstanding option awards under the 2017 Stock Plan.
2024 Stock Plan
We intend to adopt a new equity incentive plan upon consummation of this offering. The 2024 Equity Incentive Plan (the “2024 Stock Plan”) will provide for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units and other stock or cash-based awards to our directors, employees, non-employee directors and service providers. The shares available for issuance under the 2024 Stock Plan may consist, in whole or in part, of authorized and unissued shares or reacquired shares. The following is a summary of certain provisions of the 2024 Stock Plan, and is qualified in its entirety by the full text of the 2024 Stock Plan, which is filed as an exhibit to the registration statement of which this prospectus forms a part.
Purpose
The purpose of the 2024 Stock Plan is to enhance our ability to attract, retain and motivate persons who make (or are expected to make) important contributions to our company by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities.
Administration
The 2024 Stock Plan will be administered by the compensation committee of our board of directors. The plan administrator, which initially will be the compensation committee of our board of directors, will have full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2024 Stock Plan. The plan administrator may delegate to one or more of our officers the authority to grant awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act.
Share Reserve
An aggregate of shares of common stock may be issued under the 2024 Stock Plan. Shares underlying any awards under the 2024 Stock Plan that are forfeited, cancelled, held back to cover the exercise price or tax withholding, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added back to the shares available for issuance under the 2024 Stock Plan. The payment of dividend equivalents in cash shall not count against the share reserve.
Annual Limitation on Awards to Non-Employee Directors
The 2024 Stock Plan contains a limitation whereby the grant date value of all awards under the 2024 Stock Plan and all other cash compensation paid by us to any non-employee director may not exceed $ in any calendar year, although our board of directors may, in its discretion, make exceptions to the limit in extraordinary circumstances.
Stock Options
The 2024 Stock Plan permits both options to purchase shares of common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. Options granted under the 2024 Stock Plan will be nonqualified options if they fail to qualify as incentive stock options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to our employees. Nonqualified options may be granted to any persons eligible to receive awards under the 2024 Stock Plan.
The exercise price of each option will be determined by the plan administrator but generally may not be less than 100% of the fair market value of our common stock on the date of grant or, in the case of an incentive stock option granted to a 10% stockholder, 110% of such share’s fair market value. The term of each option will be fixed by the plan administrator and may not exceed ten years from the date of grant (or five years for an incentive stock option granted to a 10% stockholder). The plan administrator will determine at what time or times each option may be exercised, including the ability to accelerate the vesting of such options.
Stock Appreciation Rights
The plan administrator may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price generally may not be less than 100% of the fair market value of common stock on the date of grant. The term of each stock appreciation right will be fixed by the plan administrator and may not exceed ten years from the date of grant. The plan administrator will determine at what time or times each stock appreciation right may be exercised, including the ability to accelerate the vesting of such stock appreciation rights.
Restricted Stock
The plan administrator may award restricted shares of common stock subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Unless otherwise provided in the applicable award agreement, the participant generally will have the rights and privileges of a stockholder as to such restricted shares, including without limitation the right to vote such restricted shares and the right to receive dividends, if applicable.
Restricted Stock Units and Dividend Equivalents
The plan administrator may award restricted stock units which represent the right to receive common stock at a future date in accordance with the terms of such grant upon the attainment of certain conditions specified by the plan administrator. Restrictions or conditions could include, but are not limited to, the attainment of performance goals, continuous service with us, the passage of time or other restrictions or conditions. The plan administrator determines the persons to whom grants of restricted stock units are made, the number of restricted stock units to be awarded, the time or times within which awards of restricted stock units may be subject to forfeiture, the vesting schedule, and rights to acceleration thereof, and all other terms and conditions of the restricted stock unit awards. The value of the restricted stock units may be paid in common stock, cash, other securities, other property, or a combination of the foregoing, as determined by the plan administrator.
Other Stock or Cash Based Awards
Other stock or cash based may be granted either alone, in addition to, or in tandem with, other awards granted under the 2024 Stock Plan and/or cash awards made outside of the 2024 Stock Plan. The plan administrator shall have authority to determine the persons to whom and the time or times at which such awards will be made, the amount of such awards, and all other conditions, including any dividend and/or voting rights.
Change in Control
Except as set forth in an award agreement issued under the 2024 Stock Plan, in the event of a change in control (as defined in the 2024 Stock Plan), each outstanding stock award (vested or unvested) will be treated as the plan administrator determines, which may include (i) our continuation of such outstanding stock awards (if we are the surviving corporation); (ii) the assumption of such outstanding stock awards by the surviving corporation or its parent; (iii) the substitution by the surviving corporation or its parent of new stock options or other equity awards for such stock awards; (iv) the cancellation of such stock awards in exchange for a payment to the participants equal to the excess of (A) the fair market value of the shares subject to such stock awards as of the closing date of such corporate transaction over (B) the exercise price or purchase price paid or to be paid (if any) for the shares subject to the stock awards (which payment may be subject to the same conditions that apply to the consideration that will be paid to holders of shares in connection with the transaction, subject to applicable law); (v) provide that such award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the 2024 Stock Plan or the provisions of such Award; or (vi) provide that the award will terminate and cannot vest, be exercised or become payable after the applicable event.
The 2024 Stock Plan provides that a stock award may be subject to additional acceleration of vesting and exercisability upon a change in control as may be provided in the award agreement for such stock award, but in the absence of such provision, no such acceleration will occur.
Tax Withholding
Participants in the 2024 Stock Plan are responsible for the payment of any federal, state or local taxes that we are required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. The plan administrator may cause any tax withholding obligation of ours to be satisfied, in whole or in part, by the applicable entity withholding from shares of common stock to be issued pursuant to an award a number of shares with an aggregate fair market value that would satisfy the withholding amount due. The plan administrator may also require any tax withholding obligation of ours to be satisfied, in whole or in part, by an arrangement whereby a certain number of shares issued pursuant to any award are immediately sold and proceeds from such sale are remitted to us in an amount that would satisfy the withholding amount due.
Transferability of Awards
The 2024 Stock Plan generally does not allow for the transfer or assignment of awards, other than by will or by the laws of descent and distribution; however, the plan administrator has the discretion to permit awards (other than incentive stock options) to be transferred by a participant.
Amendment and Termination
Our board of directors and the plan administrator may each amend, suspend, or terminate the 2024 Stock Plan and the plan administrator may amend or cancel outstanding awards, but no such action may materially and adversely affect rights under an award without the holder’s consent. Certain amendments to the 2024 Stock Plan will require the approval of our stockholders. Generally, without stockholder approval, (i) no amendment or modification of the 2024 Stock Plan may reduce the exercise price of any stock option or stock appreciation right, (ii) the plan administrator may not cancel any outstanding stock option or stock appreciation right where the fair market value of the common stock underlying such stock option or stock appreciation right is less than its exercise price and replace it with a new option or stock appreciation right, another award or cash and (iii) the plan administrator may not take any other action that is considered a “repricing” for purposes of the stockholder approval rules of the applicable securities exchange.
All stock awards granted under the 2024 Stock Plan will be subject to recoupment in accordance with our Clawback Policy.
Executive Compensation Plans
Following the consummation of this offering, we intend to develop an executive compensation program that is designed to align compensation with our business objectives and the creation of stockholder value, while enabling us to attract, motivate and retain individuals who contribute to the long-term success of the combined company. Decisions on the executive compensation program will be made by the compensation committee of our board of directors.
Executive Employment Agreements
Paul Kellenberger Employment Agreement
Effective June 1, 2024, we entered into an employment agreement with Paul Kellenberger, our Chief Executive Officer (the “Kellenberger Agreement”). Under the Kellenberger Agreement, Mr. Kellenberger is entitled to an annual base salary of $400,000, and is also eligible for a discretionary bonus based on our performance. In addition, Mr. Kellenberger is entitled, subject to the approval of our board of directors, to options to purchase our common stock pursuant to our 2017 Stock Plan as it may be amended or restated or replaced, in an amount to be determined by our board of directors and at an exercise price equal to the fair market value per share of our common stock on the date of grant, as determined by our board of directors. The options to purchase our common stock vest monthly over three years.
The Kellenberger Agreement also provides that if Mr. Kellenberger’s employment is terminated without Cause or if Mr. Kellenberger terminates his employment for Good Reason, each as defined in the Kellenberger Agreement, subject to Mr. Kellenberger’s execution and non-revocation of a release of claims in favor of us then Mr. Kellenberger shall be entitled to (i) salary continuation at his then base salary rate, from the termination date through the twelve month anniversary of the termination date; plus (ii) a pro-rated bonus for the year of termination as determined by our board of directors equal to: (a) the discretionary bonus Mr. Kellenberger would have received for the year of termination, had he remained employed through the payment date of such discretionary bonus, multiplied by (b) a fraction, the numerator of which is the number of days Mr. Kellenberger was employed by us in the year of termination and the denominator being 365. Mr. Kellenberger may also elect to continue to receive group health insurance coverage under our group health plan pursuant to COBRA, and we will reimburse Mr. Kellenberger for such monthly COBRA premiums for twelve months. The Kellenberger Agreement also contains certain restrictions related to confidentiality, non-disparagement and intellectual property assignment that are applicable during or after the time that Mr. Kellenberger is employed by us.
Erick DeOliveira Employment Agreement
Effective June 1, 2024, we entered into an employment agreement with Erick DeOliveira, our Chief Financial Officer (the “DeOliveira Agreement”). Under the DeOliveira Agreement, Mr. DeOliveira is entitled to an annual base salary of $300,000, and is also eligible for a discretionary bonus based on our performance. In addition, Mr. DeOliveira is entitled, subject to the approval of our board of directors, to options to purchase our common stock pursuant to our 2017 Stock Plan as it may be amended or restated or replaced, in an amount to be determined by our board of directors and at an exercise price equal to the fair market value per share of our common stock on the date of grant, as determined by our board of directors. The options to purchase our common stock vest monthly over three years.
The DeOliveira Agreement also provides that if Mr. DeOliveira’s employment is terminated without Cause or if Mr. DeOliveira terminates his employment for Good Reason, each as defined in the DeOliveira Agreement, subject to Mr. DeOliveria’s execution and non-revocation of a release of claims in favor of us, then Mr. DeOliveira shall be entitled to (i) salary continuation at his then base salary rate, from the termination date through the twelve month anniversary of the termination date; plus (ii) a pro-rated bonus for the year of termination as determined by our board of directors equal to: (a) the discretionary bonus Mr. DeOliveira would have received for the year of termination, had he remained employed through the payment date of such discretionary bonus, multiplied by (b) a fraction, the numerator of which is the number of days Mr. DeOliveira was employed by us in the year of termination and the denominator being 365. Mr. DeOliveira may also elect to continue to receive group health insurance coverage under our group health plan pursuant to COBRA, and we will reimburse Mr. DeOliveira for such monthly COBRA premiums for twelve months. The DeOliveira Agreement also contains certain restrictions related to confidentiality, non-disparagement and intellectual property assignment that are applicable during or after the time that Mr. DeOliveira is employed by us.
Michael Harper Employment Agreement
Effective June 1, 2024, we entered into an employment agreement with Michael Harper, our Head of Product, Engineering, and Marketing (the “Harper Agreement”). Under the Harper Agreement, Mr. Harper is entitled to an annual base salary of $325,000 and is also eligible for a discretionary bonus based on our performance. In addition, Mr. Harper is entitled, subject to the approval of our board of directors, to options to purchase our common stock pursuant to our 2017 Stock Plan as it may be amended or restated or replaced, in an amount to be determined by our board of directors and at an exercise price equal to the fair market value per share of our common stock on the date of grant, as determined by our board of directors. The options to purchase our common stock vest monthly over three years.
The Harper Agreement also provides that if Mr. Harper’s employment is terminated without Cause or if Mr. Harper terminates his employment for Good Reason, each as defined in the Harper Agreement, subject to Mr. Harper’s execution and non-revocation of a release of claims in favor of us, then Mr. Harper shall be entitled to (i) salary continuation at his then base salary rate, from the termination date through the twelve month anniversary of the termination date; plus (ii) a pro-rated bonus for the year of termination as determined by our board of directors equal to: (a) the discretionary bonus Mr. Harper would have received for
the year of termination, had he remained employed through the payment date of such discretionary bonus, multiplied by (b) a fraction, the numerator of which is the number of days Mr. Harper was employed by us in the year of termination and the denominator being 365. Mr. Harper may also elect to continue to receive group health insurance coverage under our group health plan pursuant to COBRA, and we will reimburse Mr. Harper for such monthly COBRA premiums for twelve months. The Harper Agreement also contains certain restrictions related to confidentiality, non-disparagement and intellectual property assignment that are applicable during or after the time that Mr. Harper is employed by us.
Ron Rheinheimer Employment Agreement
Effective June 1, 2024, we entered into an employment agreement with Ron Rheinheimer, our Chief Sales Officer (the “Rheinheimer Agreement”). Under the Rheinheimer Agreement, Mr. Rheinheimer is entitled to an annual base salary of $250,000. Mr. Rheinheimer is also eligible for success-based commission based on our achievement of certain billing targets that are set on an annual basis; Mr. Rheinheimer’s sales compensation target for 2024 is $250,000. In addition, Mr. Rheinheimer is entitled, subject to the approval of our board of directors, to options to purchase our common stock pursuant to our 2017 Stock Plan as it may be amended or restated or replaced, in an amount to be determined by our board of directors and at an exercise price equal to the fair market value per share of our common stock on the date of grant, as determined by our board of directors. The options to purchase our common stock vest monthly over three years.
The Rheinheimer Agreement also provides that if Mr. Rheinheimer’s employment is terminated without Cause or if Mr. Rheinheimer terminates his employment for Good Reason, each as defined in the Rheinheimer Agreement, subject to Mr. Rheinheimer’s execution and non-revocation of a release of claims in favor of us, then Mr. Rheinheimer shall be entitled to (i) salary continuation at his then base salary rate, from the termination date through the nine month anniversary of the termination date; plus (ii) a pro-rated bonus for the year of termination as determined by our board of directors equal to: (a) the discretionary bonus Mr. Rheinheimer would have received for the year of termination, had he remained employed through the payment date of such discretionary bonus, multiplied by (b) a fraction, the numerator of which is the number of days Mr. Rheinheimer was employed by us in the year of termination and the denominator being 365. Mr. Rheinheimer may also elect to continue to receive group health insurance coverage under our group health plan pursuant to COBRA, and we will reimburse Mr. Rheinheimer for such monthly COBRA premiums for nine months. The Rheinheimer Agreement also contains certain restrictions related to confidentiality, non-disparagement and intellectual property assignment that are applicable during or after the time that Mr. Rheinheimer is employed by us.
Joseph Powers Transition and Separation Agreement
On October 3, 2023, in connection with the retirement of Joseph Powers, our former Chief Financial Officer, we entered into a Transition and Separation Agreement with Mr. Powers (the “Powers Transition Agreement”). Mr. Powers resigned from employment with us on March 31, 2024 (the “Powers Separation Date”). In consideration for and conditioned upon Mr. Powers’ agreement to a general release and waiver of claims and covenant not to sue, (i) we paid Mr. Powers a $100,000 severance payment, (ii) we agreed to pay insurance premiums under COBRA through December 31, 2024, (iii) Mr. Powers became eligible for an extension of the exercise date of his vested stock options and (iv) we granted Mr. Powers new stock options (or RSUs if consistent with our then- effective granting practices) to purchase additional shares of our common stock, exercisable at the fair market value of our common stock as determined by our board of directors on the date that the board of directors approved such grant. All of Mr. Powers’ stock options have vested as of the date hereof.
Joseph Powers Consulting Agreement
On April 4, 2024, we entered into a consulting agreement with Mr. Powers, pursuant to which Mr. Powers has agreed to provide accounting, financial and legal review services related to the completion of this offering as an independent contractor. The Powers Consulting Agreement provides that Mr. Powers will receive $25,000 per month from April 1, 2024 to July 31, 2024. Any additional services beyond those specified in the Powers Consulting Agreement, or any services provided after July 31, 2024, will be billed at an hourly rate of $150. The Powers Consulting Agreement also provides for reimbursement of reasonable expenses incurred by
Mr. Powers in performing services under such agreement. Mr. Powers will not be eligible for any of our sponsored benefits including paid vacation, sick leave, medical insurance and/or 401(k) participation. The Powers Consulting Agreement includes perpetual confidentiality, non-solicitation, non-disclosure provisions, as well as provisions relating to assignment of inventions. The Powers Consulting Agreement terminates upon: (i) final completion of Mr. Powers’ consulting services; (ii) notice of termination of the agreement by us with 15 days prior written notice, or immediately if Mr. Powers is unable to provide his services or falls within material breach of the Powers Consulting Agreement; or (iii) October 4, 2024.
Non-Employee Director Compensation
None of our non-employee directors received compensation during the year ended December 31, 2023. All compensation that we paid to our employee directors is set forth in the table in “Executive Compensation — Summary Compensation Table.” Following this offering, we expect to pay our non-employee directors an annual retention fee of $30,000 and $150,000 in common stock for his or her services.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
A “related party transaction” is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any related party had or will have a direct or indirect material interest. A “related party” includes:
•
any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;
•
any person who beneficially owns more than 5% of our common stock;
•
any immediate family member of any of the foregoing; or
•
any entity in which any of the foregoing is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.
Historically, certain of our insiders and other related parties have been part of the funding groups that have provided funding to us via loans, convertible loans, preferred equity and direct equity investments into us as further described in this prospectus and below.
Other than the transactions described below and the compensation arrangements for our named executive officers, which we describe above, there were no related party transactions to which we were a party since the beginning of our last fiscal year or during the two fiscal years preceding our last fiscal year, or any currently proposed related party transaction.
bSpace Investments Limited
bSpace Investments Limited (“bSpace”) owns 45,890 shares of our NCNV 3 preferred stock. Shares of NCNV 3 preferred stock do not entitle holders thereof to vote on matters submitted to securityholders, but entitle the holders thereof to dividends if declared by our board of directors and to preferential payments upon liquidation and certain other corporate actions. In addition, shares of our NCNV 3 preferred stock are convertible into our common stock upon the occurrence of certain events, including this offering. Immediately prior to the closing of this offering, each share of NCNV 3 preferred stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 3 preferred stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Thus, upon consummation of this offering, we expect that bSpace will hold shares of common stock, or % of our outstanding common stock. Mohammed Al Hassan, the Co-CEO of Gulf Islamic Investments, LLC (“GII”), personally holds 100% of the equity interest in bSpace. As such, although GII does not own any securities of bSpace, GII may be deemed to be an affiliate of bSpace.
dSpace Investments Limited
dSpace Investments Limited (“dSpace”) controls zSpace, Inc. through its ownership of 3,874,946 shares of our Series A preferred stock, which is 100% of the outstanding shares of Series A preferred stock. Each share of our Series A preferred stock entitles the holder thereof to 100 votes on all matters submitted to securityholders, and each share of Series A preferred stock is convertible into one share of common stock (subject to adjustment in the case of certain events) at the option of the holder or automatically upon the occurrence of certain events, including this offering.
In addition, dSpace holds 47,250 shares of our NCNV 1 preferred stock and 2,750 shares of our NCNV 3 preferred stock. Shares of NCNV 1 preferred stock and NCNV 3 preferred stock do not entitle holders thereof to vote on matters submitted to securityholders, but entitle the holders thereof to dividends if declared by our board of directors and to preferential payments upon liquidation and certain other corporate actions. In addition, shares of NCNV 1 Preferred Stock and NCNV 3 Preferred Stock are convertible into our
common stock upon the occurrence of certain events, including this offering. Immediately prior to the closing of this offering, each share of NCNV 1 preferred stock and NCNV 3 preferred stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 1 preferred stock and NCNV 3 preferred stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Thus, upon consummation of this offering, we expect that dSpace will hold shares of common stock, or % of our outstanding common stock. Pankaj Gupta, one of our directors and the Co-CEO of GII, holds 100% of the equity interest in dSpace in his personal capacity. As such, although GII does not own any securities of dSpace, GII may be deemed to be an affiliate of dSpace.
Fiza Investments Limited
Fiza Investments Limited holds an aggregate of $10.0 million in principal amount of our convertible notes, plus accrued interest and an aggregate of approximately $3.9 million in principal amount of our non-convertible loans. The convertible notes held by Fiza are convertible into our common stock upon the occurrence of certain events, including this offering. Immediately prior to this offering, such convertible notes plus accrued interest will convert into a total of shares of our common stock based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Husain Zariwala, the Chief Financial Officer of GII and Imran Ladhani, the Head of Operations & Investor Relations of GII, each own 50% of the equity interests and voting control of Fiza. As such, they may be deemed to be the beneficial owners of the securities held by Fiza, as determined under rules issued by the SEC. Mr. Zariwala and Mr. Ladhani each disclaim beneficial ownership of all such securities.
bSpace Investments Loan. In May 2019, we entered into a loan and security agreement (the “LSA”) with bSpace. The LSA included an initial term loan of $25.0 million, and a second tranche commitment of $5.0 million (“Tranche 2”). The loan had a stated interest rate of 11.0% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. We granted bSpace a first-priority perfected security interest in all of our collateral. Amendments during 2020 added additional tranches to the debt and modified the repayment terms. Throughout 2020, we borrowed an additional $3.5 million under various loan commitments and amendments to the LSA. In April and June 2021, we borrowed an additional $3.0 million under the existing terms of the LSA.
On February 26, 2020, we and bSpace amended the terms and provisions of the LSA. In connection with the amendment all loans became due on November 6, 2020. The amendment also added a change of control provision, whereby upon the occurrence of a Change of Control (as defined in the LSA), the loan would become immediately due and payable, including any make-whole amount, along with a premium of $0.1 million plus 1.9095% of the proceeds to us from the Change of Control.
Additionally, on February 26, 2020, we drew an additional $1.0 million and amended the terms of $2.0 million of the Tranche 2 draws, collectively referred to as the “Tranche 3 loan”. The Tranche 3 loan had a stated interest rate of 5.5% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 6, 2020. In April 2020, we and bSpace amended the LSA to allow for the incurrence of certain Paycheck Protection Program loans. In November 2020, we and bSpace amended the LSA to extend the maturity date from November 6, 2020 to December 15, 2020.
In December 2020, we and bSpace amended the LSA for all tranches to (1) extend the maturity date to December 31, 2022; (2) add a repayment premium of 150.0% due under all repayment scenarios; (3) add a Tranche 4 loan commitment of $3.0 million; (4) change the repayment terms such that all principal, interest, fees and the repayment premium are due at maturity; (5) add a redemption option upon the occurrence a qualified public offering or equity financing; (6) add a conversion option; and (7) remove the premium associated with the Change of Control embedded derivative.
In April and June 2021, we drew the $3.0 million Tranche 4 loans under the same terms and conditions as existed during the December 2020 LSA modifications.
In September 2021, we and bSpace amended the LSA in connection with the Revolving Line-of-Credit. The amendment subordinated the loan to the Revolving Line-of-Credit and extended the maturity date of the loan under the LSA to February 2024.
As of December 31, 2021, the conversion feature within the loan included a contingent beneficial conversion feature, subject to the establishment of preferred stock.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, we and bSpace entered into an Amendment and Conversion Agreement (the “bSpace Conversion Agreement”). The terms of the LSA were amended such that: (a) $90.5 million would be due to bSpace, including the repayment premium and accrued interest through March 15, 2023, (b) the interest rate on the loan was reduced to 5% from January 1, 2023 to March 15, 2023, (c) $59.0 million of our indebtedness would convert into 58,972 shares of New NCNV Preferred Stock no more than 90 days from the date of the bSpace Conversion Agreement, (d) $11.5 million of our indebtedness would convert into 11,500 shares of New NCNV Preferred Stock immediately prior to the closing of the merger and (e) approximately $20.0 million owed to bSpace would be retired in conjunction with a purchase of 1,970,443 shares of EdtechX by bSpace pursuant to a private placement to occur in connection with the consummation of the merger. On June 21, 2023 the EdtechX Merger Agreement was terminated. As a result, no conversions contingent upon the merger with EdtechX occurred.
In August 2022, we issued 58,972 shares of New NCNV Preferred Stock to bSpace in exchange for the forgiveness of $59.0 million of our indebtedness in accordance with the terms of the bSpace Conversion Agreement.
As of December 31, 2022, the gross principal amount due under the LSA was $31.5 million.
On December 30, 2023, we entered into a loan termination agreement with bSpace (the “Termination Agreement”) under which all amounts outstanding under the LSA, plus unearned interest calculated post the maturity date through July 31, 2024 of $1.5 million, were exchanged for 36,918 shares of New NCNV Preferred Stock. The Termination Agreement relieves us of any further obligations under the LSA.
Kuwait Investment Authority Loan. In February 2019, we entered into a promissory note (the “KIA Note”) with the Kuwait Investment Authority (“KIA”). KIA, as a result of the New NCNV Preferred Stock held by it, is expected to be a beneficial owner of more than 5% of our common stock. The KIA Note had an initial principal amount of $5.0 million, accrued interest at 2.8% per year, and was due on-demand at any point after December 31, 2020. Principal and interest were due at maturity and would be accelerated upon an event of default or a change in control. We granted KIA a warrant to purchase shares of common stock in the event of certain dilutive issuances, which warrant expired December 31, 2020.
In December 2020, we and KIA amended the KIA Note to (1) extend the earliest maturity date to December 31, 2022, (2) remove the change of control redemption and anti-dilution features, (3) add a repayment premium of 150.0%, (4) add a redemption option upon the occurrence of a qualified public offering or equity financing, (5) add a conversion option and (6) execute a subordination agreement to clarify that the KIA Note was subordinate to the bSpace loans under the LSA. Upon the occurrence of a qualified public offering or equity financing the KIA Note would automatically convert into shares of our common stock at the original issue price of the qualified public offering or equity financing. Upon the occurrence of a non-qualified public offering or other equity financing, the KIA Note converted into shares of our common stock issued in the event at the issuance price of such non-qualified public offering or other equity financing, should bSpace elect to convert its loan. Additionally, the KIA Note was convertible into a new class of preferred stock at a conversion price equal to the greater of (a) $110.0 million or (b) four times our trailing 12-month revenue divided by the sum of (1) the total number of shares of our common stock outstanding, and (2) the total number of shares of our common stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. In connection with the modification, we granted KIA a warrant to purchase shares of common stock. The warrants had a fair value of $0.4 million at issuance. All issued warrants expired December 31, 2020.
In September 2021, we and KIA amended the KIA Note to extend the maturity date of the KIA Note to February 2024 and further amended the KIA Note in May 2022 to enable the conversion or exchange of portions of the KIA Note for common stock, contingent upon the occurrence of certain events.
As of December 31, 2021, gross principal amounts due under the KIA loan, including the repayment premium, were $12.5 million and interest accrued on the KIA loan at 2.75% per annum.
As of December 31, 2021, the KIA Note contained a contingent beneficial conversion feature, subject to the establishment of a new class of preferred stock.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, we and KIA entered into an Amendment and Conversion Agreement (“KIA Conversion Agreement”). The terms of the KIA Note were amended to provide that (a) $8.1 million of our indebtedness would convert into 8,062 shares of New NCNV Preferred Stock no more than 90 days from the date of the KIA Conversion Agreement and (b) approximately $5.0 million of our indebtedness would be retired in conjunction with a purchase of 492,610 shares of EdtechX by KIA pursuant to a private placement to occur in connection with the consummation of a private investment in a public entity . On August 12, 2022, $8.1 million of the amounts outstanding under the KIA Note was converted into 8,062 shares of New NCNV Preferred Stock. On June 21, 2023 the EdtechX Merger Agreement was terminated. As a result, no conversions contingent upon the merger with EdtechX will occur.
On January 10, 2024, the balance of approximately $5.2 million under the KIA Note was converted into 5,190 shares of New NCNV Preferred Stock pursuant to the terms of a debt conversion agreement between KIA and us and all obligations and commitments under the KIA Note were terminated. In connection with the conversion, 8,062 of KIA’s then-existing shares of NCNV preferred stock were reclassified as or exchanged for an equivalent number of New NCNV Preferred Stock.
Related Person Transactions Policy
In connection with this offering, we will adopt a written policy relating to the approval of related person transactions. A “related person transaction” is any transaction or series of transactions in which we are a participant, the amount involved exceeds $120,000, and a Related Person (as defined in the policy) has a direct or indirect material interest resulting in a potential transaction with a Related Person.
Our audit committee of the board of directors is responsible for the oversight of the policy and as such, will be entitled to rely upon determinations made and reported by our management. Our management will be responsible for determining whether a transaction is a Related Person Transaction subject to the policy, including whether the Related Person has a material interest, based on a review of all facts and circumstances. Upon a determination by our management that a transaction is a Related Person Transaction subject to the policy, the material facts concerning the transaction and the Related Person’s interest in the transaction must be reported to our audit committee.
The policy will apply to the members of our board of directors, our executive officers (as defined under the regulations of the Securities and Exchange Commission), including, in any case, but not limited to, our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, and all of our employees. It is the responsibility of all directors, officers, employees to comply with the policy. Members of the families of our directors, officers and employees and others living with them and all holding companies and other related entities and all persons or companies acting on behalf of or at the request of any of the foregoing also are expected to comply with the policy, as if they themselves were our directors, officers or employees.
Indemnification of Directors and Officers
We have entered into indemnification agreements with each of our directors and executive officers and expect to enter into a similar agreement with any new director or executive officer. The indemnification agreements, together with our bylaws, will provide that we will jointly and severally indemnify each indemnitee to the fullest extent permitted by the DGCL from and against all loss and liability suffered and expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred by or on behalf of the indemnitee in connection with any threatened, pending, or completed action, suit or proceeding. Additionally, we will agree to advance to the indemnitee all out-of-pocket costs of any type or nature whatsoever incurred in connection therewith. See “Description of Capital Stock — Limitation on Liability and Indemnification of Directors and Officers.
Policies and Procedures for Related Person Transactions
Effective upon the consummation of this offering, our board of directors will adopt a written related person transaction policy that will set forth the following policies and procedures for the review and approval or ratification of related person transactions. A “related person transaction” is a transaction, arrangement or relationship in which the post-offering company or any of its subsidiaries was, is or will be a participant and in which any related person had, has or will have a direct or indirect material interest. A “related person” means:
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any person who is, or at any time during the applicable period was, one of our executive officers or directors;
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any person who is known by the post-combination company to be the beneficial owner of more than 5% of our voting stock;
•
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother- in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of our voting stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of our voting stock; and
•
any firm, corporation or other entity in which any of the foregoing persons is a partner or principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
We will have policies and procedures designed to minimize potential conflicts of interest arising from any dealings we may have with our affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically, pursuant to our audit committee charter, the audit committee will be responsible for reviewing related party transactions for compliance with the related transactions policy. This policy will cover any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant and in which a related party had or will have a direct or indirect material interest, as determined by the audit committee, including purchases of goods or services by or from the related party or entities in which the related party has a material interest, and indebtedness, guarantees of indebtedness or employment by us of a related party. In the course of its review and approval of related party transactions, our audit committee will consider the relevant facts and circumstances to decide whether to approve such transactions, including, but not limited to, the purpose of the transaction, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction with an unrelated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Related party transactions must be approved or ratified by the audit committee based on full information about the proposed transaction and the related party’s interest.
PRINCIPAL STOCKHOLDERS
The following table sets forth actual, pro forma and pro forma as adjusted information as of , 2024 (the “Beneficial Ownership Date”) with respect to the beneficial ownership of our voting securities (i) immediately prior to this offering, (ii) on a pro forma basis immediately prior to the closing of this offering to give effect to the conversion of our outstanding preferred stock and approximately $ in indebtedness and (iii) on a pro forma as adjusted basis to reflect the sale of shares of our common stock in this offering, in each case by:
•
each of our named executive officers;
•
each of our directors;
•
all of our current directors and executive officers as a group; and
•
each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our voting securities.
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the Beneficial Ownership Date are deemed outstanding but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act.
In the table below, the applicable percentage ownership relating to shares beneficially owned prior to this offering is based on shares of our voting securities outstanding as of the Beneficial Ownership Date. The applicable share ownership information is based on 174,077 shares of our common stock, 3,874,946 shares of our Series A preferred stock (each share of Series A Preferred Stock convertible into one share of our common stock), 54,750 shares of our NCNV 1 preferred stock (each share of our NCNV 1 preferred stock convertible into shares of our common stock based on an assumed initial public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus), 5,752 shares of our NCNV 2 preferred stock (each share of our NCNV 2 preferred stock convertible into shares of our common stock based on an assumed initial public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus) and 48,640 shares of our NCNV 3 preferred stock (each share of our NCNV 3 preferred stock convertible into shares of our common stock based on an assumed initial public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus) outstanding as of , 2024 . Unless otherwise indicated in the footnotes to the table below, the address of each beneficial owner listed in the table below is 55 Nicholson Lane, San Jose, California.
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Prior to this Offering
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Pro Forma(1)
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Pro Forma as adjusted(2)
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Common Stock
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Series A
Preferred Stock
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NCNV 1
Preferred Stock
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NCNV 2
Preferred Stock
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NCNV 3
Preferred Stock
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Common Stock
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Common Stock
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Name of Beneficial Owner
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No. of
Shares
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%
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No. of
Shares
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%
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No. of
Shares
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%
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No. of
Shares
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%
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No. of
Shares
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%
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No. of
Shares
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%
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No. of
Shares
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%
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Named Executive Officers
and Directors
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Paul Kellenberger (3)
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2,303,933 |
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93.0 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Chief Executive Officer
and Director
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Erick DeOliveira
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Chief Financial Officer
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Michael Harper (4)
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518,577 |
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74.9 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Chief Product, Engineering and Marketing Officer
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Ronald Rheinheimer (5)
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373,124 |
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68.2 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Chief Sales Officer
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Pankaj Gupta (6)
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— |
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— |
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3,874,946 |
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100.0 |
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47,250 |
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86.3 |
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— |
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— |
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2,750 |
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5.7 |
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Director
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Amit Jain
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Director
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Executive Officers and Directors as a Group (6 persons)
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3,195,634 |
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94.8 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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5% Beneficial Owners
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bSpace Investments Limited (7)
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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45,890 |
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94.3 |
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dSpace Investments Limited (8)
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— |
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— |
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3,874,946 |
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100.0 |
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47,250 |
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86.3 |
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|
|
|
|
— |
|
|
|
|
|
— |
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|
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2,750 |
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5.7 |
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Kuwait Investment Authority (9)
|
|
|
|
|
11,257 |
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|
6.5 |
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|
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|
— |
|
|
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— |
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|
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7,500 |
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|
|
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|
13.7 |
|
|
|
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|
5,752 |
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|
|
|
|
100 |
|
|
|
|
|
— |
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|
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|
— |
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Fiza Investments
Limited (10)
|
|
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|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Joseph Powers (11)
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501,531 |
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74.2 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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*
Represents beneficial ownership of less than 1%.
(1)
Gives effect to (i) the conversion of the Series A Preferred Stock outstanding as of March 31, 2024 on a one-for-one basis into shares of our common stock, (ii) the conversion of 109,142 shares of the NCNV1, NVNV 2, and NCNV 3 Preferred Stock outstanding as of March 31, 2024 into shares of our common stock, which is the number of shares of common stock as is determined by dividing (a) $1,000, which is the original issue price of the NCNV 1, NCNV 2, and NCNV 3 Preferred Stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (b) $ , which is the assumed per share price of common stock sold in this offering (the mid-point of the offering price range indicated on the cover of this prospectus) and (iii) the conversion of $10.0 million of convertible notes, plus accrued interest, held by Fiza Investments Limited (“Fiza”) into a total of shares of our common stock, consisting of $5.0 million of convertible notes plus accrued interest issued to Fiza on November 3, 2022 that will convert into shares of our common stock, which is based on 100% of the assumed price of common stock sold in this offering of $ (which is the midpoint of the price range set forth on the cover of this prospectus) and $5.0 million of convertible notes plus accrued interest issued to Fiza on March 9, 2024 that will convert into shares of our common stock, which is based on 85% of the assumed price of common stock sold in this offering of $ (which is the midpoint of the price range set forth on the cover of this prospectus).
(2)
Gives effect to the issuance and sale by us of shares of our common stock in this offering at the assumed initial public offering price of $ per share (the mid-point of the offering price range indicated on the cover of this prospectus), after deducting the underwriting discounts and commission and estimated offering expenses payable by us and the application of the net proceeds from this offering to us as described under “Use of Proceeds,” in each case, as if such event had occurred on March 31, 2024.
(3)
Represents (i) 291 shares underlying options issued pursuant to the 2007 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date and (ii) 2,303,642 shares underlying options issued pursuant to the 2017 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date, all of which were vested as of such date.
(4)
Represents (i) 688 shares underlying options issued pursuant to the 2007 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date and (ii) 517,889 shares underlying options issued pursuant to the 2017 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date, all of which were vested as of such date.
(5)
Represents (i) three shares of our common stock and (ii) 373,121 shares underlying options issued pursuant to the 2017 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date, all of which were vested as of such date.
(6)
Pankaj Gupta, the Co-CEO of GII, holds 100% of the equity in dSpace Investment Limited, an entity organized under the laws of the Cayman Islands (“dSpace”), and therefore may be deemed to be the beneficial owner of the securities held by dSpace, as determined under rules issued by the SEC. Mr. Gupta disclaims beneficial ownership of all such securities. The address of Pankaj Gupta is Emaar Square, Building 4, Office 701, Downtown Dubai, PO Box 215931.
(7)
Immediately prior to the closing of this offering, each share of NCNV 3 Preferred Stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 3 Preferred Stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Mohammed Al Hassan, the Co-CEO of GII, holds 100% of the equity in bSpace Investments Limited, an entity organized under the laws of the Cayman Islands (“bSpace”), and therefore may be deemed to be the beneficial owner of the securities held by bSpace, as determined under rules issued by the SEC. The address of each of bSpace Investments Limited and Mohammed Al Hassan is Emaar Square, Building 4, Office 701, Downtown Dubai, PO Box 215931.
(8)
Upon the earlier of the conversion of the Series A Preferred Stock by dSpace or immediately prior to the closing of this offering, all shares of Series A Preferred Stock will convert into an equal number shares of our common stock, subject to adjustment for dilutive issuances. Immediately prior to the closing of this offering, each share of NCNV 3 Preferred Stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the original issue price of the NCNV 3 Preferred Stock, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Pankaj Gupta holds 100% of the equity in dSpace, and therefore may be deemed to be the beneficial owner of the securities held by dSpace, as determined under rules issued by the SEC. The address of each of dSpace Investments Limited and Pankaj Gupta is Emaar Square, Building 4, Office 701, Downtown Dubai, PO Box 215931.
(9)
Immediately prior to the closing of this offering, each share of NCNV 1 Preferred Stock and NCNV 2 Preferred Stock will convert into shares of our common stock, which is the number of shares of common stock as is determined by dividing (i) $1,000, which is the amount per share equal to the original issue price of the NCNV 1 Preferred Stock or NCNV 2 Preferred Stock, as applicable, less any amount previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the board of directors by (ii) an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Kuwait Investment Authority is a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait. The address of KIA is Block 1, Street 201, Building 900028, Sharq, P.O. Box: 64, Safat, 13001, Kuwait City, Kuwait.
(10)
Upon the consummation of this offering, $10.0 million of convertible notes, plus accrued interest, held by Fiza Investments Limited, an entity formed under the laws of the Cayman Islands (“Fiza”) will convert into a total of shares of our common stock based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The $10.0 million of convertible notes consists of $5.0 million of convertible notes plus accrued interest issued to Fiza on November 3, 2022 that will convert into shares of our common stock, which is the outstanding amount thereof divided by the assumed initial public offering price of our common stock in this offering and $5 million of convertible notes, plus accrued interest, issued to Fiza on March 9, 2024 that will convert into shares of our common stock, which is the outstanding amount thereof divided by 85% of the assumed initial public offering price of our common stock in this offering. The address of Fiza Investments Limited is c/o Gulf Islamic Investments LLC, PO Box 215931, Emaar Square 4, 7th Floor, Downtown Dubai, United Arab Emirates. Husain Zariwala, the Chief Financial Officer of GII, and Imran Ladhani, the Head of Operations & Investor Relations of GII, each own 50% of the equity interests and voting control of Fiza. As such, they may be deemed to be the beneficial owners of the securities held by Fiza, as determined under rules issued by the SEC. Mr. Zariwala and Mr. Ladhani each disclaim beneficial ownership of all such securities.
(11)
Represents (i) 203 shares underlying options issued pursuant to the 2007 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date and (ii) 501,328 shares underlying options issued pursuant to the 2017 Stock Plan that are exercisable within 60 days of the Beneficial Ownership Date, all of which were vested as of such date. Mr. Powers is a former employee.
DESCRIPTION OF CAPITAL STOCK
The following describes our common stock, preferred stock and certain terms of our Charter and bylaws as proposed to be in effect immediately prior to the consummation of the offering. This description is a summary only and is subject to the complete text of our Charter and bylaws, which we will file as exhibits to the registration statement of which this prospectus is a part.
General
The following summary of certain provisions of our securities does not purport to be complete and is subject to our Charter and our Bylaws to be in effect prior to the consummation of the offering and the provisions of applicable law.
Upon completion of this offering, our Charter will authorize capital stock consisting of 100,000,000 shares of common stock, par value $0.00001 per share, and 5,000,000 shares of preferred stock, par value $0.00001 per share. Immediately prior to this offering, there has been no public market for our common stock. Upon completion of this offering, there will be shares of common stock outstanding (or shares if the underwriters exercise their over-allotment option in full) and no shares of preferred stock outstanding. The number of shares of common stock outstanding excludes shares issuable in connection with options granted upon achievement of certain vesting conditions and 2,760,208 shares reserved for issuance pursuant to the 2017 Stock Plan as of March 31, 2024 and shares issuable in connection with options granted upon achievement of certain vesting conditions and shares reserved for issuance pursuant to the 2024 Stock Plan.
Reverse Stock Split
On December 29, 2023, we effected a 1-for-75 reverse split of our issued and outstanding common stock and Series A Preferred Stock (the “Reverse Split”). All share and per share information herein has been retroactively adjusted to reflect the Reverse Split, unless otherwise indicated.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of convertible preferred stock outstanding at the time, the holders of shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. No such dividends are expected to be issued in the near future.
Voting Rights
Following this offering, holders of shares of our common stock will be entitled to one vote for each share of our common stock held of record by such holder on all matters voted upon by our stockholders; provided, however, that, except as otherwise required in the Charter or by applicable law, the holders of our common stock will not be entitled to vote on any amendment to our Charter that relates solely to the terms of one or more outstanding series of our preferred stock ( and no preferred stock is expected to be outstanding after the offering) if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to our Charter or pursuant to the DGCL. Following the offering, our directors, executive officers, and beneficial owners of 5% or greater of our outstanding common stock and their respective affiliates will hold % of the outstanding shares of our common stock.
We have not provided for cumulative voting for the election of directors in our Charter that will become effective immediately prior to the completion of the offering. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Preferred Stock
In connection with this offering, each currently outstanding share of preferred stock will convert into shares of common stock. Immediately prior to the closing of the offering, (i) 3,874,946 of the Series A Convertible Preferred Stock will convert into shares of common stock, 54,750 shares of NCNV 1 preferred stock will convert into shares of common stock, 5,752 shares of NCNV 2 preferred stock will convert into shares of common stock and 48,640 shares of NCNV 3 preferred stock will convert into shares of common stock, based on an assumed offering price of , and there will be no remaining outstanding shares of preferred stock.
Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. The number of authorized shares of our preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting stock, without a separate vote of the holders of the preferred stock, irrespective of the provisions of Section 242(b)(2) of the DGCL, unless a separate vote of the holders of one or more series is required pursuant to the terms of any applicable certificate of designation; provided, however, that if at least two-thirds of the total number of authorized directors of our board of directors (whether or not there exist any vacancies in previously authorized directorships) has approved such increase or decrease of the number of authorized shares of preferred stock, then only the affirmative vote of all of the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of shares of preferred stock (unless a separate vote of the holders of one or more series is required pursuant to the terms of the certificate of designation), shall be required to effect such increase or decrease. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in our control and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. Other than existing preferred stock, all of which shall be converted to common stock on consummation of the offering. We do not currently plan to issue any shares of preferred stock.
If and for so long as the holders of any series of preferred stock have the special right to elect additional directors, then upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of directors of we will automatically be increased by such specified number of directors, and the holders of preferred stock will be entitled to elect the additional directors so provided for or fixed pursuant to such provisions, and (ii) each such additional director will serve until such director’s successor has been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to such provisions, whichever occurs earlier, subject to his or her earlier death, resignation, retirement, disqualification or removal. Except as otherwise provided by our board of directors in the resolution or resolutions establishing such series, whenever the holders of any series of preferred stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such preferred stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional
directors, will immediately terminate and the total authorized number of directors of the our board of directors will be reduced accordingly.
Anti-Takeover Provisions
The provisions of the DGCL, the Charter, and the Bylaws expected to be in place prior to the consummation of this offering could have the effect of delaying, deferring or discouraging another person from acquiring control of us. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
•
before the stockholder became interested, our board of directors approved either the business combination or the transaction, which resulted in the stockholder becoming an interested stockholder;
•
upon consummation of the transaction, which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans in some instances, but not the outstanding voting stock owned by the interested stockholder; or
•
at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or Extraordinary General Meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock, which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
•
any merger or consolidation involving the corporation and the interested stockholder;
•
any sale, transfer, lease, pledge, or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
•
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
•
subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and
•
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges, or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation in which we are a constituent entity. Pursuant to the DGCL, stockholders who
properly demand and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery, if any, on the amount determined to be the fair value, from the effective time of the merger or consolidation through the date of payment of the judgment.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law. To bring such an action, the stockholder must otherwise comply with Delaware law regarding derivative actions.
Provisions of our Charter and Bylaws
Our Charter and Bylaws include a number of provisions that may have the effect of deterring hostile takeovers, or delaying or preventing changes in control of our management team or changes in our board of directors or our governance or policy, including the following:
•
Board of Directors Vacancies. The Charter and the Bylaws authorize generally only our board of directors to fill vacant directorships resulting from any cause or created by the expansion of our board of directors. In addition, the number of directors constituting our board of directors may be set only by resolution adopted by a majority vote of our entire board of directors and shall not be filled by stockholders. These provisions prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors by filling the resulting vacancies with its own nominees.
•
Directors Removed Only for Cause. The Charter provides that stockholders may remove directors only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the then-outstanding common stock entitled to vote at an election of directors.
•
Classified Board of Directors. The Charter provides that our board of directors will be classified, such that the initial term of our independent directors will expire at our first annual meeting of stockholders following this offering and the initial term of our non-independent directors will expire at the second annual meeting of stockholders following this offering.
•
Stockholder Nomination of Directors. The Bylaws provide that stockholders holding more than 40% of our voting securities will be entitled to nominate two persons for election to our board of directors and stockholders holding 40% or less but more than 25% of our voting securities will be entitled to nominate one person for election to our board of directors.
•
Supermajority Requirements for Amendments of the Charter and Bylaws. The Charter further provides that the affirmative vote of holders of at least two-thirds of the voting power of all of the then outstanding shares of capital stock entitled to vote are required to amend or repeal any provision of the Charter, provided that if two-thirds of our board of directors has approved such amendment only the affirmative vote of a majority of the voting power of all of the then outstanding shares of capital stock shall be required to amend the Proposed Charter. The affirmative vote of holders of at least two-thirds of the voting power of all of the then outstanding shares of common stock entitled to vote will be required to amend or repeal the Bylaws, although the Bylaws may be amended by a simple majority vote of our board of directors. Additionally, in the case of any proposed adoption, amendment, or repeal of any provisions of the Bylaws that is approved by our board of directors and submitted to the stockholders for adoption, if two-thirds of our board of directors has approved such adoption, amendment, or repeal of any provisions of the Bylaws, then only the affirmative vote of a majority of the voting power of all of the then outstanding shares of common stock entitled to vote shall be required to adopt, amend, or repeal any provision of the Bylaws.
•
Stockholder Action; Special Meetings of Stockholders. The Charter provides our stockholders may not take action by written consent but may only take action at annual or special meetings of our stockholders. As a result, holders of our common stock would not be able to amend the Bylaws or remove directors without holding a meeting of our stockholders called in accordance with the Bylaws. The Charter and the Bylaws provide that special meetings of our stockholders may be called only by a
majority of our board of directors, the chairman of the board of directors, our chief executive officer, our President or stockholders collectively holding more than 30% of our voting securities, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders to take any action, including the removal of directors.
•
Advance Notice Requirements for Stockholder Proposals and Director Nominations. The Bylaws provide advance notice procedures for stockholders seeking to bring business before the annual meeting of stockholders or to nominate candidates for election as directors at the annual meeting of stockholders. The Bylaws also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions may preclude our stockholders from bringing matters before the annual meeting of stockholders or from making nominations for directors at the annual meeting of stockholders. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
•
No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Charter and Bylaws will not provide for cumulative voting.
•
Issuance of Undesignated Preferred Stock. We anticipate that after the filing of the Charter, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissued shares of preferred stock enables the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, contest or otherwise.
•
Choice of Forum. In addition, the Charter provides that, to the fullest extent permitted by law, unless otherwise consented to in writing by us, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, the Charter or the Bylaws, any action asserting a claim against us that is governed by the internal affairs doctrine or any action to interpret, apply, enforce, or determine the validity of the Charter or Bylaws. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. The Charter will also provide that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court which recently found that such provisions are facially valid under Delaware law or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, the Federal Forum Provision applies, to the fullest extent permitted by law, to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. We will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may impose additional litigation costs on stockholders and limit their ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.
Listing Symbol
We have applied to list our common stock on Nasdaq under the symbol “ZSPC.”
Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our common stock will be Odyssey Transfer and Trust Company. The address for the transfer agent is 2155 Woodlane Drive, Suite 100, Woodbury, Minnesota 55125.
SHARES ELIGIBLE FOR FUTURE RESALE
Prior to this offering, there was no public market for our common stock, and there can be no assurance that a significant public market for our common stock will develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market (including securities convertible into or redeemable, exchangeable, or exercisable for shares of common stock) or the perception that such sales may occur or the availability of such shares for sale in the public market, after this offering could adversely affect the prevailing market price of our common stock. Furthermore, because all of our common stock outstanding prior to the completion of this offering (including securities convertible into or redeemable, exchangeable, or exercisable for shares of our common stock) will be subject to the contractual and legal restrictions on resale described below, the sale of a substantial amount of common stock in the public market after these restrictions lapse could materially adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares of common stock outstanding as of , 2024, upon the completion of this offering we will have outstanding a total of shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering.
The lock-up agreements entered into with Gulf Islamic Investments, LLC, dSpace Investments Limited and bSpace Investments Limited pertaining to this offering will expire 365 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by Roth Capital Partners, LLC in its sole discretion. The lock-up agreements entered into with the Kuwait Investment Authority and our directors and officers prevent such parties, subject to certain exceptions (i) from disposing of or hedging any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days following the closing date of this offering, at which point such persons may dispose of or hedge 50% of the shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them, and (ii) from disposing of or hedging the remaining 50% of shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them for 365 days following the closing date of this offering, in either case, subject to earlier release of all or a portion of the shares subject to such agreements by Roth Capital Partners, LLC in its sole discretion. Additionally, our employees have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days following the closing date of this offering. Accordingly, 180 days after the closing of this offering, shares of common stock will be eligible for sale in the public market. Approximately % of these additional shares are beneficially held by directors, executive officers and their affiliates and will be subject to certain limitations of Rule 144 under the Securities Act. 365 days after the closing of this offering, shares of common stock will be eligible for sale in the public market. Approximately % of these additional shares are beneficially held by directors, executive officers and their affiliates and will be subject to certain limitations of Rule 144 under the Securities Act.
In addition, shares of common stock that are reserved for future issuance under our existing equity compensation plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
All of the shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than “affiliates,” as that term is defined in Rule 144 under the Securities Act.
Generally, the balance of our outstanding shares of common stock will be deemed “restricted securities” within the meaning of Rule 144 under the Securities Act, subject to the limitations and restrictions that are described below. Common stock purchased by our affiliates will be “restricted securities” under Rule 144.
Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.
Rule 144
In general, under Rule 144 as in effect on the date of this prospectus, beginning 90 days after completion of this offering, a person (or persons whose common stock is required to be aggregated) who is an affiliate and who has beneficially owned our common stock for at least six months is entitled to sell in any three-month period a number of shares that does not exceed the greater of:
•
1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after completion of this offering; or
•
the average weekly trading volume in our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such a sale.
Sales by our affiliates under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. An “affiliate” is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, an issuer.
Under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months (including the holding period of any prior owner other than an affiliate), would be entitled to sell those shares subject only to availability of current public information about us, and after beneficially owning such shares for at least 12 months, would be entitled to sell an unlimited number of shares without restriction. To the extent that our affiliates sell their shares of common stock, other than pursuant to Rule 144 or a registration statement, the purchaser’s holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate.
Regulation S
Regulation S under the Securities Act provides that securities owned by any person may be sold without registration in the United States, provided that the sale is effected in an “offshore transaction” and no “directed selling efforts” are made in the United States (as these terms are defined in Regulation S) and subject to certain other conditions. In general, this means that our shares may be sold in some manner outside the United States without requiring registration in the United States.
Rule 701
In general, under Rule 701 as in effect on the date of this prospectus, any of our employees, directors, officers, consultants, or advisors who purchased shares from us in reliance on Rule 701 in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering, or who purchase shares from us after that date upon the exercise of options granted before that date, are eligible to resell such shares 90 days after the effective date of this offering in reliance upon Rule 144. If such person is not an affiliate, such sale may be made subject only to current public information provisions of Rule 144. If such a person is an affiliate, such sale may be made under Rule 144 without compliance with the holding period requirement, but subject to the other Rule 144 restrictions described above.
Equity Incentive Plans
Following the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock issued or issuable under the 2007 Stock Plan, the 2017 Stock Plan and the 2024 Stock Plan. Any such registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market following the expiration of the lock-up period. We expect that the initial registration statement on Form S-8 will cover approximately shares of our common stock. Shares issued under the plans after the effective date of the applicable registration statement on Form S-8 will be eligible for resale in
the public market without restriction, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements described above. See “Executive Compensation — Equity Compensation” and “Executive Compensation Plans” for a description of our equity incentive plans.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS OF OUR COMMON STOCK
The following discussion is a summary of the material United States federal income tax consequences to non-United States holders (as defined below) of the purchase, ownership and disposition of shares of our common stock issued pursuant to this offering but is not intended to be a complete analysis of all potential tax consequences. The effects of other United States federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-United States tax laws are not discussed. This discussion is based on the United States Internal Revenue Code of 1986, as amended (the “Code”), final, temporary, and proposed Treasury Regulations, judicial decisions, and published rulings and administrative pronouncements of the United States Internal Revenue Service (the “IRS”), in each case as in effect as of the date of this prospectus. These authorities may change or be subject to differing interpretations, and any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a non-United States holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the ownership and disposition of our common stock.
This discussion is limited to a non-United States holder that holds our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all United States federal income tax consequences relevant to a non-United States holder’s particular circumstance, including the impact of the alternative minimum tax, the special tax accounting rules in Section 451(b) of the Code or the Medicare surtax on net investment income provided by Section 1411 of the Code. In addition, it does not address consequences relevant to Non-United States Holders subject to special rules, including, without limitation:
•
United States expatriates and former citizens or long-term residents of the United States;
•
persons holding shares of our common stock as part of a straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
•
banks, insurance companies, and other financial institutions;
•
brokers, dealers, or certain electing traders in securities that use a mark-to-market method of tax accounting for their securities positions;
•
“controlled foreign corporations”, “passive foreign investment companies”, as defined in Sections 957 and Section 1297 of the Code, respectively, and corporations that accumulate earnings to avoid United States federal income tax under Section 531 and 532 of the Code;
•
partnerships or other entities or arrangements treated as partnerships for United States federal income tax purposes and other pass-through entities (and investors in such entities);
•
tax-exempt organizations or governmental organizations or controlled entities of governmental organizations;
•
persons deemed to sell our common stock under the constructive sale provisions of the Code;
•
tax-qualified retirement plans; and
•
“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds.
If an entity treated as a partnership for United States federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the United States federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP, AND DISPOSITION OF SHARES OF OUR COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, OR NON-UNITED STATES TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-United States Holder
For purposes of this discussion, a “non-United States holder” is any beneficial owner of our common stock that for U.S. federal income tax purposes is an individual, corporation, estate or trust and is not a “United States holder.” A United States holder is a beneficial owner of our common stock that, for United States federal income tax purposes, is or is treated as any of the following:
•
an individual who is a citizen or resident of the United States;
•
a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
•
an estate, the income of which is subject to United States federal income tax regardless of its source; or
•
a trust that (1) is subject to the primary supervision of a United States court and the control of one or more United States persons within the meaning of Section 7701(a)(30) of the Code (hereinafter, “United States persons”), or (2) has a valid election in effect to be treated as a United States person.
Dividends
We do not currently anticipate paying cash dividends on shares of our common stock in the foreseeable future. If we make distributions of cash or other property (other than certain pro rata distributions of our stock) in respect of our common stock, the distribution generally will be treated as a dividend for United States federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and profits generally will be treated first as a tax-free return of capital, causing a reduction in the adjusted tax basis of a non-United States holder’s common stock, and to the extent the amount of the distribution exceeds a non-United States holder’s adjusted tax basis in our common stock, the excess will be treated as gain from the disposition of our securities or our common stock (the tax treatment of which is described below under described below under “— Gain on Disposition of Common Stock”).
Dividends paid to a non-United States holder generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-United States holder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment of the non-United States holder) are not subject to such withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis at the same rates applicable to a United States person. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A non-United States holder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to provide the applicable withholding agent with a properly executed Internal Revenue Service Form W-8BEN or Form W-8BEN-E (or other applicable form) certifying under penalty of perjury that such holder is not a United States person and is eligible for treaty benefits or (b) if our securities or our common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain non-United States holders that are pass-through entities rather than corporations or individuals.
A non-United States holder, eligible for a reduced rate of United States federal withholding tax pursuant to an income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the Internal Revenue Service.
Gain on Disposition of Common Stock
Subject to the discussion of backup withholding below, any gain realized by a non-United States holder on the sale or other taxable disposition of our common stock generally will not be subject to United States federal income tax unless:
•
the gain is effectively connected with a trade or business of the non-United States holder in the United States (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of the non-United States holder);
•
the non-United States holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met; or
•
we are or have been a “United States real property holding corporation” for United States federal income tax purposes and certain other conditions are met.
A non-United States holder described in the first bullet point immediately above will be subject to tax on the gain derived from the sale or other disposition in the same manner as if the non-United States holder were a United States person. In addition, if any non-United States holder described in the first bullet point immediately above is a foreign corporation, the gain realized by such non-United States holder may be subject to an additional “branch profits tax” at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). An individual non-United States holder described in the second bullet point immediately above will be subject to a tax equal to 30% (or such lower rate as may be specified by an applicable income tax treaty) on the gain derived from the sale or other disposition, which gain may be offset by United States source capital losses, even though the individual is not considered a resident of the United States, provided that the non-United States holder has timely filed United States federal income tax returns with respect to such losses.
Generally, a corporation is a “United States real property holding corporation” if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for United States federal income tax purposes). We believe we are not and do not anticipate becoming a “United States real property holding corporation” for United States federal income tax purposes.
Information Reporting and Backup Withholding
Distributions paid to a non-United States holder and the amount of any tax withheld with respect to such distributions generally will be reported to the Internal Revenue Service. Copies of the information returns reporting such distributions and any withholding may also be made available to the tax authorities in the country in which the non-United States holder resides under the provisions of an applicable income tax treaty or agreement for the exchange of information.
A non-United States holder will not be subject to backup withholding on distributions received if such holder certifies under penalty of perjury that it is a non-United States holder (and the payor does not have actual knowledge or reason to know that such holder is a United States person), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition of our securities or our common stock made within the United States or conducted through certain United States-related persons, unless the beneficial owner certifies under penalty of perjury that it is a non-United States holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-United States holder’s United States federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.
Additional Withholding Requirements
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% United States federal withholding tax may apply to any dividends paid on our securities or our common
stock to (i) a “foreign financial institution” (as specifically defined in the Code, regardless of whether such foreign financial institution is the beneficial owner or an intermediary) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” (as specifically defined in the Code, regardless of whether such non-financial foreign entity is the beneficial owner or an intermediary) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial United States beneficial owners of such entity (if any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “— Dividends,” an applicable withholding agent may credit the withholding under FATCA against, and therefore reduce, such other withholding tax. While withholding under FATCA would also have applied to payments of gross proceeds from the sale or other taxable disposition of our securities or our common stock, proposed United States Treasury regulations (upon which taxpayers and withholding agents may rely until final regulations are issued) eliminate FATCA withholding on payments of gross proceeds entirely. You should consult your own tax advisors regarding these requirements and whether they may be relevant to your purchase, ownership and disposition of our common stock.
UNDERWRITING
We have entered into an underwriting agreement with Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC to act as representatives of the underwriters named below, with respect to the shares subject to this offering. Subject to the terms and conditions in the underwriting agreement we have entered into with the representatives, we have agreed to sell to the underwriters, and each underwriter will, severally and not jointly, agree to purchase from us on a firm commitment basis, the respective number of shares of our common stock set forth opposite its name in the table below:
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Underwriters
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Number of Shares
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Roth Capital Partners, LLC
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Craig-Hallum Capital Group LLC
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Barrington Research Associates, Inc.
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Total
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The underwriting agreement provides that the obligation of the underwriters to purchase all of the shares being offered to the public is subject to approval of legal matters by counsel and the satisfaction of other conditions. These conditions include, among others, the continued accuracy of representations and warranties made by us in the underwriting agreement, delivery of legal opinions and the absence of any material changes in our assets, business or prospects after the date of this prospectus. The underwriters are obligated to purchase all of our shares in this offering, other than those covered by the over-allotment option described below, if they purchase any of our shares.
The representatives of the underwriters have advised us that the underwriters propose to offer the common stock directly to the public at the public offering price listed on the cover page of this prospectus and to selected dealers, who may include the underwriters, at the public offering price less a selling concession not in excess of $ per share for the common stock. After the completion of this offering, the underwriters may change the offering price and other selling terms.
Pursuant to the underwriting agreement, we have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments which the underwriters or other indemnified parties may be required to make in respect of any such liabilities.
We have applied to have our common stock listed on Nasdaq under the symbol “ZSPC”.
Pricing of the offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
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the information set forth in this prospectus and otherwise available to the representatives,
•
our prospects and the history and prospects for the industry in which we compete,
•
an assessment of our management,
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our prospects for future earnings,
•
the general condition of the securities markets at the time of this offering,
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the recent market prices of, and demand for, publicly traded common stock of generally comparable companies, and
•
other factors deemed relevant by the underwriters and us.
Neither we nor the underwriters can assure investors that an active trading market will develop for the shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price.
Over-Allotment Option
We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, each underwriter will be obligated to purchase its proportionate number of shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discounts and commissions.
Commissions and Expenses
The following table provides information regarding the amount of the underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares to cover over-allotments, if any.
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Total
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Per Share
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Without
Over-Allotment
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With
Over-Allotment
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Underwriting discounts and commissions paid by us
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$ |
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$ |
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$ |
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Proceeds, before expenses, to us
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$ |
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$ |
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$ |
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The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ million, which includes our legal, accounting and printing costs and various other fees associated with registration and listing of our common stock. We have agreed to reimburse the underwriters for their reasonable out-of-pocket expenses incurred in the offering, including fees and disbursements of legal counsel to the representative, in an aggregate amount not to exceed $250,000.
In addition, we have agreed to issue warrants to Roth Capital Partners, LLC to purchase a number of shares of common stock equal to 5% of the number of shares sold in this offering by us (“Representative’s Warrants”). The Representative’s Warrants will be exercisable upon issuance, will have an exercise price equal to 150% of the initial public offering price and will terminate on the fifth anniversary of the effective date of the registration statement of which this prospectus is a part. The Representative’s Warrants and the underlying shares of common stock are deemed compensation by FINRA and will therefore be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the Representative’s Warrants nor any of our shares issued upon exercise of the Representative’s Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the Representative’s Warrants are being issued, subject to certain exceptions.
Lock-Up Agreements
In connection with this offering, Gulf Islamic Investments, LLC, dSpace Investments Limited and bSpace Investments Limited have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 365 days following the closing date of this offering, except with the prior written consent of Roth Capital Partners, LLC. In addition, in connection with this offering, Kuwait Investment Authority and our directors and officers, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days following the closing date of this offering, at which point such persons may and dispose of or hedge 50% of the shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them, and not to dispose of or hedge the remaining shares of our common stock or securities convertible into or exchangeable for shares of our common stock held by them for 365 days following the closing date of this offering, in each case, except with the prior written consent of Roth Capital Partners, LLC. Additionally, our employees have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or
exchangeable for shares of our common stock for 180 days following the closing date of this offering, except with the prior written consent of Roth Capital Partners, LLC.
Roth Capital Partners, LLC may, in its sole discretion and at any time or from time to time, release all or any portion of the common stock or other securities subject to the lock-up agreement. Any determination to release any common stock would be based upon a number of factors at the time of determination, which may include the market price of the common stock, the liquidity of the trading market of the common stock, general market conditions, the number of shares of common stock or other securities proposed to be sold or otherwise transferred and the timing, purposes and terms of the proposed sale or other transfer. Roth Capital Partners, LLC does not have any present intention, agreement or understanding, implicit or explicit, to release any of the shares of common stock or other securities subject to the lock-up agreements prior to the expiration of the lock-up periods described above.
In addition, the underwriting agreement provides that, subject to certain exceptions, we will not, for a period of 180 days following the date of this prospectus, offer, sell or distribute any of our securities, without the prior written consent of the underwriters.
Stabilization
Until the distribution of the securities offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our common stock. As an exception to these rules, the underwriters may engage in transactions effected in accordance with Regulation M under the Exchange Act that are intended to stabilize, maintain or otherwise affect the price of our common stock. The underwriters may engage in over-allotment sales, syndicate covering transactions, stabilizing transactions and penalty bids in accordance with Regulation M:
•
Stabilizing transactions permit bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, so long as stabilizing bids do not exceed a specified maximum.
•
Over-allotment involves sales by the underwriters of securities in excess of the number of securities the underwriters are obligated to purchase, which creates a short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares of common stock over-allotted by the underwriters is not greater than the number of shares of common stock that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares of our common stock in the open market.
•
Covering transactions involve the purchase of securities in the open market after the distribution has been completed in order to cover short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more shares of common stock than could be covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in this offering.
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Penalty bids permit the underwriters to reclaim a selling concession from a selected dealer when the securities originally sold by the selected dealer are purchased in a stabilizing or syndicate covering transaction.
These stabilizing transactions, covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.
Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the prices of our common stock. These transactions may occur on any trading market. If any of these transactions are commenced, they may be discontinued without notice at any time.
Electronic Prospectus
This prospectus may be made available in electronic format on internet sites or through other online services maintained by the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. Other than this prospectus in electronic format, any information on the underwriters’ or their affiliates’ websites and any information contained in any other website maintained by the underwriters or any affiliate of the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong
Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
•
to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
•
to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
•
to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining our prior consent or any underwriter for any such offer; or
•
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall require us to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2 and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information
has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be affected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
•
to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
•
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
•
made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
•
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
New Zealand
The shares of common stock offered hereby have not been offered or sold, and will not be offered or sold, directly or indirectly in New Zealand and no offering materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:
•
to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money;
•
to persons who in all the circumstances can properly be regarded as having been selected otherwise than as members of the public;
•
to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or any associated person of the issuer); or
•
in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any statutory modification or reenactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. We may not render services relating to the securities within the United Arab Emirates, including the receipt of applications and/or the allotment or redemption of such shares.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply us.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
Saudi Arabia
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations as issued by the board of the Saudi Arabian Capital Market Authority (“CMA”), pursuant to resolution number 2-11-2004 dated 4 October 2004 as amended by resolution number 1-28-2008, as amended (the “CMA Regulations”). The CMA does not make any representation as to the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective purchasers of the shares of common stock offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this document, you should consult an authorized financial adviser.
Dubai International Financial Centre (“DIFC”)
This document relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (“DFSA”). This document is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set
forth herein and has no responsibility for this document. The shares of common stock to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares of common stock offered should conduct their own due diligence on the securities. If you do not understand the contents of this document, you should consult an authorized financial advisor.
In relation to its use in the DIFC, this document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
Qatar
The shares of common stock described in this prospectus have not been, and will not be, offered, sold or delivered, at any time, directly or indirectly in the State of Qatar in a manner that would constitute a public offering. This prospectus has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority or Qatar Central Bank and may not be publicly distributed. This prospectus is intended for the original recipient only and must not be provided to any other person. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed upon for us by Pryor Cashman LLP, New York, New York. Pillsbury Winthrop Shaw Pittman LLP, New York, New York, is acting as counsel to the underwriters in connection with certain legal matters relating to this offering.
EXPERTS
The consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022 included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, P.C., an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement of which this Prospectus is a part, given on the authority of said firm as experts in auditing and accounting. The report on the consolidated financial statements contains an explanatory paragraph regarding our ability to continue as a going concern.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. In this prospectus we refer to that registration statement, together with all amendments, exhibits and schedules to that registration statement, as “the registration statement.”
As is permitted by the rules and regulations of the SEC, this prospectus, which is part of the registration statement, omits some information, exhibits, schedules and undertakings set forth in the registration statement. For further information with respect to us, and shares of common stock offered by this prospectus, please refer to the registration statement. This prospectus summarizes certain provisions of certain contracts and other documents filed as exhibits to which we refer you. Because the summaries may not contain all of the information that you may find important, you should review the full text of those documents.
Following the declaration of effectiveness of the registration statement on Form S-1, of which this prospectus forms a part, we will be required to file current, quarterly and annual reports, proxy statements and other information without charge with the SEC. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
ZSPACE, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2024 AND
DECEMBER 31, 2023 AND FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
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zSpace, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
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|
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March 31,
2024
|
|
|
December 31,
2023
|
|
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ASSETS
|
|
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|
|
|
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|
|
|
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|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$ |
1,188 |
|
|
|
|
$ |
3,128 |
|
|
|
Accounts receivable, net of allowance of $217 and $217
|
|
|
|
|
6,483 |
|
|
|
|
|
5,040 |
|
|
|
Inventory, net
|
|
|
|
|
4,043 |
|
|
|
|
|
3,535 |
|
|
|
Prepaid and other current assets
|
|
|
|
|
2,208 |
|
|
|
|
|
1,975 |
|
|
|
Total current assets
|
|
|
|
|
13,922 |
|
|
|
|
|
13,678 |
|
|
|
Property and equipment, net
|
|
|
|
|
18 |
|
|
|
|
|
21 |
|
|
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Deferred offering costs
|
|
|
|
|
412 |
|
|
|
|
|
148 |
|
|
|
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
14,352 |
|
|
|
|
$ |
13,847 |
|
|
|
LIABILITIES, TEMPORARY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
|
|
|
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|
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|
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|
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Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Accounts payable
|
|
|
|
$ |
5,192 |
|
|
|
|
$ |
4,735 |
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
9,167 |
|
|
|
|
|
9,229 |
|
|
|
Convertible debt
|
|
|
|
|
10,000 |
|
|
|
|
|
5,000 |
|
|
|
Other current debt
|
|
|
|
|
6,422 |
|
|
|
|
|
7,017 |
|
|
|
Current accrued interest
|
|
|
|
|
1,439 |
|
|
|
|
|
1,152 |
|
|
|
Deferred revenue, current portion
|
|
|
|
|
3,558 |
|
|
|
|
|
2,754 |
|
|
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Total current liabilities
|
|
|
|
|
35,778 |
|
|
|
|
|
29,887 |
|
|
|
Noncurrent related party debt
|
|
|
|
|
— |
|
|
|
|
|
5,000 |
|
|
|
Other noncurrent debt
|
|
|
|
|
1,644 |
|
|
|
|
|
2,053 |
|
|
|
Noncurrent accrued interest
|
|
|
|
|
— |
|
|
|
|
|
138 |
|
|
|
Deferred revenue, net of current portion
|
|
|
|
|
179 |
|
|
|
|
|
288 |
|
|
|
Total liabilities
|
|
|
|
|
37,601 |
|
|
|
|
|
37,366 |
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Temporary redeemable preferred stock:
|
|
|
|
|
|
|
|
|
|
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Series A preferred stock, $0.00001 par value; 3,874,946 shares authorized; 3,874,946 issued
and outstanding as of March 31, 2024 and December 31, 2023; liquidation value of
$4,097 as of March 31, 2024
|
|
|
|
|
3,000 |
|
|
|
|
|
3,000 |
|
|
|
NCNV 1, NCNV 2, and NCNV 3 preferred stock, $0.00001 par value; 140,000 shares authorized; 109,142 and 103,952 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively; liquidation value of $109,142 as of March 31, 2024
|
|
|
|
|
109,142 |
|
|
|
|
|
103,952 |
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.00001 par value; 13,333,333 shares authorized, 174,077 issued and outstanding as of March 31, 2024 and December 31, 2023
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Additional paid-in capital
|
|
|
|
|
146,132 |
|
|
|
|
|
138,878 |
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
302 |
|
|
|
|
|
228 |
|
|
|
Accumulated deficit
|
|
|
|
|
(281,825) |
|
|
|
|
|
(269,577) |
|
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Total stockholders’ deficit
|
|
|
|
|
(135,391) |
|
|
|
|
|
(130,471) |
|
|
|
Total liabilities, temporary redeemable preferred stock and stockholders’ deficit
|
|
|
|
$ |
14,352 |
|
|
|
|
$ |
13,847 |
|
|
See accompanying notes to condensed consolidated financial statements.
zSpace, Inc,
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)
| |
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Three Months Ended March 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
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Revenue
|
|
|
|
$ |
7,841 |
|
|
|
|
$ |
7,549 |
|
|
|
Cost of goods sold
|
|
|
|
|
5,139 |
|
|
|
|
|
4,266 |
|
|
|
Gross profit
|
|
|
|
|
2,702 |
|
|
|
|
|
3,283 |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
1,977 |
|
|
|
|
|
1,113 |
|
|
|
Selling and marketing
|
|
|
|
|
5,505 |
|
|
|
|
|
3,278 |
|
|
|
General and administrative
|
|
|
|
|
6,609 |
|
|
|
|
|
1,715 |
|
|
|
Total operating expenses
|
|
|
|
|
14,091 |
|
|
|
|
|
6,106 |
|
|
|
Loss from operations
|
|
|
|
|
(11,389) |
|
|
|
|
|
(2,823) |
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(729) |
|
|
|
|
|
(599) |
|
|
|
Other income (expense), net
|
|
|
|
|
(82) |
|
|
|
|
|
5 |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
(52) |
|
|
|
|
|
— |
|
|
|
Loss before income taxes
|
|
|
|
|
(12,252) |
|
|
|
|
|
(3,417) |
|
|
|
Income tax benefit
|
|
|
|
|
5 |
|
|
|
|
|
— |
|
|
|
Net loss
|
|
|
|
|
(12,247) |
|
|
|
|
|
(3,417) |
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
74 |
|
|
|
|
|
(11) |
|
|
|
Comprehensive loss
|
|
|
|
$ |
(12,173) |
|
|
|
|
$ |
(3,428) |
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
|
(70.83) |
|
|
|
|
|
(55.96) |
|
|
|
Weighted-average common shares outstanding – basic and diluted
|
|
|
|
|
174,077 |
|
|
|
|
|
168,046 |
|
|
See accompanying notes to condensed consolidated financial statements.
zSpace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF TEMPORARY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS’ DEFICIT
(Amounts in thousands, except for share amounts)
(Unaudited)
| |
|
|
Temporary Redeemable
Preferred Stock
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Deficit
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance, January 1, 2023
|
|
|
|
|
3,941,980 |
|
|
|
|
$ |
64,131 |
|
|
|
|
|
|
167,666 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
144,777 |
|
|
|
|
$ |
164 |
|
|
|
|
$ |
(256,541) |
|
|
|
|
$ |
(111,600) |
|
|
|
Issuance of common stock from options exercised
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
387 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
5,903 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(5,903) |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(5,903) |
|
|
|
Net loss
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(3,417) |
|
|
|
|
|
(3,417) |
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(11) |
|
|
|
|
|
— |
|
|
|
|
|
(11) |
|
|
|
Balance, March 31, 2023
|
|
|
|
|
3,941,980 |
|
|
|
|
$ |
70,034 |
|
|
|
|
|
|
168,053 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
138,874 |
|
|
|
|
$ |
153 |
|
|
|
|
$ |
(259,958) |
|
|
|
|
$ |
(120,931) |
|
|
|
Balance, January 1, 2024
|
|
|
|
|
3,978,898 |
|
|
|
|
$ |
106,952 |
|
|
|
|
|
|
174,077 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
138,878 |
|
|
|
|
$ |
228 |
|
|
|
|
$ |
(269,577) |
|
|
|
|
$ |
(130,471) |
|
|
|
Stock-based compensation expense
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
7,253 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
7,253 |
|
|
|
Cancellation of NCNV 1 preferred stock
|
|
|
|
|
(562) |
|
|
|
|
|
(562) |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Issuance of NCNV 2 preferred stock
|
|
|
|
|
5,752 |
|
|
|
|
|
5,752 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Net loss
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(12,247) |
|
|
|
|
|
(12,247) |
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
74 |
|
|
|
|
|
— |
|
|
|
|
|
74 |
|
|
|
Balance, March 31, 2024
|
|
|
|
|
3,984,088 |
|
|
|
|
$ |
112,142 |
|
|
|
|
|
|
174,077 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
146,132 |
|
|
|
|
$ |
302 |
|
|
|
|
$ |
(281,825) |
|
|
|
|
$ |
(135,391) |
|
|
See accompanying notes to condensed consolidated financial statements.
zSpace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| |
|
|
Three months ended March 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of revolving line of credit commitment fee asset . . . . . . . . . . . . .
|
|
|
|
|
— |
|
|
|
|
|
61 |
|
|
|
Non-cash amortization of other debt discount . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
18 |
|
|
|
|
|
9 |
|
|
|
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
7,253 |
|
|
|
|
|
— |
|
|
|
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
4 |
|
|
|
|
|
11 |
|
|
|
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
52 |
|
|
|
|
|
— |
|
|
|
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(1,443) |
|
|
|
|
|
113 |
|
|
|
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(508) |
|
|
|
|
|
4 |
|
|
|
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(233) |
|
|
|
|
|
(787) |
|
|
|
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
457 |
|
|
|
|
|
(568) |
|
|
|
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
251 |
|
|
|
|
|
108 |
|
|
|
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
695 |
|
|
|
|
|
(148) |
|
|
|
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
287 |
|
|
|
|
|
248 |
|
|
|
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(5,414) |
|
|
|
|
|
(4,366) |
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Net cash used in investing activities
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible note
|
|
|
|
|
5,000 |
|
|
|
|
|
— |
|
|
|
Repayment of revolving line of credit
|
|
|
|
|
— |
|
|
|
|
|
(3,000) |
|
|
|
Proceeds from other debt issuances
|
|
|
|
|
— |
|
|
|
|
|
6,398 |
|
|
|
Fees paid for debt issuance
|
|
|
|
|
— |
|
|
|
|
|
(130) |
|
|
|
Repayment of other debt issuances
|
|
|
|
|
(1,022) |
|
|
|
|
|
(392) |
|
|
|
Fees paid for deferred offering costs
|
|
|
|
|
(264) |
|
|
|
|
|
(77) |
|
|
|
Fees paid to creditors
|
|
|
|
|
— |
|
|
|
|
|
(2) |
|
|
|
Net cash provided by financing activities
|
|
|
|
|
3,714 |
|
|
|
|
|
2,798 |
|
|
|
Effects of exchange rate changes on cash and cash equivalents .
|
|
|
|
|
(240) |
|
|
|
|
|
(11) |
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
|
|
(1,940) |
|
|
|
|
|
(1,579) |
|
|
|
Cash, cash equivalents and restricted cash at beginning of year .
|
|
|
|
|
3,128 |
|
|
|
|
|
4,061 |
|
|
|
Cash, cash equivalents and restricted cash at end of year
|
|
|
|
$ |
1,188 |
|
|
|
|
$ |
2,482 |
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
$ |
424 |
|
|
|
|
$ |
281 |
|
|
|
Cash paid for income taxes
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
|
|
|
$ |
295 |
|
|
|
|
$ |
— |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
$ |
5,903 |
|
|
|
Issuance of NCNV in exchange for related party debt and accrued interest . . .
|
|
|
|
$ |
5,190 |
|
|
|
|
|
— |
|
|
|
Unpaid deferred offering costs
|
|
|
|
$ |
161 |
|
|
|
|
$ |
298 |
|
|
See accompanying notes to condensed consolidated financial statements.
ZSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2024
AND FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
zSpace, Inc. (“zSpace” or the “Company”) was incorporated in the state of Delaware in 2006 and is headquartered in San Jose, California with wholly owned subsidiaries in China and Japan. The Company is the developer of full-service augmented reality/virtual reality (“AR/VR”) solutions built for K-12 education and career technical education. zSpace’s primary product is a mixed reality hardware device that provides an immersive, collaborative, and interactive learning experience. zSpace generates revenues via hardware sales in addition to recurring software revenue for access to zSpace interactive learning applications. The Company’s customer base includes federal, state, and local governments who are making large investments in education technology.
Basis of Presentation
The Company has prepared its unaudited condensed consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) and the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included elsewhere in this prospectus.
All intercompany accounts and transactions have been eliminated in consolidation.
Liquidity Risk and Going Concern
For the three months ended March 31, 2024 and 2023, the Company incurred net losses of $12.2 million and $3.4 million, respectively. For the three months ended March 31, 2024 and 2023, the Company incurred negative cash flows from operations of $5.4 million and $4.4 million, respectively. The Company had combined cash and cash equivalents balance of $1.2 million as of March 31, 2024. The Company has incurred operating losses and negative cash flows from operations since inception. The Company’s prospects are subject to risks, expenses, and uncertainties frequently encountered by companies in the technology industry. These risks include, but are not limited to, the uncertainty of successfully developing its products, availability of additional financing, gaining customer acceptance, and uncertainty of achieving future profitability. The Company’s success depends on obtaining additional financing, increasing sales, expanding its partnerships with resellers, controlling costs, and continued research and development activities to improve product offerings to end-users. The Company has historically funded its operations through the issuance of common and temporary redeemable preferred stock to private investors (Note 6) and debt financing (Note 5). The Company evaluated its financial condition as of the date of issuance, including its non-compliance with certain debt covenants (Note 5) and determined it is probable that, without consideration of a remediation plan to refinance existing debt facilities and raise new sources of capital, the Company would be unable to meet repayment obligations and the ongoing working capital shortfall in the next twelve months, and there is uncertainty about the Company’s ability to continue as a going concern. The conditions identified above raise substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance date of the condensed consolidated financial statements.
The condensed consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business and does not include any adjustments to reflect the outcome of this uncertainty.
Foreign Operations
Operations outside the United States include subsidiaries in China and Japan. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes to existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.
Reverse Stock Split
On December 29, 2023, the Company’s board of directors approved a 1-for-75 reverse split of shares of our common stock and Series A convertible preferred stock. The par values of the common and Series A convertible preferred stock were not adjusted as a result of the reverse stock split. The outstanding shares of NCNV preferred stock were reclassified and reconstituted. All authorized, issued and outstanding common stock and Series A convertible preferred stock and related per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effective on December 29, 2023.
Recapitalization
On December 30, 2023, the Company’s board of directors approved a series of transactions that involved the reallocation of certain ownership interests in the Company to existing investors and the extinguishment of existing outstanding related party debt (collectively, the “Recapitalization”). See Note 5 and Note 6 for further information.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the notes to financial statements for the fiscal year ended December 31, 2023 and have not changed significantly since those financial statements were issued.
Emerging Growth Company
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.
Cash, Cash Equivalents, and Restricted Cash
The Company considers cash on hand, deposits in banks, and investments with original maturities of three months or less, such as the Company’s money market funds, to be cash and cash equivalents.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, to the amounts reported on the condensed consolidated statement of cash flows (in thousands):
| |
|
|
March 31, 2024
|
|
|
December 31, 2023
|
|
|
Cash and cash equivalents
|
|
|
|
$ |
881 |
|
|
|
|
$ |
2,821 |
|
|
|
Restricted cash
|
|
|
|
|
307 |
|
|
|
|
|
307 |
|
|
|
Total cash, cash equivalents and restricted cash
|
|
|
|
$ |
1,188 |
|
|
|
|
$ |
3,128 |
|
|
The restricted cash is legally restricted to secure credit card charges incurred by the Company.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are customer obligations due under normal trade terms. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. The Company updates its allowance for credit losses on a quarterly basis with changes in the allowance recognized in income from operations. The Company reserves for any accounts receivable balances that are determined to be uncollectible in the allowance for credit losses.
After all attempts to collect accounts, receivable balances have failed, the balance is written off against the allowance for credit losses. As of March 31, 2024 and December 31, 2023, the Company reported an allowance for credit losses balance of $0.2 million and $0.2 million, respectively.
Classification of Redeemable Preferred Stock as Temporary Equity
The Company applies the guidance in Accounting Standards Committee (“ASC”) 480, Distinguishing Liabilities from Equity “ASC 480”), to determine the classification of financial instruments issued. The Company first determines if the instruments should be classified as liabilities under this guidance based on the redemption features, if mandatorily redeemable or not, and the method of redemption, if in cash, a variable number of shares or a fixed number of shares.
If the terms provide that an instrument is mandatorily redeemable in cash, or the holder can compel a settlement in cash, or will be settled in a variable number of shares predominantly based on a fixed monetary amount, the instrument is generally classified as a liability. Instruments that are settled by issuing a fixed number of shares are generally classified as equity instruments. None of the Company’s redeemable preferred stock was accounted for as a liability as none of the above-mentioned conditions were present.
The Company’s certificate of incorporation does not provide redemption rights to the holders of the Series A preferred stock. If a liquidation event occurs, all the funds and assets of the Company available for distribution among all the stockholders shall be distributed based on a defined mechanism. Although the Series A preferred stock is not redeemable, in the event of certain “deemed liquidation events” that are not solely within the Company’s control (including merger, acquisition, or sale of all or substantially all of the Company’s assets, or public offerings), the holders of the preferred stock would be entitled to preference amounts paid before distribution to other stockholders and hence effectively redeeming the preference amount outside of the Company’s control. In accordance with Accounting Series Release No. 268 (“ASR 268”) and ASC 480, the Company’s Series A redeemable preferred shares are classified outside of stockholders’ deficit in temporary equity as a result of these in-substance contingent redemption rights.
The Company’s certification of incorporation, as amended in August 2022, allows the holders of the newly issued non-convertible non-voting preferred shares (“NCNV preferred shares”) to redeem the shares, as the election of the majority of the holders, on or after March 15, 2023. The amended articles did not change any of the rights and privileges of the Company’s previously issued Series A preferred stock, other than providing liquidation and dividend preferences to the NCNV holders over all other stockholders. As the redemption of the NCNV preferred stock is outside of the control of the Company, in accordance with ASR 268 and ASC 480, the Company’s NCNV preferred shares were classified outside of stockholders’ deficit prior to redemption. As discussed in Note 6, the NCNV preferred shares are redeemable at the option of the majority holder with the passage of time. Therefore, the Company is accreting the carrying value of the NCNV preferred shares to its redemption value using the effective interest method.
On December 29, 2023, as part of the Recapitalization, the NCNV preferred shares were converted into NCNV 1, NCNV 2 and NCNV 3 preferred stock. In connection with the Recapitalization, the Company’s certificate of incorporation was amended in December 2023 to include various liquidation preferences to the preferred stockholders over all common stockholders.
As of March 31, 2024 and December 31, 2023, the Company did not adjust the carrying values of the Series A preferred stock to the deemed liquidation values of such shares because a liquidation event was not probable of occurring.
Deferred Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred that are directly related to the Company’s planned public offering transactions. These costs are charged to stockholders’ equity (deficit) upon the completion of the transaction. For the three months ended March 31, 2023 the Company incurred $0.1 million in offering costs related to the EdtechX Merger, which upon the termination of the EdtechX merger in June 2023, were expensed in the year ended December 31, 2023. For the three months ended March 31, 2024, the Company incurred $0.3 million in offering costs related to a separate going public offering.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, and restricted cash, accounts receivable, accrued liabilities, and accounts payable approximate fair value due to their relatively short-term maturities and are classified as short-term assets and liabilities in the accompanying balance sheets. The following table represents the fair value hierarchy for the financial assets and liabilities held by the Company measured at fair value on a recurring basis (in thousands):
| |
|
|
As of March 31, 2024
|
|
| |
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds
|
|
|
|
$ |
229 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
229 |
|
|
|
Total financial assets
|
|
|
|
$ |
229 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
229 |
|
|
| |
|
|
As of December 31, 2023
|
|
| |
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds
|
|
|
|
$ |
378 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
378 |
|
|
|
Total financial assets
|
|
|
|
$ |
378 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
378 |
|
|
During the three months ended March 31, 2024, the Company had embedded derivatives related to its outstanding debt instruments, as more fully described below in Note 5. The embedded derivatives were determined to have an immaterial value as of each reporting period end. The Company will continue to assess the fair value of the embedded derivatives at each quarter end.
The Company measures its debt at fair value on a nonrecurring basis. The fair value of the Company’s debt approximates book value as of March 31, 2024 and December 31, 2023, based on observable market prices for similar liabilities and categorized as Level 2. See Note 5 for further details regarding the Company’s debt.
New Accounting Pronouncements
In March 2024, the FASB issued ASU 2024-01, Compensation — Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which clarifies how an entity should determine whether profits interest or similar awards are within the scope of ASC 718. The amendment is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU and does not expect a material impact to the Company’s consolidated financial statements or disclosures.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements, which streamlines accounting guidance by removing references to concept statements from the FASB Accounting Standards Codification. The amendment is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU and does not expect a material impact to the Company’s consolidated financial statements or disclosures.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. For so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation. The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. This provision allows an emerging growth company to delay the adoption of some accounting standards unless and until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
3.
REVENUE
Disaggregation of Revenue
The Company earns revenue through the sale of products and services. Product and service revenue are the disaggregation of revenue primarily used by management, as this disaggregation allows for the evaluation of market trends and certain product lines and services vary in renewing versus non-renewing nature.
The following table disaggregates revenue by recognition method for the three months ended March 31, 2024 and 2023 (in thousands):
| |
|
|
Three Months Ended
March 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
Point in time
|
|
|
|
$ |
7,370 |
|
|
|
|
$ |
7,026 |
|
|
|
Over time
|
|
|
|
|
471 |
|
|
|
|
|
523 |
|
|
|
Total
|
|
|
|
$
|
7,841
|
|
|
|
|
$
|
7,549
|
|
|
The following table disaggregates revenue by type of products and services for the three months ended March 31, 2024 and 2023 (in thousands):
| |
|
|
Three Months Ended
March 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
Hardware
|
|
|
|
$ |
5,195 |
|
|
|
|
$ |
4,756 |
|
|
|
Software
|
|
|
|
|
1,961 |
|
|
|
|
|
2,235 |
|
|
|
Services
|
|
|
|
|
685 |
|
|
|
|
|
558 |
|
|
|
Total
|
|
|
|
$
|
7,841
|
|
|
|
|
$
|
7,549
|
|
|
The following table disaggregates revenue by geographic area for the three months ended March 31, 2024 and 2023 (in thousands):
| |
|
|
Three Months Ended
March 31,
|
|
| |
|
|
2024
|
|
|
2023
|
|
|
United States
|
|
|
|
$ |
6,669 |
|
|
|
|
$ |
6,398 |
|
|
|
International
|
|
|
|
|
1,172 |
|
|
|
|
|
1,151 |
|
|
|
Total
|
|
|
|
$
|
7,841
|
|
|
|
|
$
|
7,549
|
|
|
China made up $0.3 million and $0.5 million of international sales for the three months ended March 31, 2024 and 2023, respectively.
The amount of deferred revenue as of March 31, 2024 and December 31, 2023 reflects the revenue expected to be recognized in future periods related to remaining performance obligations as the Company collects payment in advance of satisfaction of performance obligations. Because a majority of the Company’s performance obligations are satisfied at a point in time soon after the contract is formed or within one year after the contract is formed, revenue recognized in the following year related to remaining performance obligations is expected to equal deferred revenue, current portion at the beginning of the year.
As of March 31, 2024 and December 31, 2023, the Company has $3.7 million and $3.0 million in deferred revenue. As of March 31, 2024 approximately $3.5 million of the balance is expected to be earned within the next 12 months, with $0.2 million to be earned within the next 13 to 24 months.
As of March 31, 2024 and December 31, 2023, the Company had no contract assets. The Company’s net accounts receivable balance as of December 31, 2022 was $6.9 million.
4.
BALANCE SHEET COMPONENTS
Inventory, net
As of March 31, 2024 and December 31, 2023, inventory, net of reserve consisted of the following (in thousands):
| |
|
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Finished goods
|
|
|
|
$ |
3,843 |
|
|
|
|
$ |
3,266 |
|
|
|
Raw materials
|
|
|
|
|
200 |
|
|
|
|
|
269 |
|
|
|
Total inventory
|
|
|
|
$ |
4,043 |
|
|
|
|
$ |
3,535 |
|
|
Prepaid and other current assets
Prepaid expenses and other assets consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):
| |
|
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Advances to suppliers
|
|
|
|
$ |
534 |
|
|
|
|
$ |
797 |
|
|
|
Deferred software costs
|
|
|
|
|
634 |
|
|
|
|
|
382 |
|
|
|
Prepaid operating expense
|
|
|
|
|
1,040 |
|
|
|
|
|
796 |
|
|
|
Total prepaid expenses and other assets
|
|
|
|
$ |
2,208 |
|
|
|
|
$ |
1,975 |
|
|
Accrued expenses and other liabilities
Accrued expenses and other liabilities consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):
| |
|
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Accrued purchases
|
|
|
|
$ |
4,361 |
|
|
|
|
$ |
4,361 |
|
|
|
Accrued compensation
|
|
|
|
|
2,273 |
|
|
|
|
|
2,315 |
|
|
|
Other current liabilities
|
|
|
|
|
2,533 |
|
|
|
|
|
2,553 |
|
|
|
Total accrued expenses and other liabilities
|
|
|
|
$ |
9,167 |
|
|
|
|
$ |
9,229 |
|
|
5.
DEBT AND RELATED PARTY DEBT
As of March 31, 2024 and December 31, 2023, debt and related party debt is comprised of the following (in thousands):
| |
|
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiza Investments Limited Loans, convertible debt
|
|
|
|
$ |
10,000 |
|
|
|
|
$ |
5,000 |
|
|
|
Other current debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiza Investments Limited Loans, term debt
|
|
|
|
|
3,895 |
|
|
|
|
|
4,189 |
|
|
|
Other term loans
|
|
|
|
|
2,527 |
|
|
|
|
|
2,828 |
|
|
|
Total other current debt
|
|
|
|
|
6,422 |
|
|
|
|
|
7,017 |
|
|
|
Total short-term debt
|
|
|
|
$ |
16,422 |
|
|
|
|
$ |
12,017 |
|
|
|
Noncurrent related party debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kuwait Investment Authority Debt
|
|
|
|
$ |
— |
|
|
|
|
$ |
5,000 |
|
|
|
Total noncurrent related party debt
|
|
|
|
$ |
— |
|
|
|
|
$ |
5,000 |
|
|
|
Other noncurrent debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other term Loans
|
|
|
|
$ |
4,221 |
|
|
|
|
$ |
4,949 |
|
|
|
Less: debt issuance costs
|
|
|
|
|
(50) |
|
|
|
|
|
(68) |
|
|
|
Less: current portion
|
|
|
|
|
(2,527) |
|
|
|
|
|
(2,828) |
|
|
|
Total other noncurrent debt
|
|
|
|
$ |
1,644 |
|
|
|
|
$ |
2,053 |
|
|
The following provides a summary of the Company’s convertible debt instruments as of March 31, 2024 and December 31, 2023 (in thousands):
| |
|
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Convertible debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bSpace Investments Limited Loan
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
Kuwait Investment Authority Debt
|
|
|
|
|
— |
|
|
|
|
|
5,000 |
|
|
|
Fiza Investments Limited Loan
|
|
|
|
|
10,000 |
|
|
|
|
|
5,000 |
|
|
|
Total Convertible debt
|
|
|
|
$ |
10,000 |
|
|
|
|
$ |
10,000 |
|
|
Debt discount and issuance costs incurred on convertible debt instruments were either eliminated through restructuring or extinguishment accounting or were considered immaterial and expensed when incurred for the periods ended March 31, 2024 and December 31, 2023.
As a result of the May 2022 troubled debt restructurings, which are described in further detail below, the maximum future cash flows of certain of the Company’s convertible debt instruments was less than the carrying amount of the debt at the time of restructuring. As a result of accounting for the troubled debt restructuring, contractual interest expense was greater than the corresponding amount recorded in the consolidated statements of operations for convertible debt instruments for the three months ended March 31, 2023. Prior to March 31, 2024, the loans impacted by the May 2022 troubled debt restructurings had been redeemed. For the three months ended March 31, 2023, $0.9 million less interest expense was recorded in the consolidated statements of operations than contractual interest requirements.
bSpace Investments Limited Loan
In May 2019, the Company entered into a loan and security agreement with a related party, bSpace Investments Limited (“bSpace”). bSpace is affiliated with the Company’s controlling financial interest holder, Gulf Islamic Investments, LLC (“GII”). The loan and security agreement included an initial term loan of
$25.0 million (the “Tranche 1 loan”), and a second tranche commitment of $5.0 million. The loan had a stated interest rate of 11.0% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. The Company granted bSpace a first- priority perfected security interest in all of the Company’s collateral, including, but not limited to, all Intellectual Property. The loan was voluntarily prepayable at any time, with an interest make-whole due if the loan was prepaid within one year of issuance. Upon an event of default, the loan was immediately due and payable. Amendments during 2020 added more tranches to the debt and modified the repayment terms. Throughout 2020, the Company borrowed an additional $3.5 million under various loan commitments and amendments to the loan and security agreement (“LSA”). In April and June 2021, the Company borrowed an additional $3.0 million, under the existing terms of the Company’s loan and security agreement with bSpace.
On February 26, 2020, the Company and bSpace amended the terms and conditions of the LSA, applicable to all draws, including the Tranche 3 loan discussed below. In connection with the amendment all loans became due on November 6, 2020. The amendment also added a Change of Control provision. Upon the occurrence of a Change of Control, the loan will become immediately due and payable, including any make-whole amount, along with a premium of $0.1 million plus 1.9095% of the proceeds to the Company from the Change of Control.
Additionally, on February 26, 2020, the Company drew an additional $1.0 million and amended the terms of $2.0 million of the Tranche 2 draws, collectively referred to as the Tranche 3 loan. The Tranche 3 loan had a stated interest rate of 5.5% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. The Company accounted for the February 26, 2020 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
In April 2020, the Company and bSpace amended the loan to allow for the incurrence of the Paycheck Protection Program loans (“PPP Loans”), discussed below. The Company did not pay the holder any consideration in exchange for the modification and there is no accounting impact from this change. In November 2020 the Company and bSpace amended the loan to extend the maturity date from November 6, 2020 to December 15, 2020. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the November 2020 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
In December 2020, the Company and bSpace amended the loan for all tranches to (1) extend the maturity date to December 31, 2022; (2) add a repayment premium of 150.0% due under all repayment scenarios; (3) add a Tranche 4 loan commitment of $3.0 million dollars; (4) change the repayment terms such that all principal, interest, fees and the repayment premium are due at maturity; (5) add a redemption option upon the occurrence a qualified public offering or equity financing; (6) add a conversion option; and (7) remove the premium associated with the Change of Control embedded derivative.
In April and June 2021, the Company drew the $3.0 million Tranche 4 loans under the same terms and conditions as existed during the December 2020 modification.
In September 2021, the Company and bSpace amended the loan in connection with the Revolving Line-of-Credit. The amendment subordinated the loan to the Revolving Line-of-Credit and extended the maturity date of the loan to February 2024. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the September 2021 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
As of December 31, 2021, the conversion feature within the loan included a contingent beneficial conversion feature, subject to the establishment of the Company’s next round preferred stock. As of January 1, 2022, upon the Company’s adoption of ASU 2020-06 the Company stopped assessing the contingent beneficial conversion feature for recognition in the Company’s condensed consolidated financial statements.
As of December 31, 2021, the bSpace loan is redeemable upon the occurrence of a qualified public offering or equity financing and is convertible upon a non-qualified public offering or other equity financing.
Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, bSpace has the option to convert the note into shares of the Company issued in the event at the issuance price. bSpace has the option to convert the loan into a next round of preferred stock at a conversion price equal to the greater of (1) $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock.
On May 16, 2022, contemporaneously with the execution of the Merger Agreement, the Company and bSpace entered into an Amendment and Conversion Agreement (bSpace Conversion Agreement). The terms of the bSpace loan were amended to: (a) agree that $90.5 million is due to bSpace, including the repayment premium and accrued interest through March 15, 2023; (b) the interest rate on the loan will reduce to 5% from January 1, 2023 to March 15, 2023; (c) $59.0 million of the Company’s indebtedness would convert into 58,972 shares of the new NCNV preferred stock no more than 90 days from the date of agreement; (d) $11.5 million of the Company’s indebtedness would convert into 11,500 shares of the new NCNV preferred stock immediately prior to the closing of the merger; and (e) approximately $20.0 million owed to bSpace will be retired in conjunction with a purchase of 1,970,443 shares of EdtechX by bSpace (the Exchange Feature) pursuant to a private placement to occur in connection with the consummation of the merger (the “PIPE Investment”).
The Company accounted for the bSpace Conversion Agreement as a troubled debt restructuring due to the difference between the fair value of the 58,972 shares of NCNV preferred stock issued in exchange for $59.0 million of the Company’s indebtedness. The Company did not recognize any gain on the restructuring of the loan as the undiscounted maximum future cash flows of the loan exceeded the remaining carrying amount. The Company considered the potential conversions of the bSpace loan in connection with the closing of the merger and the PIPE Investment to be contingent payments. The impact of the conversion is excluded from the determination of the maximum future cash flows of the loan. On June 21, 2023 the EdtechX merger agreement was terminated. As a result, no conversions contingent upon the EdtechX merger will occur.
In August 2022, upon the authorization of the NCNV preferred stock, the Company issued 58,972 shares of NCNV preferred stock to bSpace in exchange for the forgiveness of $59.0 million of the Company’s indebtedness, as proscribed by the bSpace Conversion Agreement. The Company reduced the carrying amount of the bSpace debt, including accrued interest, by $45.1 million, which represented the fair value of the NCNV preferred stock on the date of the bSpace Conversion Agreement. Refer to Note 6 for detailed information pertaining to the rights and privileges of the NCNV preferred stock.
On December 30, 2023, the Company entered into a loan termination agreement with bSpace under which all amounts outstanding under the LSA, plus unearned interest calculated post the maturity date through July 31, 2024 of $1.5 million, were exchanged for 36,918 shares of newly created New NCNV Preferred Stock 3. The termination agreement relieves the Company of any further obligations under the LSA.
Kuwait Investment Authority Loan
In February 2019, the Company entered into a $5.0 million promissory note with Kuwait Investment Authority (“KIA”) a principal shareholder. The note accrued interest at 2.8% per year and was due on-demand at any point in time after December 31, 2020. Principal and interest were due at maturity and would be accelerated upon an event of default or a change in control. The Company would grant KIA a warrant in the event of certain dilutive issuances. The Company evaluated the loan for embedded derivatives that require bifurcation and separate accounting and noted that there were none.
In December 2020, the Company and KIA amended the note to (1) extend the earliest put date to December 31, 2022; (2) remove the change of control redemption and anti-dilution features; (3) add a repayment premium of 150.0%; (4) add a redemption option upon the occurrence of a qualified public offering or equity financing; (5) add a conversion option, and (6) execute a subordination agreement, eliminating any uncertainty that the KIA loan was subordinate to the bSpace loan. Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, the note will convert into shares of the Company issued in the event at the issuance price, should bSpace elect to convert its loan.
Additionally, the note may convert into a next round of preferred stock at a conversion price equal to the greater of (1) $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding, and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. The note will convert, should bSpace elect to convert its loan. The Company accounted for the December 2020 modification as an extinguishment of the existing loan and execution of a new loan. As a result, the Company recorded a loss from extinguishment of debt of $6.2 million, which was included in loss on extinguishment of debt on the consolidated statement of operations for the year ended December 31, 2020. In connection with the modification, the Company granted KIA a warrant to purchase shares of common stock. The warrants had a fair value of $0.4 million at issuance, which the Company recorded as part of the loss on extinguishment of debt. All issued warrants expired December 31, 2020.
In September 2021, the Company and KIA amended the loan in connection with the Revolving Line of Credit. The amendment further subordinated the loan to the Revolving Line of Credit and extended the maturity date of the loan to February 2024. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the September 2021 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
As of December 31, 2021, gross principal amounts due under the KIA loan, including the repayment premium, were $12.5 million and interest accrued on the KIA loan at 2.75% per annum. The KIA loan is redeemable upon the occurrence a qualified public offering or equity financing and is convertible upon a non-qualified public offering or other equity financing. Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, the note will convert into shares of the Company issued in the event at the issuance price, should bSpace elect to convert its loan. Additionally, the note may convert into a next round of preferred stock at a conversion price equal to the greater of $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding, and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. The note will convert, should bSpace elect to convert its loan.
As of December 31, 2021, the loan contained a contingent beneficial conversion feature, subject to the establishment of the Company’s next round preferred stock. As of January 1, 2022, upon the Company’s adoption of ASU 2020-06 the Company stopped assessing the contingent beneficial conversion feature for recognition in the Company’s consolidated financial statements.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, the Company and KIA entered into an Amendment and Conversion Agreement (“KIA Conversion Agreement”). The terms of the KIA loan were amended to provide that: (a) $8.1 million of the Company’s indebtedness would convert into 8,062 shares of the new NCNV preferred stock no more than 90 days from the date of agreement and (b) approximately $5.0 million of the Company’s indebtedness will be retired in conjunction with a purchase of 492,610 shares of EdtechX by KIA pursuant to a private placement to occur in connection with the consummation of a private investment in a public entity (“PIPE”).
The Company accounted for the KIA Conversion Agreement as a troubled debt restructuring due to the difference between the fair value of the 8,062 shares of NCNV preferred stock issued in exchange for $8.1 million of the Company’s indebtedness. Upon the execution of the KIA conversion agreement, the Company stopped accruing interest on the loan since the maximum undiscounted amount of the future cash flows exceeded the carrying amount of the loan. In August 2022 the Company completed the authorization of the NCNV preferred stock, exchanged $8.1 million of the loan for 8,062 shares of NCNV preferred stock, and recorded a restructuring gain of $0.8 million. The restructuring gain was calculated as the difference between the maximum undiscounted amount of future cash flows, including the fair value of 8,062 shares of NCNV preferred stock, and the carrying amount of the KIA loan. The Company considered the potential conversion of the KIA loan in connection with the merger to be a contingent payment. The impact of the conversion was excluded from the determination of the restructuring gain, as its inclusion could result in the recognition of a restructuring gain based on events that were not certain to occur. On June 21, 2023, the EdtechX merger agreement was terminated. As a result, no conversions contingent upon the EdtechX merger
will occur. Refer to Note 6 for detailed information pertaining to the rights and privileges of the NCNV preferred stock. The effective interest rate of the KIA loan was 4.9% in 2022 until interest accruals were ceased upon the execution of the KIA conversion agreement, as described above. As of December 31, 2023, the gross principal amount due on the loan was $5.0 million. As of December 31, 2023, the fair value of the KIA loan approximated book value.
In January 2024, the Company entered into a loan termination agreement (similar to bSpace as described above) under which all remaining amounts outstanding under the KIA loan, plus unearned interest calculated post the maturity date through July 31, 2024 of $0.1 million, were redeemed for 5,750 shares of newly created NCNV Preferred Stock 2 as described in Note 6. Refer to Note 6 for details regarding the rights and privileges of the NCNV preferred stock series. The January 2024 conversion agreement relieves the Company of any further obligations under the KIA loan.
Revolving Line of Credit
In September 2021, the Company entered into a Revolving Line-of-Credit with a financial institution which provides financing through a revolving line of up to the lesser of $10.0 million or the Borrowing Base. The Revolving Line of Credit was made available through September 8, 2023 and outstanding balances incurred interest at the greater of (i) 3.5% above the Prime Rate and (ii) 6.5%. The Borrowing Base is defined as 85.0% of eligible accounts receivable, plus the lesser of $3.5 million or 50.0% of eligible inventory, plus 450% of annual monthly recurring revenue, less reserves deemed appropriate and at the discretion of the financial institution. The Revolving Line of Credit incurs an unused commitment fee of 0.3% per year of the difference between the revolving line and the average outstanding principal balance during the applicable month. The financial institution is the Company’s senior creditor, and it has the senior claim to the Company’s collateral. During May and June 2022, the Company drew $3.0 million on the Revolving Line-of-Credit at an interest rate of 8.25%, which remained the outstanding balance at December 31, 2022. The Company incurred fees to obtain the revolving line of credit and for a monthly unused commitment fee of less than $0.1 million as of December 31, 2022. The unused commitment fee has been capitalized under prepaid and other current assets and is being amortized into interest expense over the contractual life of the Revolving Line-of-Credit.
In February 2023, the Company fully paid off the outstanding balance of the Revolving Line of Credit and the agreement has been terminated.
Fiza Investments Limited Loan
September 2022 Convertible Debt
In September 2022, the Company entered into a short form loan agreement with Fiza Investments Limited (“Fiza”) and received $2.5 million to help the Company meet immediate working capital requirements “Tranche I Loan”). In November 2022, the Convertible Loan and Security Agreement (“Convertible LSA”) was executed and provided for loans up to $5.0 million and received the remaining $2.5 million (“Tranche II loans”). The Company determined that the lender did not grant a concession upon signing the Convertible LSA and therefore concluded the modification was not a troubled debt restructuring. The Company accounted for the November 2022 modification as an extinguishment of the existing loan and execution of a new loan.
The loan is due on or before September 12, 2023, and bears an interest rate of 13% per annum. The loan is secured by the Company’s assets. The loan requires mandatory prepayment upon (1) an event of default; (1) any listing of the Company’s securities; or (3) a change of control. The convertible debt lender has the right, in its sole discretion, to convert the loan (1) in the event of a public offering into the securities issued in such offering; (2) in the case of an equity financing, into new preferred stock on the same terms of the equity offering or (3) at any time into the Company’s most senior round of preferred stock at a formulaic conversion price. As of March 31, 2024, gross principal amounts due on the convertible loan were $5.0 million. As of March 31, 2024, the maturity date of the loan had passed, but the gross principal amount of $5.0 million remained outstanding while the Company and its lender continued to work towards an amendment to or conversion of the loan. As a result, the Company was out of compliance with the loan terms.
Term Debt
On May 29, 2023, the Company entered into a short form loan agreement with Fiza for an additional $3.0 million (“Tranche III Loan”). No terms of Tranche I Loan or Tranche II Loan were changed as a result of the May 2023 agreement. The Company accounted for the May 2023 agreement as a modification of the loans. The prior loans had no discounts or premiums to account for, and no gains or losses will be recognized on the restructuring. There were no material lender or third-party costs paid in connection with the Tranche III Loan.
The Tranche III Loan is due 15 business days from the date of disbursement (June 20, 2023), unless the definitive agreement is executed prior to maturity. As of March 31, 2024, the Company and its lender continued to work towards execution of the definitive agreement, which is expected to extend the maturity date of the debt to 24 months from the loan disbursement date. The Company will classify the Tranche III Loan as a current liability until a definitive agreement is reached. The Tranche III Loan bears an interest rate of 25% on the amount of outstanding principal.
On November 20, 2023, the Company entered into a short form loan agreement with Fiza for an additional $1.3 million (“Tranche IV Loan”). No terms of the Tranche I, II, or III loans were changed as a result of the November 2023 agreement. There were no material lender or third-party costs paid in connection with the Tranche IV Loan. The Company accounted for the November 2023 agreement as a modification of the existing loans. The prior loans had no discounts or premiums to account for, and no gains or losses will be recognized.
The Tranche IV Loan is due 15 business days from the date of disbursement (December 12, 2023), unless the definitive agreement is executed prior to maturity. As of March 31, 2024, the Company and its lender continued to work towards execution of the definitive agreement, which is expected to extend the maturity date of the debt to 24 months from the loan disbursement date. The Company will classify the Tranche IV Loan as a current liability until a definitive agreement is reached. The Tranche IV Loan bears an interest rate of 25% on the amount of outstanding principal.
March 2024 Convertible Debt
In March 2024, the Company entered into a loan for an additional $5.0 million from Fiza Investments Limited (“Tranche V Loan”). No terms of the Tranche I, II, III, or IV loans were changed as a result of the March 2024 agreement. The loan has an annual interest rate of 20% that is accrued daily, compounds annually, and is paid on the maturity date. There were no material lender or third-party costs incurred in connection with the Tranche V Loan. The Company accounted for the March 2024 agreement as a modification of the existing loans. The loan matures on March 11, 2026, subject to acceleration upon (1) an event of default; (2) an equity financing event; (3) closing of an initial public offering; or (4) a change of control. Upon the occurrence of a public offering or an equity financing event, the loan will automatically be redeemed for equity shares of the Company at a price per share equal to the lesser of (i) 85% of the original issue price of the listing (100% of the original issue price, if the event occurs after December 31, 2024) or (ii) an assumed price per share of the stock, using a $250 million valuation for the Company. If the debt has not otherwise been redeemed prior to the maturity date, the holder has the option to convert the loan into shares of the Company at an assumed price per share, using a $150 million valuation for the Company.
Other Term Loans
In January 2023, the Company signed term loan agreements to borrow $4.0 million (“Term Loan 1”) and $2.5 million (“Term Loan 2”) at interest rates of 13.0% and 34.0% per year, respectively. Term Loan 1 will be repaid in monthly installments through February 2026, and the Term Loan 2 will be repaid in monthly installments through September 2024. The loans are secured by the Company’s assets.
In April 2023, the Company signed an additional agreement to borrow $0.7 million (“Term Loan 3”) at an interest rate of 18.0% per year. Term Loan 3 is secured with the Company’s assets and expected proceeds from Employee Retention Tax Credits (“ERTC”). The loan will mature by April 17, 2026, but it must be repaid upon receipt of the ERTC in an amount sufficient to fully repay the loan. No terms of the Term Loan 1 or Term Loan 2 were changed as a result of the April 2023 agreement. The Company determined that the lender did not grant a concession upon signing the Term Loan 3 agreement and accounted for the April 2023
agreement as a modification of the loans. The modification does not change the accounting for the prior loans, and no gains or losses were recognized on the restructuring.
The outstanding balance of other term loans as of March 31, 2024 and December 31, 2023 is $4.2 million and $4.9 million, respectively. The effective interest rates of Term Loan 1, Term Loan 2 and Term Loan 3 are 14.2%, 38.2%, and 20.1%, respectively.
6.
TEMPORARY REDEEMABLE PREFERRED STOCK
Preferred Stock
As of March 31, 2024, the Company is authorized to issue 4,014,946 shares of preferred stock with a par value of $0.00001 per share, of which 3,874,946 shares are designated as Series A preferred stock and 140,000 shares are designated as NCNV preferred shares. Activity for both the Series A and NCNV preferred stock for the period ended March 31, 2024 and 2023 was as follows (in thousands, except share data):
| |
|
|
Series A Preferred Stock
|
|
|
NCNV Preferred Stock
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at January 1, 2023:.
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
67,034 |
|
|
|
|
$ |
61,131 |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
5,903 |
|
|
|
Balance at March 31, 2023:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
67,034 |
|
|
|
|
$ |
67,034 |
|
|
|
Balance at January 1, 2024:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
—
|
|
|
|
|
$ |
— |
|
|
|
Balance at March 31, 2024:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
—
|
|
|
|
|
$ |
— |
|
|
As part of the Recapitalization and discussed below, shares of NCNV 1 and NCNV 3 preferred stock were issued in December 2023. No amounts of NCNV 1, NCNV 2, or NCNV 3 preferred stock were previously outstanding.
| |
|
|
NCNV Preferred
Stock 1
|
|
|
NCNV Preferred
Stock 2
|
|
|
NCNV Preferred
Stock 3
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at January 1, 2024:
|
|
|
|
|
55,312 |
|
|
|
|
$ |
55,312 |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
|
|
48,640 |
|
|
|
|
$ |
48,640 |
|
|
|
Cancellation of NCNV 1 Preferred Stock
|
|
|
|
|
(562) |
|
|
|
|
|
(562) |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Issuance of NCNV 2 Preferred Stock in exchange
for Debt Forgiveness
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
5,752 |
|
|
|
|
|
5,752 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Balance at March 31, 2024
|
|
|
|
|
54,750 |
|
|
|
|
$ |
54,750 |
|
|
|
|
|
5,752 |
|
|
|
|
$ |
5,752 |
|
|
|
|
|
48,640 |
|
|
|
|
$ |
48,640 |
|
|
Series A Preferred Stock
The Series A preferred stock has the following rights and privileges:
Dividend Rights
The holders of the Series A preferred stock are entitled to receive dividends at the rate of 11% per annum of the purchase price per share. The dividends shall accrue on a daily basis whether or not they are declared by the Board of Directors. As of March 31, 2024 and December 31, 2023, no dividends have been declared by the Board of Directors. Therefore, while the dividends are accruing on a daily basis, the Company has not recorded this as a liability on the Company’s condensed consolidated balance sheets.
Redemption Rights (Liquidation)
In the event of certain capital transactions deemed to be a liquidation transaction, the holders of the Series A preferred stock are entitled to a per share liquidation preference, plus any declared but unpaid dividends on such shares, prior to distributions to any class of common stockholders. The liquidation preference for the Series A preferred stock as of March 31, 2024 and December 31, 2023 is $4.1 million and
$4.0 million, respectively. In the event that the available proceeds from a liquidation transaction are not sufficient to redeem the outstanding shares of all classes of preferred stock at their liquidation preference, then the Company will distribute all available assets ratably among the holders of preferred stock in proportion to the preferential amount each holder is otherwise entitled to receive.
Conversion Rights
Each share of Series A preferred stock can be voluntarily converted into shares of common stock at any time. All outstanding shares of Series A preferred stock will automatically convert into common stock in the event of an effective registration statement under the Securities Act of 1933, as amended, which can include an initial public offering or a reverse recapitalization transaction, resulting in at least $30.0 million of gross proceeds to the Company or pursuant to a similar regulatory framework, a non-U.S. public offering resulting in at least $10.0 million of gross proceeds to the Company. The results of either scenario must be the Company’s common stock being listed on an exchange approved by the Board of Directors. Each share of Series A preferred share will convert into the number of shares of common stock determined by dividing the original issuance price by the conversion price. The initial Series conversion price is $0.7744515 per share. The conversion price is subject to adjustment upon issuances of additional shares of common stock if the consideration paid per common share is less than the conversion price in effect immediately prior to the issuance of additional shares.
Voting Rights
Holders of the Series A preferred stock shall be entitled to cast the number of votes equal to 100 times the number of shares of common stock into which the shares of Series A preferred stock could be converted. Common stockholders are entitled to one vote for each share of common stock held.
The Board of Directors consists of up to four directors. The Series A preferred stockholders are entitled to elect three directors. The common stockholders and Series A preferred stockholders, voting together as a single class, elect the remaining director, with common stockholders entitled to one vote for each share of common stock and Series A preferred stockholders entitled to 100 votes for each share of Series A preferred stock.
NCNV Preferred Stock
On August 12, 2022, the Company issued 67,034 shares of NCNV preferred stock. The Company issued the NCNV preferred stock in exchange for $67.0 million of outstanding debt with bSpace and KIA, as more fully described above in Note 5. The NCNV preferred stock are not convertible into any class of common stock and do not entitle the holder to vote on any matters pertaining to the Company. The Company classifies the NCNV preferred stock outside of stockholders’ deficit in temporary equity, as the NCNV preferred stock are redeemable at the option of the majority holder on or after March 15, 2023. The Company accreted the carrying value of the NCNV preferred stock to its redemption value using the effective interest method from August 12, 2022, the date of issuance, through March 15, 2023, the earliest redemption date. For the three months ended March 31, 2024 and 2023, the Company recorded zero and $5.9 million, respectively, for the accretion of the NCNV preferred stock, as a reduction to additional paid-in capital.
On December 29, 2023, as part of the Recapitalization, (i) the Company became authorized to issue 140,000 shares of new series of NCNV preferred stock; NCNV 1, NCNV 2 and NCNV 3 (“New NCNV Preferred Stock”). The original 67,034 shares of NCNV preferred stock (“Original NCNV preferred stock”) were exchanged into 67,034 shares of NCNV 1 preferred stock, (ii) 11,722 shares of NCNV 1 preferred stock were converted into NCNV 3 preferred stock and (iii) 36,918 shares of NCNV 3 preferred stock were issued in exchange for all the outstanding debt from bSpace as described in Note 5. On January 11, 2024, as part of the same Recapitalization, 562 shares of NCNV 1 preferred stock were converted into NCNV 2 preferred stock and 5,752 shares of NCNV 2 preferred stock were issued in exchange for all the outstanding debt from KIA as described in Note 5.
The New NCNV Preferred Stock has liquidation preference to the Series A Preferred Stock and Common Stock. Immediately prior to the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering, all of the outstanding New NCNV Preferred Stock will
automatically convert into Common Stock. Such converted New NCNV Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series.
The New NCNV Preferred Stock has the following rights and privileges:
Dividend Rights
The holders of the New NCNV Preferred Stock are entitled to receive dividends at the rate of 5% of the issue price per share of $1,000, prior to payment of dividends to the holders of Series A preferred stock, if declared by the Board of Directors. The dividends are non-cumulative. As of March 31, 2024 and 2023, no dividends have been declared by the Board of Directors.
Conversion Rights
New NCNV Preferred Stock are non-convertible other than the automatic mandatory conversion provision described above.
Voting Rights
New NCNV Preferred Stock are non-voting.
In addition to the New NCNV Preferred Stock rights and privileges, the Original NCNV preferred stock had the following rights:
Redemption Rights
At any time on or after March 15, 2023, the majority holders of NCNV preferred stock may request redemption at the issue price of $1,000 per share, plus all declared but unpaid dividends.
7.
STOCK BASED COMPENSATION EXPENSE
Equity incentive plans
The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan allows a specific Committee, or the Board of Directors, to grant incentive stock options to employees, and nonqualified stock options and other stock awards to employees, officers, directors, and consultants. Equity awards are granted with an exercise price per share equal to at least the estimated fair value of the underlying common stock on the date of grant. The vesting period is determined through individual award agreements and is generally over a four-year period. Awards generally expire 10 years from the date of grant.
The Company later adopted an additional equity incentive plan in 2017 (the “2017 Plan”). The 2017 Plan allows a specific Committee, or the Board of Directors, to grant incentive stock options to employees, and nonqualified stock options and other stock awards to employees, officers, directors, and consultants. Equity awards are granted with an exercise price per share equal to at least the estimated fair value of the underlying common stock on the date of grant. The vesting period is determined through individual award agreements and is generally over a four-year period. Awards generally expire 10 years from the date of grant.
Since the inception of both the 2007 and 2017 Plans, the Company’s Board and its stockholders have voted to increase the shares of common stock reserved under the plans on several occasions. As of March 31, 2024 and December 31, 2023, 8,770,035 shares were authorized under both the 2007 and 2017 Stock Plans. As of March 31, 2024, 2,760,208 shares reserved for issuance pursuant to the 2017 Stock Plan. Shares forfeited due to employee termination or expiration are returned to the share pool. Similarly, shares withheld upon exercise to provide for the exercise price and/or taxes due and shares repurchased by the Company are also returned to the pool.
Determination of fair value of stock options
As of March 31, 2024 and December 31, 2023, the Company had approximately 6.0 million and 0.9 million options outstanding, respectively, under both Plans. As of March 31, 2024 and December 31, 2023, all options outstanding were granted solely with time-based vesting requirements.
The fair value of the stock options outstanding during the three months ended March 31, 2024 and 2023 was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:
| |
|
|
March 31, 2024
|
|
|
March 31, 2023
|
|
|
Dividend yield
|
|
|
—
|
|
|
—
|
|
|
Expected term
|
|
|
5.0 − 6.1 years
|
|
|
5.9 − 6.1 years
|
|
|
Risk-free interest rates
|
|
|
1.0% − 4.1%
|
|
|
1.0% − 1.9%
|
|
|
Expected volatility
|
|
|
54.9% − 65.1%
|
|
|
54.9% − 57.2%
|
|
Dividend Yield — The dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to do so.
Expected Term — The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company determines the expected term using the simplified method as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options, including the date provided for completion of the performance condition event.
Expected Volatility — Because the Company does not have any trading history of its common stock, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within the Company’s industry that the Company considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.
Fair Value of Common Stock — Given the absence of a public trading market, the Company’s Board of Directors considered numerous objective and subjective factors to determine the fair value of its common stock at each grant date. These factors included, but were not limited to: (i) independent third-party valuations of common stock; (ii) the prices for the Company’s redeemable temporary redeemable preferred stock sold to outside investors; (iii) the rights and preferences of redeemable temporary redeemable preferred stock relative to common stock; (iv) the lack of marketability of its common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions.
A summary of the Company’s stock option plan and the changes during the period ended March 31, 2024 is presented below:
| |
|
|
Number of
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance, January 1, 2024
|
|
|
|
|
948,464 |
|
|
|
|
$ |
6.20 |
|
|
|
|
|
|
|
|
|
|
|
7.25 |
|
|
|
|
$ |
1,919,582 |
|
|
|
Granted
|
|
|
|
|
5,028,756 |
|
|
|
|
|
2.57 |
|
|
|
|
|
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2024
|
|
|
|
|
5,977,220 |
|
|
|
|
$ |
3.17 |
|
|
|
|
|
|
|
|
|
|
|
9.41 |
|
|
|
|
$ |
1,919,582 |
|
|
|
Vested and Exercisable, March 31, 2024
|
|
|
|
|
5,433,845 |
|
|
|
|
$ |
3.19 |
|
|
|
|
|
|
|
|
|
|
|
9.39 |
|
|
|
|
$ |
1,900,259 |
|
|
|
Vested and Expected to Vest, March 31, 2024
|
|
|
|
|
5,977,220 |
|
|
|
|
$ |
3.17 |
|
|
|
|
|
|
|
|
|
|
|
9.41 |
|
|
|
|
$ |
1,919,582 |
|
|
Stock-based compensation included in the condensed consolidated statements of operations was as follows.
| |
|
|
March 31, 2024
|
|
|
March 31, 2023
|
|
|
Cost of goods sold
|
|
|
|
$ |
115 |
|
|
|
|
|
— |
|
|
|
Research and development
|
|
|
|
$ |
693 |
|
|
|
|
|
— |
|
|
|
Sales and marketing
|
|
|
|
$ |
2,561 |
|
|
|
|
|
— |
|
|
|
General and administrative
|
|
|
|
$ |
3,884 |
|
|
|
|
|
— |
|
|
|
Total stock-based compensation expense
|
|
|
|
$ |
7,253 |
|
|
|
|
|
— |
|
|
As of March 31, 2024, total unrecognized stock-based compensation cost was approximately $333 thousand which is expected to be recognized on a straight-line basis over a weighted average period of 1.8 years. The intrinsic value of stock options exercised during the period was zero.
March 2024 Stock Option Issuance
In March 2024, the Company granted employees and members of the Board of Directors stock options to purchase a total of 5,028,756 shares of common stock. The stock options have varying vesting periods ranging from immediate at time of the grant to three years from grant date or service start date, are exercisable at $2.57 per share and have an expiration period of 10 years. These stock option grants were issued from the 2017 Stock Plan.
8.
TAXES
The Company estimates an annual effective tax rate of (0.26)% for the year ending December 31, 2024 as the company incurred losses for the three months ended March 31, 2024 and expects to continue to incur losses through the remainder of fiscal year ending December 31, 2024, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2024. Therefore, no federal or state income taxes are expected outside of state minimum tax payments. The effective rate during this period includes income tax benefits and exclusions associated with convertible debt interest and changes in valuation allowances related to future deductible temporary differences.
Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not. As of March 31, 2024, the Company has no uncertain tax positions that require the establishment of a reserve.
9.
NET LOSS PER SHARE
Net loss per common share (“EPS”) is presented for both Basic EPS and Diluted EPS. Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common shares equivalents outstanding during the period.
When an entity has a loss from operations, including potential shares in the denominator of diluted per share computations will generally be anti-dilutive, even if the entity has net income after adjusting for discontinued operations. That is, including potential shares in the denominator of the earnings per share calculation for a loss-making entity will generally decrease the loss per share and, therefore, those shares should be excluded from calculations of diluted earnings per share.
The following data show the amounts used in computing EPS and the effect on income and the weighted average number of shares:
|
Three Months Ended March 31:
|
|
|
2024
|
|
|
2023
|
|
|
Net loss
|
|
|
|
$ |
(12,247) |
|
|
|
|
$ |
(3,417) |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
(5,903) |
|
|
|
Cumulative preferred stock dividends
|
|
|
|
|
(83) |
|
|
|
|
|
(83) |
|
|
|
Net loss available to common shareholders used in basic and diluted EPS
|
|
|
|
$ |
(12,330) |
|
|
|
|
$ |
(9,403) |
|
|
|
Weighted average number of common shares used in basic and diluted EPS
|
|
|
|
|
174,077 |
|
|
|
|
|
168,046 |
|
|
|
Loss per common share – basic and diluted
|
|
|
|
$ |
(70.83) |
|
|
|
|
$ |
(55.96) |
|
|
The following items have been excluded from the computation of diluted net loss per share because the effect of including these would have been anti-dilutive:
|
Three Months Ended March 31:
|
|
|
2024
|
|
|
2023
|
|
|
Incentive stock options
|
|
|
|
|
5,977,220 |
|
|
|
|
|
8,512,225 |
|
|
|
Temporary redeemable preferred stock
|
|
|
|
|
3,984,088 |
|
|
|
|
|
3,941,980 |
|
|
|
Total |
|
|
|
|
9,961,308 |
|
|
|
|
|
12,454,205 |
|
|
10.
RELATED PARTY TRANSACTIONS
GII and its related parties
GII and its related parties hold the controlling interest on the Company’s Board of Directors.
In May 2019, the Company entered into a loan and security agreement with bSpace, a related party with GII. The bSpace loan was amended multiple times throughout 2021 and 2022, the details are fully described in Note 5.
As more fully described in Note 5, on August 12, 2022 bSpace forgave amounts due under its loan and security agreement, in exchange for 58,972 shares of NCNV preferred stock. On December 30, 2023, the Company entered into a loan conversion agreement under which all remaining amounts outstanding under the bSpace loan, plus unearned interest of $1.5 million, were redeemed for 36,918 shares of newly created NCNV Preferred Stock 3. Refer to Note 6 for details regarding the rights and privileges of the NCNV preferred stock series. The December 2023 conversion agreements relieved the Company of any further obligations under the loan and security agreement.
Kuwait Investment Authority
In February 2019, the Company entered into a loan security agreement with a related party, KIA, for $5.0 million. The KIA loan was amended during 2020 and 2021 and the details surrounding the initial and subsequent modifications are fully described in Note 5. As of December 31, 2022 the Company owed principal amounts of $5.0 million to KIA under the original agreement and subsequent amendments to the KIA loan.
As more fully described in Note 5, on August 12, 2022, KIA forgave amounts due under its loan and security agreement in exchange for 8,062 shares of NCNV preferred stock. In January 2024, the Company entered into a loan termination agreement under which all remaining amounts outstanding under the KIA loan, plus unearned interest of $0.1 million, were redeemed for 5,750 shares of newly created NCNV Preferred Stock 2 as described in Note 6. Refer to Note 6 for details regarding the rights and privileges of the NCNV preferred stock series. The January 2024 conversion agreement relieves the Company of any further obligations under the KIA loan.
11.
COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business. In accordance with ASC Topic 450, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of March 31, 2024 and December 31, 2023, there were no matters pending that required provision.
The Original Merger Agreement with Edtech was terminated on June 21, 2023. Edtech may pursue legal action against the Company for not effectuating the terms of the agreement. At this time, the Company is not aware of any pending litigation related to this matter and as such has not recorded any provision for loss.
Purchase Obligations
The Company has agreements with hardware suppliers to purchase inventory. As of March 31, 2024, the Company had $10.2 million in purchase obligations outstanding.
12.
MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the three months ended March 31, 2024, two customers accounted for approximately 13% and 11% of the Company’s total revenue. For the three months ended March 31, 2023, there were no individual customers which represented 10% or more of the Company’s total revenue.
As of March 31, 2024, there were no individual customers accounted which represented 10% or more of accounts receivable. As of December 31, 2023, three customers accounted for approximately 17%, 15% and 10% of accounts receivable, respectively.
13.
EMPLOYEE BENEFITS
The Company maintains a qualified 401(k) plan (the “Plan”) which allows participants to defer from 0% to 100% of cash compensation. The Plan allows employees to contribute on a pretax and after-tax basis to a Traditional and Roth 401(k). The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make catch-up contributions (which are eligible for matching contributions). Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. The company matches pretax and Roth employee contributions up to $2,000 per participant annually and all matching contributions vest immediately. The matching contributions to the Plan totaled approximately $0.1 million for both of the three months ended March 31, 2024 and 2023.
14.
SUBSEQUENT EVENTS
Management has evaluated subsequent events that have occurred through June 21, 2024, which is the date that the financial statements were available to be issued and has determined that there were no subsequent events that required recognition or disclosure in the financial statements as of and for the period ending March 31, 2024.
Stock Options
In May 2024, the Company granted an advisor stock options to purchase a total of 27,088 shares of common stock. The stock options were fully vested on the grant date, are exercisable at $2.57 per share and have an expiration period of 10 years. These stock option grants were issued from the 2017 Stock Plan.
Term Loans
During May and June 2024, the Company entered into multiple loan agreements from an existing lender to borrow a total of $3.5 million secured by certain assets. In May, the loans totaled $2.0 million at an annual interest rate of 17.0%. The June loan was for $1.5 million and has an annual interest rate of 18.0%. The interest on the May loan is subject to adjustment for default and on the June loan for prepayment and default. The loans have periodic principal and interest payments of 24 equal monthly payments beginning in June and July 2024.
ZSPACE, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2023 AND DECEMBER 31, 2022
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
zSpace, Inc.
San Jose, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of zSpace, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, temporary redeemable preferred stock and stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, negative cash flows from operations, non-compliance with certain debt covenants, and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2022.
Spokane, Washington
May 13, 2024
zSpace, Inc,
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$ |
3,128 |
|
|
|
|
$ |
4,061 |
|
|
|
Accounts receivable, net of allowance of $217 and $150
|
|
|
|
|
5,040 |
|
|
|
|
|
6,854 |
|
|
|
Inventory, net
|
|
|
|
|
3,535 |
|
|
|
|
|
4,273 |
|
|
|
Prepaid and other current assets
|
|
|
|
|
1,975 |
|
|
|
|
|
1,543 |
|
|
|
Total current assets
|
|
|
|
|
13,678 |
|
|
|
|
|
16,731 |
|
|
|
Property and equipment, net
|
|
|
|
|
21 |
|
|
|
|
|
48 |
|
|
|
Deferred offering costs
|
|
|
|
|
148 |
|
|
|
|
|
1,429 |
|
|
|
Total assets
|
|
|
|
$ |
13,847 |
|
|
|
|
$ |
18,208 |
|
|
|
LIABILITIES, TEMPORARY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$ |
4,735 |
|
|
|
|
$ |
4,177 |
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
9,229 |
|
|
|
|
|
8,721 |
|
|
|
Revolving line-of-credit
|
|
|
|
|
— |
|
|
|
|
|
3,000 |
|
|
|
Related party debt
|
|
|
|
|
— |
|
|
|
|
|
36,500 |
|
|
|
Convertible debt
|
|
|
|
|
5,000 |
|
|
|
|
|
5,000 |
|
|
|
Other current debt
|
|
|
|
|
7,017 |
|
|
|
|
|
— |
|
|
|
Current accrued interest
|
|
|
|
|
1,152 |
|
|
|
|
|
3,834 |
|
|
|
Deferred revenue, current portion
|
|
|
|
|
2,754 |
|
|
|
|
|
3,804 |
|
|
|
Total current liabilities
|
|
|
|
|
29,887 |
|
|
|
|
|
65,036 |
|
|
|
Noncurrent related party debt
|
|
|
|
|
5,000 |
|
|
|
|
|
— |
|
|
|
Other noncurrent debt
|
|
|
|
|
2,053 |
|
|
|
|
|
— |
|
|
|
Noncurrent accrued interest
|
|
|
|
|
138 |
|
|
|
|
|
— |
|
|
|
Deferred revenue, net of current portion
|
|
|
|
|
288 |
|
|
|
|
|
641 |
|
|
|
Total liabilities
|
|
|
|
|
37,366 |
|
|
|
|
|
65,677 |
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary redeemable preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.00001 par value; 3,874,946 shares authorized; 3,874,946
issued and outstanding as of December 31 2023 and December 31, 2022; liquidation
value of $4,014 as of December 31, 2023
|
|
|
|
|
3,000 |
|
|
|
|
|
3,000 |
|
|
|
NCNV 1, NCNV 2 and NCNV 3 preferred stock, $0.00001 par value; 140,000 authorized; 103,952 and 0 issued and outstanding as of December 31, 2023 and 2022, respectively; liquidation value of $103,952 as of December 31, 2023
|
|
|
|
|
103,952 |
|
|
|
|
|
— |
|
|
|
NCNV preferred stock, $0.00001 par value; 78,534 authorized as of December 31, 2022; 0 and 67,034 issued and outstanding as of December 31, 2023 and 2022, respectively
|
|
|
|
|
— |
|
|
|
|
|
61,131 |
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.00001 par value; 13,333,333 shares authorized, 174,077 and 167,666
issued and outstanding as of December 31, 2023 and 2022, respectively
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Additional paid-in capital
|
|
|
|
|
138,878 |
|
|
|
|
|
144,777 |
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
228 |
|
|
|
|
|
164 |
|
|
|
Accumulated deficit
|
|
|
|
|
(269,577) |
|
|
|
|
|
(256,541) |
|
|
|
Total stockholders’ deficit
|
|
|
|
|
(130,471) |
|
|
|
|
|
(111,600) |
|
|
|
Total liabilities, temporary redeemable preferred stock and stockholders’ deficit
|
|
|
|
$ |
13,847 |
|
|
|
|
$ |
18,208 |
|
|
See accompanying notes to consolidated financial statements.
zSpace, Inc,
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
| |
|
|
Year Ended December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Revenue
|
|
|
|
$ |
43,922 |
|
|
|
|
$ |
35,784 |
|
|
|
Cost of goods sold
|
|
|
|
|
27,028 |
|
|
|
|
|
22,656 |
|
|
|
Gross profit
|
|
|
|
|
16,894 |
|
|
|
|
|
13,128 |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
4,218 |
|
|
|
|
|
4,666 |
|
|
|
Selling and marketing
|
|
|
|
|
12,898 |
|
|
|
|
|
11,585 |
|
|
|
General and administrative
|
|
|
|
|
6,710 |
|
|
|
|
|
6,780 |
|
|
|
Other operating expenses
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
Total operating expenses
|
|
|
|
|
25,509 |
|
|
|
|
|
23,031 |
|
|
|
Loss from operations
|
|
|
|
|
(8,615) |
|
|
|
|
|
(9,903) |
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(2,900) |
|
|
|
|
|
(3,696) |
|
|
|
Other income (expense), net
|
|
|
|
|
23 |
|
|
|
|
|
(196) |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
(1,541) |
|
|
|
|
|
(3,346) |
|
|
|
Forgiveness of paycheck protection program loan
|
|
|
|
|
— |
|
|
|
|
|
2,012 |
|
|
|
Loss before income taxes
|
|
|
|
|
(13,033) |
|
|
|
|
|
(15,129) |
|
|
|
Income tax expense
|
|
|
|
|
(3) |
|
|
|
|
|
(44) |
|
|
|
Net loss
|
|
|
|
|
(13,036) |
|
|
|
|
|
(15,173) |
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
64 |
|
|
|
|
|
212 |
|
|
|
Comprehensive loss
|
|
|
|
$ |
(12,972) |
|
|
|
|
|
(14,961) |
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
|
(113.21) |
|
|
|
|
|
(156.71) |
|
|
|
Weighted-average common shares outstanding – basic and diluted
|
|
|
|
|
170,212 |
|
|
|
|
|
161,683 |
|
|
See accompanying notes to consolidated financial statements.
zSpace, Inc.
CONSOLIDATED STATEMENTS OF TEMPORARY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ DEFICIT
(Amounts in thousands, except for share amounts)
| |
|
|
Temporary Redeemable
Preferred Stock
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Deficit
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance, December 31, 2021
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
|
151,982 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
150,416 |
|
|
|
|
$ |
(48) |
|
|
|
|
$ |
(241,368) |
|
|
|
|
$ |
(91,000) |
|
|
|
Stock based compensation
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
20 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
20 |
|
|
|
Issuance of common stock from options exercised
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
15,684 |
|
|
|
|
|
— |
|
|
|
|
|
8 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
8 |
|
|
|
Issuance of NCNV preferred stock
|
|
|
|
|
67,034 |
|
|
|
|
|
51,296 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
9,835 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(9,835) |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(9,835) |
|
|
|
Convertible debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,346 |
|
|
|
KIA restructuring
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
822 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
822 |
|
|
|
Net loss
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(15,173) |
|
|
|
|
|
(15,173) |
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
212 |
|
|
|
|
|
— |
|
|
|
|
|
212 |
|
|
|
Balance, December 31, 2022
|
|
|
|
|
3,941,980 |
|
|
|
|
$ |
64,131 |
|
|
|
|
|
|
167,666 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
144,777 |
|
|
|
|
$ |
164 |
|
|
|
|
$ |
(256,541) |
|
|
|
|
$ |
(111,600) |
|
|
|
Stock based compensation
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
1 |
|
|
|
Issuance of common stock from options exercised
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
6,411 |
|
|
|
|
|
— |
|
|
|
|
|
3 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
3 |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
5,903 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(5,903) |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(5,903) |
|
|
|
Cancellation of NCNV preferred stock
|
|
|
|
|
(67,034) |
|
|
|
|
|
(67,034) |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Issuance of NCNV1, NCNV2, and NCNV3 preferred stock
|
|
|
|
|
103,952 |
|
|
|
|
|
103,952 |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Net loss
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(13,036) |
|
|
|
|
|
(13,036) |
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
64 |
|
|
|
|
|
— |
|
|
|
|
|
64 |
|
|
|
Balance, December 31, 2023
|
|
|
|
|
3,978,898 |
|
|
|
|
$ |
106,952 |
|
|
|
|
|
|
174,077 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
138,878 |
|
|
|
|
$ |
228 |
|
|
|
|
$ |
(269,577) |
|
|
|
|
$ |
(130,471) |
|
|
See accompanying notes to consolidated financial statements.
zSpace, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
|
Year ended December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of revolving line of credit commitment fee asset
|
|
|
|
|
61 |
|
|
|
|
|
58 |
|
|
|
Non-cash amortization of convertible debt discount
|
|
|
|
|
— |
|
|
|
|
|
1,577 |
|
|
|
Non-cash amortization of other debt discount
|
|
|
|
|
82 |
|
|
|
|
|
— |
|
|
|
Gain on forgiveness of PPP loan
|
|
|
|
|
— |
|
|
|
|
|
(2,012) |
|
|
|
Stock-based compensation expense
|
|
|
|
|
1 |
|
|
|
|
|
20 |
|
|
|
Provision for excess and obsolete inventory
|
|
|
|
|
807 |
|
|
|
|
|
252 |
|
|
|
Cancellation of purchase obligations
|
|
|
|
|
141 |
|
|
|
|
|
1,068 |
|
|
|
Depreciation
|
|
|
|
|
32 |
|
|
|
|
|
49 |
|
|
|
Bad debt expense (recovery)
|
|
|
|
|
— |
|
|
|
|
|
10 |
|
|
|
Write-off of deferred offering costs
|
|
|
|
|
1,683 |
|
|
|
|
|
— |
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
1,541 |
|
|
|
|
|
3,346 |
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
1,814 |
|
|
|
|
|
(2,066) |
|
|
|
Inventory
|
|
|
|
|
(210) |
|
|
|
|
|
(1,485) |
|
|
|
Prepaids and other current assets
|
|
|
|
|
(491) |
|
|
|
|
|
66 |
|
|
|
Accounts payable
|
|
|
|
|
558 |
|
|
|
|
|
2,344 |
|
|
|
Accrued expenses
|
|
|
|
|
707 |
|
|
|
|
|
36 |
|
|
|
Deferred revenue
|
|
|
|
|
(1,403) |
|
|
|
|
|
947 |
|
|
|
Accrued interest
|
|
|
|
|
1,303 |
|
|
|
|
|
2,061 |
|
|
|
Net cash used in operating activities
|
|
|
|
|
(6,410) |
|
|
|
|
|
(8,902) |
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
(5) |
|
|
|
|
|
(11) |
|
|
|
Net cash used in investing activities
|
|
|
|
|
(5) |
|
|
|
|
|
(11) |
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes
|
|
|
|
|
— |
|
|
|
|
|
5,000 |
|
|
|
Proceeds from revolving line of credit
|
|
|
|
|
— |
|
|
|
|
|
3,000 |
|
|
|
Repayment of revolving line of credit
|
|
|
|
|
(3,000) |
|
|
|
|
|
— |
|
|
|
Proceeds from other debt issuances
|
|
|
|
|
11,378 |
|
|
|
|
|
— |
|
|
|
Fees paid for debt issuance
|
|
|
|
|
(151) |
|
|
|
|
|
— |
|
|
|
Repayment of other debt issuances
|
|
|
|
|
(2,239) |
|
|
|
|
|
— |
|
|
|
Fees paid for deferred offering costs
|
|
|
|
|
(402) |
|
|
|
|
|
(1,045) |
|
|
|
Fees paid to creditors
|
|
|
|
|
(2) |
|
|
|
|
|
(21) |
|
|
|
Proceeds from exercise of common stock options
|
|
|
|
|
3 |
|
|
|
|
|
8 |
|
|
|
Net cash provided by financing activities
|
|
|
|
|
5,587 |
|
|
|
|
|
6,942 |
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
|
|
(105) |
|
|
|
|
|
212 |
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
|
|
(933) |
|
|
|
|
|
(1,759) |
|
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
|
|
|
|
4,061 |
|
|
|
|
|
5,820 |
|
|
|
Cash, cash equivalents and restricted cash at end of year
|
|
|
|
$ |
3,128 |
|
|
|
|
$ |
4,061 |
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
$ |
1,457 |
|
|
|
|
|
— |
|
|
|
Cash paid for income taxes
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
|
|
|
|
— |
|
|
|
|
$ |
225 |
|
|
|
KIA restructuring gain
|
|
|
|
|
— |
|
|
|
|
$ |
822 |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
$ |
5,903 |
|
|
|
|
$ |
9,835 |
|
|
|
Issuance of NCNV in exchange for related party debt and accrued interest
|
|
|
|
$ |
36,918 |
|
|
|
|
$ |
51,296 |
|
|
|
Unpaid deferred offering costs
|
|
|
|
$ |
120 |
|
|
|
|
$ |
384 |
|
|
See accompanying notes to consolidated financial statements.
ZSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
zSpace, Inc. (“zSpace” or the “Company”) was incorporated in the state of Delaware in 2006 and is headquartered in San Jose, California with wholly owned subsidiaries in China and Japan. The Company is the developer of full-service augmented reality/virtual reality (“AR/VR”) solutions built for K-12 education and career technical education. zSpace’s primary product is a mixed reality hardware device that provides an immersive, collaborative, and interactive learning experience. zSpace generates revenues via hardware sales in addition to recurring software revenue for access to zSpace interactive learning applications. The Company’s customer base includes federal, state, and local governments who are making large investments in education technology.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the assets, liabilities, results of operations and cash flows of the Company.
All intercompany accounts and transactions have been eliminated in consolidation.
Liquidity Risk and Going Concern
For the years ended December 31, 2023 and 2022, the Company incurred net losses of $13.0 million and $15.2 million, respectively. For the years ended December 31, 2023 and 2022, the Company incurred negative cash flows from operations of $6.4 million and $8.9 million, respectively. The Company had combined cash and cash equivalents balance of $3.1 million and $4.1 million as of December 31, 2023 and 2022, respectively. The Company has incurred operating losses and negative cash flows from operations since inception. The Company’s prospects are subject to risks, expenses, and uncertainties frequently encountered by companies in the technology industry. These risks include, but are not limited to, the uncertainty of successfully developing its products, availability of additional financing, gaining customer acceptance, and uncertainty of achieving future profitability. The Company’s success depends on obtaining additional financing, increasing sales, expanding its partnerships with resellers, controlling costs, and continued research and development activities to improve product offerings to end-users. The Company has historically funded its operations through the issuance of common and temporary redeemable preferred stock to private investors (Note 6) and debt financing (Note 5). The Company evaluated its financial condition as of the date of issuance, including its non-compliance with certain debt covenants (Note 5) and determined it is probable that, without consideration of a remediation plan to refinance existing debt facilities and raise new sources of capital, the Company would be unable to meet repayment obligations and the ongoing working capital shortfall in the next twelve months, and there is uncertainty about the Company’s ability to continue as a going concern. The conditions identified above raise substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance date of the consolidated financial statements.
On May 16, 2022, the Company entered into a merger agreement with EdtechX Holdings Acquisition Corp II. (“EdtechX”), a Special Purpose Acquisition Company. The merger between the Company and EdtechX pursuant to this agreement would result in zSpace becoming a publicly listed company, as the surviving business post-merger. If consummated, the merger will result in all holders of zSpace’s issued and outstanding preferred stock and common stock (inclusive of stock options), receiving shares of EdtechX Class A common stock, in exchange for their zSpace debt and equity holdings.
There is no assurance that the merger between the Company and EdtechX will occur, as consummation of the transaction is subject to (A) the affirmative vote of at least a majority of the votes cast by EdtechX’s pre-merger public stockholders at an EdtechX special meeting for which a quorum is present and (B) a minimum amount of aggregate required funds becoming available to the combined company based upon the
summation of (i) the cash proceeds from EdtechX’s contemporaneous private investment in a public entity (“PIPE”) pursuant to which EdtechX Class A common stock will be sold and (ii) cash and marketable securities held in trust, after permitted redemptions of Class A common shares held by EdtechX’s public shareholders. Neither approval of the merger transaction by EdtechX’s public stockholders nor the amount of cash and marketable securities that would remain in EdtechX’s trust account after permitted redemptions of Class A common shares by EdtechX’s public stockholders is within the control of the Company or EdtechX.
The merger can be validly terminated by EdtechX, without liability to the parties, due to the Company changing its recommendation in support of the merger agreement prior to obtaining Company approval of the merger agreement by a majority of the voting power of the outstanding shares of the Company’s common stock and the majority of the then outstanding Company preferred stock.
The consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business and does not include any adjustments to reflect the outcome of this uncertainty.
Foreign Operations
Operations outside the United States include subsidiaries in China and Japan. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes to existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.
Effects of the COVID-19 pandemic on the Company
In March 2020, the World Health Organization characterized the outbreak of the coronavirus disease (“COVID-19”) as a global pandemic and recommended containment and mitigation measures. In the same month, the United States declared a national emergency concerning the outbreak, and several states and municipalities declared public health emergencies. Along with these declarations, extraordinary and wide-ranging actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the U.S. and the world where the Company has operations. Such actions included quarantines, “stay-at-home” orders, closure of all business not deemed “essential,” practice of social distancing when engaging in essential activities, and similar mandates which substantially restrict daily activities and curtail or cease normal operations. Government responses to COVID-19, including the closure of public schools, has impacted the Company’s business, customers, and vendors through the effects of reductions in operating hours, closures, labor shortages, supply chain disruptions, and changes in operating procedures. The Company incurred write downs in inventory due to obsolescence caused by supply chain disruptions (Note 4) and a temporary reduction in revenue from schools during closures.
Reverse Stock Split
On December 29, 2023, the Company’s board of directors approved a 1-for-75 reverse split of shares of our common stock and Series A convertible preferred stock. The par values of the common and Series A convertible preferred stock were not adjusted as a result of the reverse stock split, nor were the outstanding shares of NCNV preferred stock. All authorized, issued and outstanding common stock and Series A convertible preferred stock and related per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effective on December 29, 2023.
Recapitalization
On December 30, 2023 the Company’s board of directors approved a series of transactions that involved the reallocation of certain ownership interests in the Company to existing investors and the extinguishment of existing outstanding related party debt (collectively, the “Recapitalization”). See Note 5 and Note 6 for further information.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Accordingly, actual results could differ materially from those estimates. Significant items subject to such estimates and assumptions include revenue recognition, including standalone selling price (“SSP”) and the allocation of the transaction price, valuation of accounts receivable, valuation of inventory, valuation of debt and embedded features, valuation of the Company’s common stock and temporary redeemable preferred stock, valuation allowance of deferred tax assets and liabilities, and stock-based compensation. To the extent the Company’s actual results differ materially from those estimates and assumptions, the Company’s future consolidated financial statements could be affected.
Emerging Growth Company
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.
Segment Information
The Company manages its operations and allocates resources as a single reportable segment. The Company’s chief operating decision maker is its chief executive officer who reviews financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance, and allocating resources.
Concentration of Credit Risk
The financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, restricted cash, and accounts receivable. The Company maintains its cash, cash equivalents, and restricted cash with high-quality financial institutions with investment grade ratings. The Company may also have deposit balances with financial institutions which exceed the Federal Deposit Insurance Corporation insurance limit of $250,000. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers up to the amounts recorded on the consolidated balance sheets. The Company’s accounts receivable is derived from customers located both inside and outside the United States and most of the Company’s customers are educational institutions. The Company mitigates its credit risks by performing ongoing credit evaluations of the financial conditions of its customers and requires advance payment from customers in certain circumstances. The Company generally does not require collateral from its customers. For information regarding the Company’s significant customers, see Note 12.
Comprehensive Loss and Foreign Currency Translation
The reporting currency of the Company is the United States dollar. The functional currency of the Company’s Chinese subsidiary is the Chinese renminbi while the functional currency of the Company’s Japanese subsidiary is the Japanese yen. Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured in the functional currency at period-end exchange rates. Foreign currency transaction gains and losses resulting from remeasurement are recognized in other income, net, in the consolidated statements of operations, and have not been material for any of the periods presented. For
those subsidiaries with non-U.S. dollar functional currencies, assets and liabilities are translated into U.S. dollars at period-end exchange rates. Revenue and expenses are translated at the average exchange rates during the period. Equity transactions are translated using historical exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive loss as a component of stockholders’ deficit.
Cash, Cash Equivalents, and Restricted Cash
The Company considers cash on hand, deposits in banks, and investments with original maturities of three months or less, such as the Company’s money market funds, to be cash and cash equivalents.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheet as of December 31, 2023 and 2022, to the amounts reported on the consolidated statement of cash flows (in thousands):
| |
|
|
December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Cash and cash equivalents
|
|
|
|
$ |
2,821 |
|
|
|
|
$ |
3,836 |
|
|
|
Restricted cash
|
|
|
|
|
307 |
|
|
|
|
|
225 |
|
|
|
Total cash, cash equivalents and restricted cash
|
|
|
|
$ |
3,128 |
|
|
|
|
$ |
4,061 |
|
|
The restricted cash is legally restricted to secure credit card charges incurred by the Company.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are customer obligations due under normal trade terms. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. The Company updates its allowance for credit losses on a quarterly basis with changes in the allowance recognized in income from operations. The Company reserves for any accounts receivable balances that are determined to be uncollectible in the allowance for credit losses.
After all attempts to collect accounts, receivable balances have failed, the balance is written off against the allowance for credit losses. As of December 31, 2023 and 2022, the Company reported an allowance for credit losses balance of $0.2 million for each year.
Inventory
The Company’s inventory, which includes raw materials and finished goods is valued using the weighted average cost method for hardware inventory while software inventory is recorded at actual cost. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense for property and equipment is computed using the straight-line method applied over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or the applicable lease term, including anticipated renewals.
Upon retirement or sale of an asset, the cost and related accumulated depreciation is removed from the consolidated balance sheets and the resulting gain or loss is reflected in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Maintenance and repairs are charged to operations as incurred.
Asset depreciation and amortization are computed using the following estimated useful lives:
|
Asset Type
|
|
|
Years
|
|
|
Lab equipment
|
|
|
|
|
5 |
|
|
|
Furniture and fixtures
|
|
|
|
|
7 |
|
|
|
Computer equipment
|
|
|
|
|
5 |
|
|
Impairment of Long-Lived Assets
The Company’s long-lived assets with finite lives consist primarily of property and equipment. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made. There is no impairment to long-lived assets as of and for the years ending December 31, 2023 and 2022. The Company periodically reviews the remaining estimated useful lives of its long-lived assets. If the estimated useful life assumption for any asset is changed, the remaining unamortized balance would be depreciated or amortized over the revised estimated useful life, on a prospective basis.
Classification of Redeemable Preferred Stock as Temporary Equity
The Company applies the guidance in Accounting Standards Committee (“ASC”) 480, Distinguishing Liabilities from Equity “ASC 480”), to determine the classification of financial instruments issued. The Company first determines if the instruments should be classified as liabilities under this guidance based on the redemption features, if mandatorily redeemable or not, and the method of redemption, if in cash, a variable number of shares or a fixed number of shares.
If the terms provide that an instrument is mandatorily redeemable in cash, or the holder can compel a settlement in cash, or will be settled in a variable number of shares predominantly based on a fixed monetary amount, the instrument is generally classified as a liability. Instruments that are settled by issuing a fixed number of shares are generally classified as equity instruments. None of the Company’s redeemable preferred stock was accounted for as a liability as none of the above-mentioned conditions were present.
The Company’s certificate of incorporation does not provide redemption rights to the holders of the Series A preferred stock. If a liquidation event occurs, all the funds and assets of the Company available for distribution among all the stockholders shall be distributed based on a defined mechanism. Although the Series A preferred stock is not redeemable, in the event of certain “deemed liquidation events” that are not solely within the Company’s control (including merger, acquisition, or sale of all or substantially all of the Company’s assets, or public offerings), the holders of the preferred stock would be entitled to preference amounts paid before distribution to other stockholders and hence effectively redeeming the preference amount outside of the Company’s control. In accordance with Accounting Series Release No. 268 (“ASR 268”) and ASC 480, the Company’s Series A redeemable preferred shares are classified outside of stockholders’ deficit in temporary equity as a result of these in-substance contingent redemption rights.
The Company’s certification of incorporation, as amended in August 2022, allows the holders of the newly issued non-convertible non-voting preferred shares (“NCNV preferred shares”) to redeem the shares, as the election of the majority of the holders, on or after March 15, 2023. The amended articles did not change any of the rights and privileges of the Company’s previously issued Series A preferred stock, other than providing liquidation and dividend preferences to the NCNV holders over all other stockholders. As the redemption of the NCNV preferred stock is outside of the control of the Company, in accordance with ASR 268 and ASC 480, the Company’s NCNV preferred shares were classified outside of stockholders’ deficit prior to redemption. As discussed in Note 6, the NCNV preferred shares are redeemable at the option of the majority holder with the passage of time. Therefore, the Company is accreting the carrying value of the NCNV preferred shares to its redemption value using the effective interest method.
On December 29, 2023, as part of the Recapitalization, the NCNV preferred shares were converted into NCNV 1, NCNV 2 and NCNV 3 preferred stock. In connection with the Recapitalization, the Company’s
certificate of incorporation was amended in December 2023 to include various liquidation preferences to the preferred stockholders over all common stockholders.
As of December 31, 2023 and 2022, the Company did not adjust the carrying values of the Series A preferred stock to the deemed liquidation values of such shares because a liquidation event was not probable of occurring.
Deferred Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred that are directly related to the Company’s planned public offering transaction. These costs are charged to stockholders’ equity (deficit) upon the completion of the transaction. As of December 31, 2022, the Company incurred $1.4 million in offering costs related to the Edtech X merger transaction, For the year ended December 31, 2023 the Company incurred an additional $0.3 million in offering costs related to the same offering. The total $1.7 million of these deferred offering costs were expensed in the year ended December 31, 2023. In addition to these costs, the Company incurred $0.1 million in offering costs related to a separate going public offering.
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The revenue recognition guidance provides a single model to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract have been satisfied. The steps within that model include: (a) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and (v) recognizing revenue as the contract’s performance obligations are satisfied. Judgment is required to apply the principles-based, five-step model for revenue recognition. Management is required to make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof, the events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to its customers. The standard also requires certain incremental costs incurred to obtain or fulfill a contract to be deferred and amortized on a systematic basis consistent with the transfer of goods or services to the customer.
The Company assesses the goods and/or services promised in each customer contract and separately identifies a performance obligation for each promise to transfer to the customer a distinct good or service. The Company then allocates the transaction price to each performance obligation in the contract using relative SSP. The Company determines standalone selling prices based on the price at which a good or service is sold separately. If the standalone selling price is not observable through historic data, the Company estimates the standalone selling price by considering the cost-plus margin approach, along with all reasonably available information, including peer-company selling information while taking into consideration market conditions and other factors, such as customer size, volume purchased, market and industry conditions, product specific factors and historical sales of the deliverables.
The Company sells proprietary augmented reality and virtual reality hardware, software, and related installation and training services to education customers. The Company has contractual agreements with customers that set forth the general terms and conditions of the relationship, including pricing of goods and services, payment terms and contract duration. Revenue is recognized when the obligation under the terms of the Company’s contract with its customer is satisfied and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.
The Company offers standard warranty coverage on substantially all products which provides the customer with assurance that the product will function as intended during the first year. This standard warranty coverage is accounted for as an assurance warranty and is not considered to be a separate
performance obligation. Returns and repairs under the Company’s general assurance warranty of products have not been material.
Discounts in certain contracts with customers represent variable consideration but are known at the time of invoicing.
Payment is generally due within 30 days of invoice issuance. The Company uses the practical expedient and does not recognize a significant financing component for payment considerations of less than one year.
Hardware: Hardware sales represent separate performance obligations, all of which are satisfied at a point in time when the hardware is delivered to the customer, which is typically FOB shipping point.
Software: Software sales consist of licenses of functional intellectual property that are satisfied at a point in time when key codes are provided to allow customers to access the software, which is the contract start date.
In transactions where the Company provides user-based based software licenses to a customer, zSpace recognizes software revenue ratably on a straight-line basis. These fees charged to its customers are recognized on a gross basis as zSpace has determined that it is the principal in the transaction. As a principal to the transaction, the Company obtains control of the third-party software licenses before control is transferred to the customer. The fees paid to third parties for software licenses are recognized as transaction expenses and recorded in cost of goods sold in the consolidated statements of operations.
Services: The Company offers installation and/or training services for its products, both of which are separate performance obligations and typically are satisfied within a short period of time, often less than one month. Additionally, the Company offers one- and two-year extended warranty contracts customers can purchase at their option, which are also separate performance obligations. All warranty-related performance obligations are generally fulfilled evenly throughout the contract term. Services also includes post-contract support (“PCS”) which is akin to a stand-ready performance obligation that is provided throughout the contract term. For all services related performance obligations, the Company believes that the passage of time corresponds directly to the satisfaction of the performance obligations; therefore, an output method of measuring progress based on time elapsed during the contract period is used to recognize revenue ratably on a straight-line basis.
Contract Liabilities: The Company typically bills in advance of providing goods and services, including for installation and training services, PCS, and extended warranties, resulting in contract liabilities (i.e., deferred revenue). Contract liabilities are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
Contract Costs: The Company incurs incremental contract commission costs to obtain contracts with customers which are expected to be recoverable through the term of those contracts. The Company allocates contract costs among the underlying performance obligations to which they relate and amortizes those costs on a systematic basis consistent with the pattern of the transfer of the goods and services. Contract cost assets are typically completely amortized soon after initial recognition as the majority of the Company’s revenue on the underlying performance obligations is recognized upon delivery of the goods or services.
Cost of Goods Sold
The Company includes within cost of goods sold those costs related to the manufacture and distribution of its AR/VR products, as well as the cost to purchase third-party software. Specifically, the Company includes in cost of goods sold each of the following: material costs, labor and employee benefit costs related to the manufacture of our products, and freight and shipping costs. Costs are expensed as incurred, or as control of products is transferred, except for costs incurred to fulfill a contract, which are capitalized and amortized on a straight-line basis over the expected period of performance. The Company does not incur significant incremental costs to acquire contracts.
Research and Development
Research and development expenses primarily consist of salaries, bonus payments, benefits, travel and other related costs, including equity-based compensation expense, facility-related expenses for personnel
engaged in research and development functions, and professional service fees primarily related to consulting and outsourcing services. All the Company’s research and development costs are expensed as incurred.
Selling and Marketing
The Company tracks all expenses on a departmental basis and allocates between categories of expenses as they are related. The Company includes within sales and marketing expenses labor and other costs directly related to the promotion of our products, including expenses, such as compensation for the Company’s marketing team and travel expense incurred in connection with promotion efforts. The Company does not incur any material advertising costs. Sales and marketing costs are expensed as incurred.
General and Administrative
The Company tracks all expenses on a departmental basis and allocates between categories of expenses as they are related. Our general and administrative expenses consist primarily of compensation and related costs for our finance, human resources and other administrative personnel, and include stock-based compensation, employee benefits and travel expenses. In addition, general and administrative expenses include our third-party consulting and advisory services, legal, audit, accounting services and facilities costs.
Income Taxes
The Company applies the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
The Company records a valuation allowance, when necessary, to reduce deferred tax assets to the amount expected to be realized. Estimates of the realizability of deferred tax assets, as well as the Company’s assessment of whether an established valuation allowance should be reversed, are based on projected future taxable income, the expected timing of the reversal of deferred tax liabilities, and tax planning strategies. When evaluating whether projected future taxable income will support the realization of the Company’s deferred tax assets, the Company considers both its historical financial performance and general economic conditions. In addition, the Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.
The Company utilizes a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained upon examination by the Internal Revenue Service (“IRS”) or other taxing authorities, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual outcomes. Management determined there were no uncertain tax positions at December 31, 2023 and 2022 that would more likely than not be subject to tax by the taxing authorities. No examinations are currently pending.
Stock-Based Compensation
The Company has two stock incentive plans which grant incentive and nonqualified stock options to employees, directors, and consultants. All stock-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based on their respective grant-date fair values. The Company estimates the fair value of stock-based payment award on the date of grant using the Black-Scholes-Merton option pricing model in accordance with ASC 718, Compensation — Stock Compensation. The model requires management to make several assumptions, including expected volatility, expected life, risk-free interest rate, and expected dividends. The Company accounts for forfeitures when they occur. The value of the portion of the award that is ultimately expected to vest is recognized in the Company’s
consolidated statements of operations ratably over the requisite service periods, which is generally 4 years. No option is exercisable for more than 10 years. Share-based awards issued to non-employees are measured at the grant date and not subject to remeasurement.
Convertible and Non-Convertible Debt
The Company issued numerous convertible and non-convertible debt instruments. The Company evaluates embedded conversion and other features within its debt to determine whether any embedded features should be bifurcated from the host instrument and accounted for as a derivative at fair value, with changes in fair value recorded in the consolidated statement of operations and comprehensive loss.
The Company’s debt is carried on the consolidated balance sheets on a historical cost basis net of unamortized discounts and premiums because the Company has not elected the fair value option of accounting. Costs associated with acquiring debt are capitalized as a debt discount. The debt discount is presented in the consolidated balance sheets as a direct deduction from the carrying amount of the debt liability. The costs are amortized over the estimated contractual life of the related debt instrument using the effective interest method and are included in interest expense in the consolidated statements of operations.
Other Operating Expense
Other operating expense consists of legal, accounting, underwriting fees and other costs incurred that are directly related to the Company’s planned merger transaction under the EdtechX Merger Agreement and an alternative transaction explored after the termination of the EdtechX agreement. As of December 31, 2023, the Company incurred $1.7 million in offering costs related to the EdtechX Merger Agreement and the alternative transaction. Subsequent to the termination of the EdtechX Merger Agreement, the Company expensed the offering costs incurred as a result of that planned transaction and recorded the costs in other operating expense within the consolidated statements of operations.
Fair Value of Financial Instruments
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and establishes the disclosure requirements regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1 Inputs
Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 Inputs
Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 Inputs
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities at the measurement date. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The Company develops these inputs based on the best information available.
The carrying amounts of cash, cash equivalents, and restricted cash, accounts receivable, accrued liabilities, and accounts payable approximate fair value due to their relatively short-term maturities and are classified as short-term assets and liabilities in the accompanying balance sheets. The following table represents the fair value hierarchy for the financial assets and liabilities held by the Company measured at fair value on a recurring basis (in thousands):
| |
|
|
As of December 31, 2023
|
|
| |
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds
|
|
|
|
$ |
378 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
378 |
|
|
|
Total financial assets
|
|
|
|
$ |
378 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
378 |
|
|
| |
|
|
As of December 31, 2022
|
|
| |
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds
|
|
|
|
$ |
231 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
231 |
|
|
|
Total financial assets
|
|
|
|
$ |
231 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
231 |
|
|
During the years ended December 31, 2023 and 2022, the Company had embedded derivatives related to its outstanding debt instruments, as more fully described below in Note 5. The embedded derivatives were determined to have an immaterial value as of each reporting period end. The Company will continue to assess the fair value of the embedded derivatives at each year end.
The Company measures its debt at fair value on a nonrecurring basis. The fair value of the Company’s debt approximates book value as of December 31, 2023 and 2022, based on observable market prices for similar liabilities and categorized as Level 2. See Note 5 for further details regarding the Company’s debt.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents to the extent they are dilutive. For purposes of this calculation, temporary redeemable preferred stock, and stock options are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive for all periods presented.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard, ASC Topic 842, related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most significant among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP, while lessor accounting remains substantially unchanged from ASC 840. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted ASC Topic 842 effective January 1, 2022, using the cumulative transition approach as of the period of adoption. Upon adoption of ASC Topic 842, the Company recognized $0.2 million of ROU assets and $0.2 million of lease liabilities associated with operating leases.
The Company adopted ASC Topic 842 effective January 1, 2022, using the cumulative transition approach as of the period of adoption. The Company elected the package of practical expedients available for transition that allow the Company to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases, and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. In addition, the Company elected to account for lease and non-lease components as a single component for all asset classes and exclude short-term leases from assessment under the adoption of ASC 842. For contracts entered into on or after the effective date, the Company determines if an arrangement is, or contains, a lease at lease inception. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset; (2) whether the
Company obtains the right to substantially all of the economic benefit from the use of the asset throughout the period; and (3) whether the Company has the right to direct the use of the asset. Leases entered into prior to January 1, 2022, which were accounted for under ASC 840, Leases, were also reassessed under ASC 842.
At lease commencement, leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the underlying asset by the end of the lease term; (2) the lease contains an option to purchase the underlying asset that is reasonably certain to be exercised; (3) the lease term is for a major part of the remaining economic life of the underlying asset; (4) the present value of the sum of the lease payments and any guaranteed residual value that is not already included in the lease payments equals or exceeds substantially all of the fair value of the underlying asset; or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. The Company does not have any leases classified as a finance lease.
A lease is classified as an operating lease if it does not meet any one of these criteria. For all operating leases at the lease commencement date, an operating lease ROU asset and a lease liability are recognized. The operating lease ROU asset represents the right to use the leased asset for the lease term. The Company evaluates ROU assets for impairment consistent under the impairment of long-lived assets policy. At the commencement date, operating lease ROU assets and operating lease liabilities are determined based on the present value of lease payments to be made over the lease term. Operating lease ROU assets also include any rent paid prior to the commencement date, less any lease incentives received, and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for convertible debt instruments and preferred stock by removing the existing guidance that requires separation of beneficial conversion features and cash conversion features. The new standard also simplifies application of the derivatives scope exception pertaining to equity classification of contracts in an entity’s own equity. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the in-converted method. The ASU also introduces additional disclosures for convertible debt, convertible preferred stock and contracts in an entity’s own equity. The Company adopted this standard on January 1, 2022 using the modified retrospective approach, and its adoption did not have a material impact on the consolidated financial statements.
In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (“Topic 260), Debt — Modifications and Extinguishment (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity — Classified Written Call Options, to clarify the accounting by issuers for modifications or exchanges of freestanding equity-classified options that remain equity classified after modification or exchange. The guidance is effective for private companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The standard was effective for and adopted by the Company on January 1, 2022, and its adoption did not have a material impact on the consolidated financial statements.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (“Topic 832”): Disclosure by Business Entities about Government Assistance (“ASU 2021-10”), which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity’s financial statements. The guidance is effective for private companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The standard was effective for and adopted by the Company on January 1, 2022, and its adoption did not have a material impact on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, ASC 326, Financial Instruments — Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition
of expected credit losses for financial assets held by requiring the use of a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will be required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. For smaller reporting companies, the guidance effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The standard is effective for the Company on January 1, 2023. Adoption had no material impact on the Company’s consolidated financial statements.
Accounting Pronouncements Issued, But Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”), issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure through enhanced disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal year beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves income tax disclosures through enhanced disaggregation within the rate reconciliation table and disaggregation of income taxes paid by jurisdiction. The amendment is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. For so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation. The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. This provision allows an emerging growth company to delay the adoption of some accounting standards unless and until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
3.
REVENUE
Disaggregation of Revenue
The Company earns revenue through the sale of products and services. Product and service revenue are the disaggregation of revenue primarily used by management, as this disaggregation allows for the evaluation of market trends and certain product lines and services vary in renewing versus non-renewing nature.
The following table disaggregates revenue by recognition method for the years ended December 31, 2023 and 2022 (in thousands):
| |
|
|
Years Ended December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Point in time
|
|
|
|
$ |
41,951 |
|
|
|
|
$ |
33,968 |
|
|
|
Over time
|
|
|
|
|
1,971 |
|
|
|
|
|
1,816 |
|
|
|
Total
|
|
|
|
$
|
43,922
|
|
|
|
|
$
|
35,784
|
|
|
The following table disaggregates revenue by type of products and services for the year ended December 31, 2023 and 2022 (in thousands):
| |
|
|
Years Ended December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Hardware
|
|
|
|
$ |
27,461 |
|
|
|
|
$ |
23,038 |
|
|
|
Software
|
|
|
|
|
13,229 |
|
|
|
|
|
10,697 |
|
|
|
Services
|
|
|
|
|
3,232 |
|
|
|
|
|
2,049 |
|
|
|
Total
|
|
|
|
$
|
43,922
|
|
|
|
|
$
|
35,784
|
|
|
The following table disaggregates revenue by geographic area for the year ended December 31, 2023 and 2022 (in thousands):
| |
|
|
Years Ended December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
United States
|
|
|
|
$ |
38,715 |
|
|
|
|
$ |
27,336 |
|
|
|
International
|
|
|
|
|
5,207 |
|
|
|
|
|
8,448 |
|
|
|
Total
|
|
|
|
$
|
43,922
|
|
|
|
|
$
|
35,784
|
|
|
China made up $2.8 million and $6.4 million of international sales for the years ended December 31, 2023 and 2022, respectively.
The amount of deferred revenue as of December 31, 2023 and December 31, 2022 reflects the revenue expected to be recognized in future periods related to remaining performance obligations as the Company collects payment in advance of satisfaction of performance obligations. Because a majority of the Company’s performance obligations are satisfied at a point in time soon after the contract is formed or within one year after the contract is formed, revenue recognized in the following year related to remaining performance obligations is expected to equal deferred revenue, current portion at the beginning of the year.
As of December 31, 2023 and of December 31, 2022, the Company has $3.0 million and $4.4 million in deferred revenue. As of December 31, 2023 approximately $2.7 million of the balance is expected to be earned within the next 12 months, with $0.3 million to be earned within the next 13 to 24 months.
As of December 31, 2022, approximately $3.8 million was expected to be earned within the next 12 months, with $0.6 million to be earned within the next 13 to 24 months. As of December 31, 2021, approximately $2.8 million of the balance was earned during the year ended December 31, 2022, with $0.7 million to be earned within the next 13 to 24 months.
As of December 31, 2023 and December 31, 2022, the Company had no contract assets. The Company’s net accounts receivable balance as of December 31, 2021 was $4.8 million.
4.
BALANCE SHEET COMPONENTS
Inventory, net
As of December 31, 2023 and 2022, inventory, net of reserve consisted of the following (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Finished goods
|
|
|
|
$ |
3,266 |
|
|
|
|
$ |
2,923 |
|
|
|
Raw materials
|
|
|
|
|
269 |
|
|
|
|
|
1,350 |
|
|
|
Total inventory
|
|
|
|
$ |
3,535 |
|
|
|
|
$ |
4,273 |
|
|
The Company writes down inventory for obsolete inventory items and when the net realizable value of inventory items is less than their carrying value. The Company wrote down inventory of $0.9 million and $1.3 million during the years ended December 31, 2023 and 2022, respectively.
Prepaid and other current assets
Prepaid expenses and other assets consisted of the following at December 31, 2023 and 2022 (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Advances to suppliers
|
|
|
|
$ |
797 |
|
|
|
|
$ |
715 |
|
|
|
Deferred software costs
|
|
|
|
|
382 |
|
|
|
|
|
76 |
|
|
|
Prepaid operating expense
|
|
|
|
|
796 |
|
|
|
|
|
752 |
|
|
|
Total prepaid expenses and other assets
|
|
|
|
$ |
1,975 |
|
|
|
|
$ |
1,543 |
|
|
Accrued expenses and other liabilities
Accrued expenses and other liabilities consisted of the following at December 31, 2023 and 2022 (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Accrued purchases
|
|
|
|
$ |
4,361 |
|
|
|
|
$ |
4,472 |
|
|
|
Accrued compensation
|
|
|
|
|
2,315 |
|
|
|
|
|
2,509 |
|
|
|
Other current liabilities
|
|
|
|
|
2,553 |
|
|
|
|
|
1,740 |
|
|
|
Total accrued expenses and other liabilities
|
|
|
|
$ |
9,229 |
|
|
|
|
$ |
8,721 |
|
|
5.
DEBT AND RELATED PARTY DEBT
As of December 31, 2023 and 2022, debt and related party debt is comprised of the following (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line-of-credit
|
|
|
|
$ |
— |
|
|
|
|
$ |
3,000 |
|
|
|
Fiza Investments Limited Loans, convertible debt
|
|
|
|
|
5,000 |
|
|
|
|
|
5,000 |
|
|
|
Other current debt:
|
|
|
|
|
Fiza Investments Limited Loans, term debt
|
|
|
|
|
4,189 |
|
|
|
|
|
— |
|
|
|
Other term loans
|
|
|
|
|
2,828 |
|
|
|
|
|
— |
|
|
|
Total other current debt
|
|
|
|
|
7,017 |
|
|
|
|
|
— |
|
|
|
Total short-term debt
|
|
|
|
$ |
12,017 |
|
|
|
|
$ |
8,000 |
|
|
|
Short-term related party debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bSpace Investment Limited Loan
|
|
|
|
$ |
— |
|
|
|
|
$ |
31,500 |
|
|
|
Kuwait Investment Authority Debt
|
|
|
|
|
— |
|
|
|
|
|
5,000 |
|
|
|
Total short-term related party debt
|
|
|
|
$ |
— |
|
|
|
|
$ |
36,500 |
|
|
|
Noncurent related party debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kuwait Investment Authority Debt
|
|
|
|
$ |
5,000 |
|
|
|
|
|
— |
|
|
|
Total noncurrent related party debt
|
|
|
|
$ |
5,000 |
|
|
|
|
$ |
— |
|
|
|
Other noncurrent debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other term Loans
|
|
|
|
$ |
4,949 |
|
|
|
|
$ |
— |
|
|
|
Less: debt issuance costs
|
|
|
|
|
(68) |
|
|
|
|
|
— |
|
|
|
Less: current portion
|
|
|
|
|
(2,828) |
|
|
|
|
|
— |
|
|
|
Total other noncurrent debt
|
|
|
|
$ |
2,053 |
|
|
|
|
$ |
— |
|
|
The following provides a summary of the Company’s convertible debt instruments as of December 31, 2023 and 2022 (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Convertible debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bSpace Investments Limited Loan
|
|
|
|
$ |
— |
|
|
|
|
$ |
31,500 |
|
|
|
Kuwait Investment Authority Debt
|
|
|
|
|
5,000 |
|
|
|
|
|
5,000 |
|
|
|
Fiza Investments Limited Loan
|
|
|
|
|
5,000 |
|
|
|
|
|
5,000 |
|
|
|
Total Convertible debt
|
|
|
|
$ |
10,000 |
|
|
|
|
$ |
41,500 |
|
|
Debt discount and issuance costs incurred on convertible debt instruments were either eliminated through restructuring or extinguishment accounting or were considered immaterial and expensed when incurred for the years ended December 31, 2023 and 2022.
The following provides a summary of the Company’s interest expense on its convertible debt instruments (in thousands):
| |
|
|
December 31,
2023
|
|
|
December 31,
2022
|
|
|
Contractual interest
|
|
|
|
$ |
4,955 |
|
|
|
|
$ |
4,268 |
|
|
|
Amortization of debt discount and issuance costs
|
|
|
|
|
— |
|
|
|
|
|
1,577 |
|
|
|
Total
|
|
|
|
$ |
4,955 |
|
|
|
|
$ |
5,845 |
|
|
|
Interest recorded in expense
|
|
|
|
|
1,170 |
|
|
|
|
|
1,885 |
|
|
|
Amortization of debt discount and issuance costs recorded in expense
|
|
|
|
|
— |
|
|
|
|
|
1,577 |
|
|
|
Total
|
|
|
|
$ |
1,170 |
|
|
|
|
$ |
3,462 |
|
|
Interest expense included in the consolidated statement of operations also includes $0.2 million of interest expense related to non-convertible debt in the year ended December 31, 2022.
As a result of the May 2022 troubled debt restructurings, which are described in further detail below, the maximum future cash flows of certain of the Company’s convertible debt instruments was less than the carrying amount of the debt at the time of restructuring. As a result of accounting for the troubled debt restructuring, contractual interest expense was greater than the corresponding amount recorded in the consolidated statements of operations for convertible debt instruments. For the years-ended December 31, 2023 and 2022, respectively, $3.8 million and $2.4 million less interest expense was recorded in the consolidated statements of operations than contractual interest requirements.
bSpace Investments Limited Loan
In May 2019, the Company entered into a loan and security agreement with a related party, bSpace Investments Limited (“bSpace”). bSpace is affiliated with the Company’s controlling financial interest holder, Gulf Islamic Investments, LLC (“GII”). The loan and security agreement included an initial term loan of $25.0 million (the “Tranche 1 loan”), and a second tranche commitment of $5.0 million. The loan had a stated interest rate of 11.0% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. The Company granted bSpace a first-priority perfected security interest in all of the Company’s collateral, including, but not limited to, all Intellectual Property. The loan was voluntarily prepayable at any time, with an interest make-whole due if the loan was prepaid within one year of issuance. Upon an event of default, the loan was immediately due and payable. Amendments during 2020 added more tranches to the debt and modified the repayment terms. Throughout 2020, the Company borrowed an additional $3.5 million under various loan commitments and amendments to the loan and security agreement (“LSA”). In April and June 2021, the Company borrowed an additional $3.0 million, under the existing terms of the Company’s loan and security agreement with bSpace.
On February 26, 2020, the Company and bSpace amended the terms and conditions of the LSA, applicable to all draws, including the Tranche 3 loan discussed below. In connection with the amendment all
loans became due on November 6, 2020. The amendment also added a Change of Control provision. Upon the occurrence of a Change of Control, the loan will become immediately due and payable, including any make-whole amount, along with a premium of $0.1 million plus 1.9095% of the proceeds to the Company from the Change of Control.
Additionally, on February 26, 2020, the Company drew an additional $1.0 million and amended the terms of $2.0 million of the Tranche 2 draws, collectively referred to as the Tranche 3 loan. The Tranche 3 loan had a stated interest rate of 5.5% and an additional 2.0% per year advisory fee. Interest and fees were due quarterly, and the principal balance was due at maturity, originally November 2020. The Company accounted for the February 26, 2020 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
In April 2020, the Company and bSpace amended the loan to allow for the incurrence of the Paycheck Protection Program loans (“PPP Loans”), discussed below. The Company did not pay the holder any consideration in exchange for the modification and there is no accounting impact from this change. In November 2020 the Company and bSpace amended the loan to extend the maturity date from November 6, 2020 to December 15, 2020. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the November 2020 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
In December 2020, the Company and bSpace amended the loan for all tranches to (1) extend the maturity date to December 31, 2022; (2) add a repayment premium of 150.0% due under all repayment scenarios; (3) add a Tranche 4 loan commitment of $3.0 million dollars; (4) change the repayment terms such that all principal, interest, fees and the repayment premium are due at maturity; (5) add a redemption option upon the occurrence a qualified public offering or equity financing; (6) add a conversion option; and (7) remove the premium associated with the Change of Control embedded derivative.
In April and June 2021, the Company drew the $3.0 million Tranche 4 loans under the same terms and conditions as existed during the December 2020 modification.
In September 2021, the Company and bSpace amended the loan in connection with the Revolving Line-of-Credit. The amendment subordinated the loan to the Revolving Line-of-Credit and extended the maturity date of the loan to February 2024. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the September 2021 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
As of December 31, 2021, the conversion feature within the loan included a contingent beneficial conversion feature, subject to the establishment of the Company’s next round preferred stock. As of January 1, 2022, upon the Company’s adoption of ASU 2020-06 the Company stopped assessing the contingent beneficial conversion feature for recognition in the Company’s consolidated financial statements.
As of December 31, 2021, the bSpace loan is redeemable upon the occurrence of a qualified public offering or equity financing and is convertible upon a non-qualified public offering or other equity financing. Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, bSpace has the option to convert the note into shares of the Company issued in the event at the issuance price. bSpace has the option to convert the loan into a next round of preferred stock at a conversion price equal to the greater of (1) $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock.
On May 16, 2022, contemporaneously with the execution of the Merger Agreement, the Company and bSpace entered into an Amendment and Conversion Agreement (bSpace Conversion Agreement). The terms of the bSpace loan were amended to: (a) agree that $90.5 million is due to bSpace, including the repayment premium and accrued interest through March 15, 2023; (b) the interest rate on the loan will reduce to 5% from January 1, 2023 to March 15, 2023; (c) $59.0 million of the Company’s indebtedness would convert into
58,972 shares of the new NCNV preferred stock no more than 90 days from the date of agreement; (d) $11.5 million of the Company’s indebtedness would convert into 11,500 shares of the new NCNV preferred stock immediately prior to the closing of the merger; and (e) approximately $20.0 million owed to bSpace will be retired in conjunction with a purchase of 1,970,443 shares of EdtechX by bSpace (the Exchange Feature) pursuant to a private placement to occur in connection with the consummation of the merger (the “PIPE Investment”).
The Company accounted for the bSpace Conversion Agreement as a troubled debt restructuring due to the difference between the fair value of the 58,972 shares of NCNV preferred stock issued in exchange for $59.0 million of the Company’s indebtedness. The Company did not recognize any gain on the restructuring of the loan as the undiscounted maximum future cash flows of the loan exceeded the remaining carrying amount. The Company considered the potential conversions of the bSpace loan in connection with the closing of the merger and the PIPE Investment to be contingent payments. The impact of the conversion is excluded from the determination of the maximum future cash flows of the loan. On June 21, 2023 the EdtechX merger agreement was terminated. As a result, no conversions contingent upon the EdtechX merger will occur.
In August 2022, upon the authorization of the NCNV preferred stock, the Company issued 58,972 shares of NCNV preferred stock to bSpace in exchange for the forgiveness of $59.0 million of the Company’s indebtedness, as proscribed by the bSpace Conversion Agreement. The Company reduced the carrying amount of the bSpace debt, including accrued interest, by $45.1 million, which represented the fair value of the NCNV preferred stock on the date of the bSpace Conversion Agreement. Refer to Note 6 for detailed information pertaining to the rights and privileges of the NCNV preferred stock.
As of December 31, 2022, the effective interest rate of the bSpace debt was 0.9%. As of December 31, 2022, the gross principal amount due on the bSpace loan was $31.5 million. As of December 31, 2022, the Company was not in compliance with certain covenants related to the loan, and, therefore, the loan has been reclassified to short-term debt. As of December 31, 2022, the fair value of the bSpace loan, including accrued interest, approximates book value.
On December 30, 2023, the Company entered into a loan termination agreement with bSpace under which all amounts outstanding under the LSA, plus unearned interest calculated post the maturity date through July 31, 2024 of $1.5 million, were exchanged for 36,918 shares of newly created New NCNV Preferred Stock 3. The termination agreement relieves the Company of any further obligations under the LSA.
Kuwait Investment Authority Loan
In February 2019, the Company entered into a $5.0 million promissory note with Kuwait Investment Authority (“KIA”) a principal shareholder. The note accrued interest at 2.8% per year and was due on-demand at any point in time after December 31, 2020. Principal and interest were due at maturity and would be accelerated upon an event of default or a change in control. The Company would grant KIA a warrant in the event of certain dilutive issuances. The Company evaluated the loan for embedded derivatives that require bifurcation and separate accounting and noted that there were none.
In December 2020, the Company and KIA amended the note to (1) extend the earliest put date to December 31, 2022; (2) remove the change of control redemption and anti-dilution features; (3) add a repayment premium of 150.0%; (4) add a redemption option upon the occurrence of a qualified public offering or equity financing; (5) add a conversion option, and (6) execute a subordination agreement, eliminating any uncertainty that the KIA loan was subordinate to the bSpace loan. Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, the note will convert into shares of the Company issued in the event at the issuance price, should bSpace elect to convert its loan. Additionally, the note may convert into a next round of preferred stock at a conversion price equal to the greater of (1) $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding, and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. The note will convert, should bSpace elect to convert its loan. The Company accounted for the December 2020 modification as an extinguishment of the existing loan and execution of a new loan. As a result, the Company recorded a loss from extinguishment of debt of $6.2 million, which was included in loss on extinguishment of debt on the
consolidated statement of operations for the year ended December 31, 2020. In connection with the modification, the Company granted KIA a warrant to purchase shares of common stock. The warrants had a fair value of $0.4 million at issuance, which the Company recorded as part of the loss on extinguishment of debt. All issued warrants expired December 31, 2020.
In September 2021, the Company and KIA amended the loan in connection with the Revolving Line of Credit. The amendment further subordinated the loan to the Revolving Line of Credit and extended the maturity date of the loan to February 2024. The Company did not pay the holder any consideration in exchange for the modification. The Company accounted for the September 2021 modification as a troubled debt restructuring. The Company did not recognize any gain on the restructuring of the loan as the undiscounted future cash flows of the loan exceeded the carrying amount.
As of December 31, 2021, gross principal amounts due under the KIA loan, including the repayment premium, were $12.5 million and interest accrued on the KIA loan at 2.75% per annum. The KIA loan is redeemable upon the occurrence a qualified public offering or equity financing and is convertible upon a non-qualified public offering or other equity financing. Upon the occurrence of a qualified public offering the loan will automatically convert into shares of the Company at the original issue price of the listing. Upon the occurrence of a non-qualified public offering or other equity financing, the note will convert into shares of the Company issued in the event at the issuance price, should bSpace elect to convert its loan. Additionally, the note may convert into a next round of preferred stock at a conversion price equal to the greater of (1) $110.0 million or (b) 4x the Company’s trailing 12-month revenue divided by the sum of (1) the total number of shares of Common Stock outstanding, and (2) shares of Common Stock reserved for issuance pursuant to a stock option plan, restricted stock plan, or other stock. The note will convert, should bSpace elect to convert its loan.
As of December 31, 2021, the loan contained a contingent beneficial conversion feature, subject to the establishment of the Company’s next round preferred stock. As of January 1, 2022, upon the Company’s adoption of ASU 2020-06 the Company stopped assessing the contingent beneficial conversion feature for recognition in the Company’s consolidated financial statements.
On May 16, 2022, contemporaneously with the execution of the EdtechX Merger Agreement, the Company and KIA entered into an Amendment and Conversion Agreement (“KIA Conversion Agreement”). The terms of the KIA loan were amended to provide that: (a) $8.1 million of the Company’s indebtedness would convert into 8,062 shares of the new NCNV preferred stock no more than 90 days from the date of agreement and (b) approximately $5.0 million of the Company’s indebtedness will be retired in conjunction with a purchase of 492,610 shares of EdtechX by KIA pursuant to a private placement to occur in connection with the consummation of a private investment in a public entity (“PIPE”).
The Company accounted for the KIA Conversion Agreement as a troubled debt restructuring due to the difference between the fair value of the 8,062 shares of NCNV preferred stock issued in exchange for $8.1 million of the Company’s indebtedness. Upon the execution of the KIA conversion agreement, the Company stopped accruing interest on the loan since the maximum undiscounted amount of the future cash flows exceeded the carrying amount of the loan. In August 2022 the Company completed the authorization of the NCNV preferred stock, exchanged $8.1 million of the loan for 8,062 shares of NCNV preferred stock, and recorded a restructuring gain of $0.8 million. The restructuring gain was calculated as the difference between the maximum undiscounted amount of future cash flows, including the fair value of 8,062 shares of NCNV preferred stock, and the carrying amount of the KIA loan. The Company considered the potential conversion of the KIA loan in connection with the merger to be a contingent payment. The impact of the conversion was excluded from the determination of the restructuring gain, as its inclusion could result in the recognition of a restructuring gain based on events that were not certain to occur. On June 21, 2023, the EdtechX merger agreement was terminated. As a result, no conversions contingent upon the EdtechX merger will occur. Refer to Note 6 for detailed information pertaining to the rights and privileges of the NCNV preferred stock.
As of December 31, 2022, the Company was not in compliance with certain covenants related to the loan; therefore, the loan has been reclassified to short-term debt.
The effective interest rate of the KIA loan was 4.9% in 2022 until interest accruals were ceased upon the execution of the KIA conversion agreement, as described above. As of December 31, 2022, the gross principal
amount due on the loan was $5.0 million. As of December 31, 2022, the fair value of the KIA loan approximated book value.
PPP Loan
In April 2020, the Company received loan proceeds of $2.4 million pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). In May 2021, the Company received a second PPP loan of $2.0 million. This loan and the first loan together are referred to as the PPP Loans. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider the Company’s current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The certification made by the Company did not contain any objective criteria and is subject to interpretation. Despite the good-faith belief that given the Company’s circumstances all eligibility requirements for the PPP Loans were satisfied, if it is later determined that the Company had violated any applicable laws or regulations or it is otherwise determined the Company was ineligible to receive the PPP Loans, it may be required to repay the PPP Loans in its entirety and/or be subject to additional penalties.
The term of the Company’s PPP Loans was two years. The annual interest rate on the PPP Loans was 1.0% and no payments of principal or interest were due until the conclusion of the deferral period. The deferral period was scheduled to end on the earlier of (i) the date that Small Business Administration remits the loan forgiveness amount to the lender, or (ii) if the loan is not forgiven, ten months after the end of the 24-week loan forgiveness covered period.
In June 2021, the first PPP loan was fully forgiven and as a result, the Company recorded a gain on the forgiveness of principal and accrued interest in accordance with ASC 470, Debt (“ASC 470”). The remaining PPP Loan was recognized on the Company’s consolidated balance sheet as of December 31, 2021 as long-term debt.
In March 2022, the second PPP loan was fully forgiven and as a result, the Company recorded a gain on the forgiveness of principal and accrued interest in accordance with ASC 470.
Revolving Line of Credit
In September 2021, the Company entered into a Revolving Line-of-Credit with a financial institution which provides financing through a revolving line of up to the lesser of $10.0 million or the Borrowing Base. The Revolving Line of Credit was made available through September 8, 2023 and outstanding balances incurred interest at the greater of (i) 3.5% above the Prime Rate and (ii) 6.5%. The Borrowing Base is defined as 85.0% of eligible accounts receivable, plus the lesser of $3.5 million or 50.0% of eligible inventory, plus 450% of annual monthly recurring revenue, less reserves deemed appropriate and at the discretion of the financial institution. The Revolving Line of Credit incurs an unused commitment fee of 0.3% per year of the difference between the revolving line and the average outstanding principal balance during the applicable month. The financial institution is the Company’s senior creditor, and it has the senior claim to the Company’s collateral. During May and June 2022, the Company drew $3.0 million on the Revolving Line-of-Credit at an interest rate of 8.25%, which remains the outstanding balance at December 31, 2022. The Company incurred fees to obtain the revolving line of credit and for a monthly unused commitment fee of less than $0.1 million as of December 31, 2022. The unused commitment fee has been capitalized under prepaid and other current assets and is being amortized into interest expense over the contractual life of the Revolving Line-of-Credit.
In February 2023, the Company fully paid off the outstanding balance of the Revolving Line of Credit and the agreement has been terminated.
Fiza Investments Limited Loan
Convertible Debt
In September 2022, the Company entered into a short form loan agreement with Fiza Investments Limited (“Fiza”) and received $2.5 million to help the Company meet immediate working capital requirements
(“Tranche I Loan”). In November 2022, the Convertible Loan and Security Agreement (“Convertible LSA”) was executed and provided for loans up to $5.0 million and received the remaining $2.5 million (“Tranche II loans”). The Company determined that the lender did not grant a concession upon signing the Convertible LSA and therefore concluded the modification was not a troubled debt restructuring. The Company accounted for the November 2022 modification as an extinguishment of the existing loan and execution of a new loan. Extinguishment accounting dictates that the Company record the debt at its fair value as of the date of extinguishment. As a result of embedded but not bifurcated conversion features, the fair value of the debt was $8.3 million. The fair value premium of $3.3 million over the principal amount due constitutes a substantial premium, that the Company recorded in additional paid-in capital. As a result, the Company also recorded a loss from extinguishment of debt of $3.3 million the year ended December 31, 2022.
The loan is due on or before September 12, 2023, and bears an interest rate of 13% per annum. The loan is secured by the Company’s assets. The loan requires mandatory prepayment upon (1) an event of default; (2) any listing of the Company’s securities; or (3) a change of control. The convertible debt lender has the right, in its sole discretion, to convert the loan (1) in the event of a public offering into the securities issued in such offering; (2) in the case of an equity financing, into new preferred stock on the same terms of the equity offering or (3) at any time into the Company’s most senior round of preferred stock at a formulaic conversion price. As of December 31, 2022, gross principal amounts due on the convertible loan was $5.0 million. As of December 31, 2023, the maturity date of the loan had passed, but the gross principal amount of $5.0 million remained outstanding while the Company and its lender continued to work towards an amendment to or conversion of the loan. As a result, the Company was out of compliance with the loan terms.
Term Debt
On May 29, 2023, the Company entered into a short form loan agreement with Fiza for an additional $3.0 million (“Tranche III Loan”). No terms of Tranche I Loan or Tranche II Loan were changed as a result of the May 2023 agreement. The Company accounted for the May 2023 agreement as a modification of the loans. The prior loans had no discounts or premiums to account for, and no gains or losses will be recognized on the restructuring. There were no material lender or third-party costs paid in connection with the Tranche III Loan.
The Tranche III Loan is due 15 business days from the date of disbursement (June 20, 2023), unless the definitive agreement is executed prior to maturity. As of December 31, 2023, the Company and its lender continued to work towards execution of the definitive agreement, which is expected to extend the maturity date of the debt to 24 months from the loan disbursement date. The Company will classify the Tranche III Loan as a current liability until a definitive agreement is reached. The Tranche III Loan bears an interest rate of 25% on the amount of outstanding principal.
On November 20, 2023, the Company entered into a short form loan agreement with Fiza for an additional $1.3 million (“Tranche IV Loan”). No terms of the Tranche I, II, or III Loans were changed as a result of the November 2023 agreement. There were no material lender or third-party costs paid in connection with the Tranche IV Loan. The Company accounted for the November 2023 agreement as an modification of the existing loans. The prior loans had no discounts or premiums to account for, and no gains or losses will be recognized.
The Tranche IV Loan is due 15 business days from the date of disbursement (December 12, 2023), unless the definitive agreement is executed prior to maturity. As of December 31, 2023, the Company and its lender continued to work towards execution of the definitive agreement, which is expected to extend the maturity date of the debt to 24 months from the loan disbursement date. The Company will classify the Tranche IV Loan as a current liability until a definitive agreement is reached. The Tranche IV Loan bears an interest rate of 25% on the amount of outstanding principal.
Other Term Loans
In January 2023, the Company signed term loan agreements to borrow $4.0 million (“Term Loan 1”) and $2.5 million (“Term Loan 2”) at interest rates of 13.0% and 34.0% per year, respectively. Term Loan 1 will be repaid in monthly installments through February 2026, and the Term Loan 2 will be repaid in monthly installments through September 2024. The loans are secured by the Company’s assets.
In April 2023, the Company signed an additional agreement to borrow $0.7 million (“Term Loan 3”) at an interest rate of 18.0% per year. Term Loan 3 is secured with the Company’s assets and expected proceeds from Employee Retention Tax Credits (“ERTC”). The loan will mature by April 17, 2026, but it must be repaid upon receipt of the ERTC in an amount sufficient to fully repay the loan. No terms of the Term Loan 1 or Term Loan 2 were changed as a result of the April 2023 agreement. The Company determined that the lender did not grant a concession upon signing the Term Loan 3 agreement and accounted for the April 2023 agreement as a modification of the loans. The modification does not change the accounting for the prior loans, and no gains or losses were recognized on the restructuring.
The outstanding balance of other term loans as of December 31, 2023 is $4.9 million. The effective interest rates of Term Loan 1, Term Loan 2 and Term Loan 3 are 14.2%, 38.2%, and 20.1%, respectively.
6.
TEMPORARY REDEEMABLE PREFERRED STOCK
Preferred Stock
As of December 31, 2023, the Company is authorized to issue 4,014,946 shares of preferred stock with a par value of $0.00001 per share, of which 3,874,946 shares are designated as Series A preferred stock and 140,000 shares are designated as NCNV preferred shares. Activity for both the Series A and NCNV preferred stock for the years ended December 31, 2023 and 2022 was as follows (in thousands, except share data):
| |
|
|
Series A Preferred Stock
|
|
|
NCNV Preferred Stock
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at December 31, 2021:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
Issuance of NCNV preferred stock
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
67,034 |
|
|
|
|
$ |
51,296 |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
9,835 |
|
|
|
Balance at December 31, 2022:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
67,034 |
|
|
|
|
$ |
61,131 |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
5,903 |
|
|
|
Cancellation of NCNV preferred stock
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
(67,034) |
|
|
|
|
|
(67,034) |
|
|
|
Balance at December 31, 2023:
|
|
|
|
|
3,874,946 |
|
|
|
|
$ |
3,000 |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
As part of the Recapitalization and discussed below, shares of NCNV 1 and NCNV 3 preferred stock were issued in December 2023. No amounts of NCNV 1, NCNV 2, or NCNV 3 preferred stock were previously outstanding.
| |
|
|
NCNV Preferred
Stock 1
|
|
|
NCNV Preferred Stock 2
|
|
|
NCNV Preferred
Stock 3
|
|
| |
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at December 31, 2022:
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
Conversion of NCNV Preferred Stock for NCN Preferred Stock 1
|
|
|
|
|
67,034 |
|
|
|
|
$ |
67,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of NCNV Preferred Stock 1 for NCNV Preferred Stock 3
|
|
|
|
|
(11,722) |
|
|
|
|
|
(11,722) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,722 |
|
|
|
|
|
11,722 |
|
|
|
Issuance of Preferred Stock in exchange for Debt Forgiveness
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,918 |
|
|
|
|
|
36,918 |
|
|
|
Balance at December 31, 2023:
|
|
|
|
|
55,312 |
|
|
|
|
$ |
55,312 |
|
|
|
|
|
— |
|
|
|
|
$ |
— |
|
|
|
|
|
48,640 |
|
|
|
|
$ |
48,640 |
|
|
Series A Preferred Stock
The Series A preferred stock has the following rights and privileges:
Dividend Rights
The holders of the Series A preferred stock are entitled to receive dividends at the rate of 11% per annum of the purchase price per share. The dividends shall accrue on a daily basis whether or not they are declared by
the Board of Directors. As of December 31, 2023 and 2022, no dividends have been declared by the Board of Directors. Therefore, while the dividends are accruing on a daily basis, the Company has not recorded this as a liability on the Company’s consolidated balance sheets.
Redemption Rights (Liquidation)
In the event of certain capital transactions deemed to be a liquidation transaction, the holders of the Series A preferred stock are entitled to a per share liquidation preference, plus any declared but unpaid dividends on such shares, prior to distributions to any class of common stockholders. The liquidation preference for the Series A preferred stock as of December 31, 2023 and 2022 is $4.0 million and $3.7 million, respectively. In the event that the available proceeds from a liquidation transaction are not sufficient to redeem the outstanding shares of all classes of preferred stock at their liquidation preference, then the Company will distribute all available assets ratably among the holders of preferred stock in proportion to the preferential amount each holder is otherwise entitled to receive.
Conversion Rights
Each share of Series A preferred stock can be voluntarily converted into shares of common stock at any time. All outstanding shares of Series A preferred stock will automatically convert into common stock in the event of an effective registration statement under the Securities Act of 1933, as amended, which can include an initial public offering or a reverse recapitalization transaction, resulting in at least $30.0 million of gross proceeds to the Company or pursuant to a similar regulatory framework, a non-U.S. public offering resulting in at least $10.0 million of gross proceeds to the Company. The results of either scenario must be the Company’s common stock being listed on an exchange approved by the Board of Directors. Each share of Series A preferred share will convert into the number of shares of common stock determined by dividing the original issuance price by the conversion price. The initial Series conversion price is $0.7744515 per share. The conversion price is subject to adjustment upon issuances of additional shares of common stock if the consideration paid per common share is less than the conversion price in effect immediately prior to the issuance of additional shares.
Voting Rights
Holders of the Series A preferred stock shall be entitled to cast the number of votes equal to 100 times the number of shares of common stock into which the shares of Series A preferred stock could be converted. Common stockholders are entitled to one vote for each share of common stock held.
The Board of Directors consists of up to four directors. The Series A preferred stockholders are entitled to elect three directors. The common stockholders and Series A preferred stockholders, voting together as a single class, elect the remaining director, with common stockholders entitled to one vote for each share of common stock and Series A preferred stockholders entitled to 100 votes for each share of Series A preferred stock.
NCNV Preferred Stock
On August 12, 2022, the Company issued 67,034 shares of NCNV preferred stock. The Company issued the NCNV preferred stock in exchange for $67.0 million of outstanding debt with GII and KIA, as more fully described above in Note 5. The NCNV preferred stock are not convertible into any class of common stock and do not entitle the holder to vote on any matters pertaining to the Company. The Company classifies the NCNV preferred stock outside of stockholders’ deficit in temporary equity, as the NCNV preferred stock are redeemable at the option of the majority holder on or after March 15, 2023. The Company accreted the carrying value of the NCNV preferred stock to its redemption value using the effective interest method from August 12, 2022, the date of issuance, through March 15, 2023, the earliest redemption date. For the year ended December 31, 2023 and 2022, the Company recorded $5.9 million and $9.8 million, respectively, for the accretion of the NCNV preferred stock, as a reduction to additional paid-in capital.
On December 29, 2023, as part of the Recapitalization, (i) the Company became authorized to issue 140,000 shares of new series of NCNV preferred stock; NCNV 1, NCNV 2 and NCNV 3 (“New NCNV Preferred Stock”). The original 67,034 shares of NCNV preferred stock (“Original NCNV preferred stock”)
were exchanged into 67,034 shares of NCNV 1 preferred stock, (ii) 11,722 shares of NCNV 1 preferred stock was converted into NCNV 3 preferred stock and (iii) 36,918 shares of NCNV 3 preferred stock was issued in exchange for all the outstanding debt from bSpace as described in Note 5. The NCNV Preferred Stock has liquidation preference to the Series A Preferred Stock and Common Stock. Immediately prior to the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering, all of the outstanding New NCNV Preferred Stock will automatically convert into Common Stock. Such converted New NCNV Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series.
The New NCNV Preferred Stock has the following rights and privileges:
Dividend Rights
The holders of the New NCNV Preferred Stock are entitled to receive dividends at the rate of 5% of the issue price per share of $1,000, prior to payment of dividends to the holders of Series A preferred stock, if declared by the Board of Directors. The dividends are non-cumulative. As of December 31, 2023 and 2022, no dividends have been declared by the Board of Directors.
Conversion Rights
New NCNV Preferred Stock are non-convertible.
Voting Rights
New NCNV Preferred Stock are non-voting.
In addition to the New NCNV Preferred Stock rights and privileges, the Original NCNV preferred stock had the following rights:
Redemption Rights
At any time on or after March 15, 2023, the majority holders of NCNV preferred stock may request redemption at the issue price of $1,000 per share, plus all declared but unpaid dividends.
7.
STOCK BASED COMPENSATION EXPENSE
Equity incentive plans
The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan allows a specific Committee, or the Board of Directors, to grant incentive stock options to employees, and nonqualified stock options and other stock awards to employees, officers, directors, and consultants. Equity awards are granted with an exercise price per share equal to at least the estimated fair value of the underlying common stock on the date of grant. The vesting period is determined through individual award agreements and is generally over a four-year period. Awards generally expire 10 years from the date of grant.
The Company later adopted an additional equity incentive plan in 2017 (the “2017 Plan”). The 2017 Plan allows a specific Committee, or the Board of Directors, to grant incentive stock options to employees, and nonqualified stock options and other stock awards to employees, officers, directors, and consultants. Equity awards are granted with an exercise price per share equal to at least the estimated fair value of the underlying common stock on the date of grant. The vesting period is determined through individual award agreements and is generally over a four-year period. Awards generally expire 10 years from the date of grant.
Since the inception of both the 2007 and 2017 Plans, the Company’s Board and its stockholders have voted to increase the shares of common stock reserved under the plans on several occasions. As of December 31, 2023 and 2022, 8,770,035 shares were authorized under both the 2007 and 2017 Stock Plans. Shares forfeited due to employee termination or expiration are returned to the share pool. Similarly, shares withheld upon exercise to provide for the exercise price and/or taxes due and shares repurchased by the Company are also returned to the pool.
Determination of fair value of stock options
As of December 31, 2023 and 2022, the Company had approximately 0.9 million and 8.5 million options outstanding, respectively, under both Plans. As of December 31, 2023, all 0.9 million options outstanding
were granted solely with time-based vesting requirements. As of December 31, 2022, approximately 1.0 million options outstanding were granted solely with time-based vesting requirements and approximately 7.5 million granted with time-based and performance conditioned vesting requirements.
Performance conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which grantees have not yet earned the right. As a result, the fair value of both the time-based and performance conditioned stock options granted during the years ended December 31, 2023 and 2022 was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:
| |
|
|
December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Dividend yield
|
|
|
—
|
|
|
—
|
|
|
Expected term
|
|
|
5.2 − 6.0 years
|
|
|
5.2 − 6.1 years
|
|
|
Risk-free interest rates
|
|
|
1.0% − 1.9%
|
|
|
1.6% − 3.4%
|
|
|
Expected volatility
|
|
|
54.9% − 57.2%
|
|
|
54.9% − 56.5%
|
|
Dividend Yield — The dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to do so.
Expected Term — The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company determines the expected term using the simplified method as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options, including the date provided for completion of the performance condition event.
Expected Volatility — Because the Company does not have any trading history of its common stock, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within the Company’s industry that the Company considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.
Fair Value of Common Stock — Given the absence of a public trading market, the Company’s Board of Directors considered numerous objective and subjective factors to determine the fair value of its common stock at each grant date. These factors included, but were not limited to: (i) independent third-party valuations of common stock; (ii) the prices for the Company’s redeemable temporary redeemable preferred stock sold to outside investors; (iii) the rights and preferences of redeemable temporary redeemable preferred stock relative to common stock; (iv) the lack of marketability of its common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions.
A summary of the Company’s stock option plan and the changes during the year ended December 31, 2023 and 2022, are presented below:
| |
|
|
Number of
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance, January 1, 2022
|
|
|
|
|
967,590 |
|
|
|
|
$ |
6.75 |
|
|
|
|
|
|
|
|
|
|
|
9.13 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solely Time-based Vesting
|
|
|
|
|
38,280 |
|
|
|
|
|
1.66 |
|
|
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Conditioned Vesting
|
|
|
|
|
7,533,334 |
|
|
|
|
|
3.00 |
|
|
|
|
$ |
1.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options Granted
|
|
|
|
|
7,571,614 |
|
|
|
|
|
3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
(4,800) |
|
|
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
(6,494) |
|
|
|
|
|
30.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
(15,684) |
|
|
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2022
|
|
|
|
|
8,512,225 |
|
|
|
|
$ |
3.75 |
|
|
|
|
|
|
|
|
|
|
|
9.58 |
|
|
|
|
|
|
|
|
|
Vested and Exercisable, December 31, 2022
|
|
|
|
|
948,024 |
|
|
|
|
$ |
6.75 |
|
|
|
|
|
|
|
|
|
|
|
8.24 |
|
|
|
|
|
|
|
|
|
Vested and Expected to Vest, December 31, 2022
|
|
|
|
|
978,891 |
|
|
|
|
$ |
6.75 |
|
|
|
|
|
|
|
|
|
|
|
8.28 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solely time-based vesting
|
|
|
|
|
(17,506) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance conditioned vesting
|
|
|
|
|
(7,533,334) |
|
|
|
|
|
3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options Forfeited
|
|
|
|
|
(7,550,840) |
|
|
|
|
|
3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
(6,510) |
|
|
|
|
|
49.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
(6,411) |
|
|
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2023
|
|
|
|
|
948,464 |
|
|
|
|
$ |
6.20 |
|
|
|
|
|
|
|
|
|
|
|
7.25 |
|
|
|
|
$ |
1,919,582 |
|
|
|
Vested and Exercisable, December 31, 2023
|
|
|
|
|
937,592 |
|
|
|
|
$ |
6.26 |
|
|
|
|
|
|
|
|
|
|
|
7.24 |
|
|
|
|
$ |
1,897,349 |
|
|
|
Vested and Expected to Vest, December 31, 2023
|
|
|
|
|
948,464 |
|
|
|
|
$ |
6.20 |
|
|
|
|
|
|
|
|
|
|
|
7.25 |
|
|
|
|
$ |
1,919,582 |
|
|
Stock-based compensation was approximately $1 thousand and $20 thousand for the years ended December 31, 2023 and 2022, respectively, and was included in research and development, general and administrative and sales and marketing expense in the consolidated statements of operations. As of December 31, 2023, total unrecognized stock-based compensation cost was approximately $3 thousand which is expected to be recognized on a straight-line basis over a weighted average period of 1.9 years. The intrinsic value of stock options exercised during the year was $0.03 million.
As of December 31, 2022, total unrecognized stock-based compensation cost was less than $0.1 million which is expected to be recognized on a straight-line basis over a weighted average period of 2.9 years. This excludes the stock options issued in September 2022 that have performance conditions. Additional information on these options is disclosed below in this note.
September 2022 Stock Option Issuance
In September 2022, in accordance with the 2017 Plan, the Company awarded 7,533,334 stock options, of which 210,107 stock options were awarded to recently hired employees and 7,323,227 stock options were awarded to other employees, at an exercise price of $3.00 per share. All of these options are subject to time-based and performance conditioned vesting requirements. The performance condition for both sets of options assumes that a reverse recapitalization (“Liquidity Event”) is consummated prior to the time service with the Company terminates. No options vest if the performance condition is not met. As of December 31, 2022, the Company concluded that the events surrounding the occurrence of the Liquidity Event performance condition were not entirely in its control and that it cannot conclude if any of the stock options will vest. Therefore, the
Company concluded that it is not probable that the performance condition will be met, and as of December 31, 2022, the Company has not recognized any expense related to the granting of these options. On June 21, 2023, the reverse capitalization merger transaction (the Liquidity Event performance condition) was terminated by the other party to the transaction. As a result, per the terms of the option agreement the performance conditioned options terminated.
8.
TAXES
The components of the income tax expense as of December 31, 2022 is as follows (in thousands):
| |
|
|
December 31,
|
|
| |
|
|
2023
|
|
|
2022
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
State
|
|
|
|
|
3 |
|
|
|
|
|
1 |
|
|
|
Foreign
|
|
|
|
|
— |
|
|
|
|
|
43 |
|
|
|
Total current
|
|
|
|
$ |
3 |
|
|
|
|
$ |
44 |
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
$ |
(2,031) |
|
|
|
|
$ |
(1,891) |
|
|
|
State
|
|
|
|
|
(525) |
|
|
|
|
|
(179) |
|
|
|
Foreign
|
|
|
|
|
(6) |
|
|
|
|
|
(16) |
|
|
|
Change in valuation allowance
|
|
|
|
|
2,562 |
|
|
|
|
|
2,086 |
|
|
|
Total deferred
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
Total income tax expense
|
|
|
|
$ |
3 |
|
|
|
|
$ |
44 |
|
|
A reconciliation of total income tax expense and the amount computed by applying the federal statutory income tax rate of 21.0% to loss before provision from income taxes is as follows:
| |
|
|
2023
|
|
|
2022
|
|
|
Tax computed at federal statutory rate
|
|
|
|
|
21.0% |
|
|
|
|
|
21.0% |
|
|
|
State, net of federal benefit
|
|
|
|
|
3.0% |
|
|
|
|
|
0.9% |
|
|
|
Non-deductible interest expense
|
|
|
|
|
(0.5)% |
|
|
|
|
|
(4.5)% |
|
|
|
PPP loan forgiveness
|
|
|
|
|
— |
|
|
|
|
|
2.8% |
|
|
|
Extinguishment of debt
|
|
|
|
|
(4.0)% |
|
|
|
|
|
(4.6)% |
|
|
|
Change in valuation allowance
|
|
|
|
|
(18.0)% |
|
|
|
|
|
(13.7)% |
|
|
|
Other
|
|
|
|
|
(1.5)% |
|
|
|
|
|
(1.9)% |
|
|
|
Effective income tax rate
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
Temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 are as follows (in thousands):
| |
|
|
December 31,
|
|
|
Deferred tax assets
|
|
|
2023
|
|
|
2022
|
|
|
Accruals and revenues . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
646 |
|
|
|
|
$ |
564 |
|
|
|
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
92 |
|
|
|
|
|
88 |
|
|
|
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
731 |
|
|
|
|
|
1,004 |
|
|
|
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
8,786 |
|
|
|
|
|
6,141 |
|
|
|
Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
11 |
|
|
|
|
|
— |
|
|
|
Section 163(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Capitalized research & development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
214 |
|
|
|
|
|
123 |
|
|
|
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
2 |
|
|
|
|
|
18 |
|
|
|
Total gross deferred assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
10,482 |
|
|
|
|
$ |
7,938 |
|
|
|
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(10,479) |
|
|
|
|
|
(7,918) |
|
|
|
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
3 |
|
|
|
|
$ |
20 |
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(3)
|
|
|
|
|
|
(20)
|
|
|
|
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
|
(3) |
|
|
|
|
|
(20) |
|
|
|
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has recorded a full valuation allowance on its deferred tax asset balances as of December 31, 2023 and 2022. The valuation allowance increased by $2.6 million for the year ending December 31, 2023 and increased by $2.1 million for the year ending December 31, 2022.
Federal and state tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code Section 382 (“Section 382”). The Company has conducted a formal study indicating that a Section 382 change in control occurred on December 15, 2020.
The Company has net operating loss carryforwards for Federal and State income tax purposes of approximately $192.0 million and $164.6 million, respectively, as of December 31, 2023. Of these amounts, $157.8 million of federal net operating losses and $141.7 million of state net operating losses are expected to expire unutilized and thus no deferred tax assets are established for such loss carryforwards as of December 31, 2023 or December 31, 2022. The Company is subject to a federal Section 382 annual limitation of $2.2 million annually for the 5 years after a December 2020 change in control, and a $0 annual limitation thereafter.
Per the Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump in 2017, the federal NOL carryforwards generated in 2018 and years can be carried forward indefinitely. The federal NOL carryforwards generated in 2017 and prior years will continue to have their 20-year carryforward period and will begin expiring in 2037. The state NOL carryforwards, if not utilized, will expire beginning in 2029.
The Company has federal and state Section 163(j) limited interest expense carryforwards of $2.2 million and $4.2 million for both federal and state as of December 31, 2023 and 2022, respectively. Of these amounts, $2.2 million and $4.2 million of both federal and state Section 163(j) carryforwards are not more likely than not to be utilized and thus no deferred tax assets are established for such NOL carryforwards as of December 31, 2023 and 2022, respectively. Section 163(j) attributes carry forward indefinitely.
The Company has $1.4 million of federal and $1.4 million of California state research and development credit carryforwards for Federal and California income tax purposes, respectively, as of December 31, 2023 and 2022. As of December 31, 2023 and 2022 these credits are subject to IRC Section 382 and are not more
likely than not to be utilized and thus no deferred tax assets are established for such research credit carryforwards as of December 31, 2023 and 2022.
The Company has approximately $0.5 million of foreign NOL carryforward of 10 years as of December 31, 2023 and 2022 that begin to expire in 2023.
The Company files taxes in the United States, various US states, and various foreign jurisdictions. As the Company has had substantial losses in all tax years, substantially of its tax returns remain subject to audit by taxing authorities until the NOL generated in such years are utilized against taxable income in subsequent year tax returns.
The Company had unrecognized tax benefits of $2.79 million as of December 31, 2019 related to research and development tax credits. These unrecognized tax benefits, if recognized, would not affect the effective tax rate. As of December 31, 2023 and 2022, such research and development tax credits are subject to Section 382 limitations and are not more likely than not to be utilized.
There were no interest or penalties accrued at December 31, 2023 and 2022. As of December 31, 2023 and 2022, the Company recorded a valuation allowance of $10.5 million and $7.9 million, respectively, against the deferred tax asset balance as realization is uncertain due to a history of operating losses.
9.
NET LOSS PER SHARE
Net loss per common share (“EPS”) is presented for both Basic EPS and Diluted EPS. Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common shares equivalents outstanding during the period.
When an entity has a loss from operations, including potential shares in the denominator of diluted per share computations will generally be anti-dilutive, even if the entity has net income after adjusting for discontinued operations. That is, including potential shares in the denominator of the earnings per share calculation for a loss-making entity will generally decrease the loss per share and, therefore, those shares should be excluded from calculations of diluted earnings per share.
The following data show the amounts used in computing EPS and the effect on income and the weighted average number of shares:
|
Years Ended December 31:
|
|
|
2023
|
|
|
2022
|
|
|
Net loss
|
|
|
|
$ |
(13,036) |
|
|
|
|
$ |
(15,173) |
|
|
|
Accretion of NCNV preferred stock
|
|
|
|
|
(5,903) |
|
|
|
|
|
(9,835) |
|
|
|
Cumulative preferred stock dividends
|
|
|
|
|
(330) |
|
|
|
|
|
(330) |
|
|
|
Net loss available to common shareholders used in basic and diluted EPS
|
|
|
|
$ |
(19,269) |
|
|
|
|
$ |
(25,338) |
|
|
|
Weighted average number of common shares used in basic and diluted EPS
|
|
|
|
|
170,212 |
|
|
|
|
|
161,683 |
|
|
|
Loss per common share – basic and diluted
|
|
|
|
$ |
(113.21) |
|
|
|
|
$ |
(156.71) |
|
|
The following items have been excluded from the computation of diluted net loss per share because the effect of including these would have been anti-dilutive:
|
Years Ended December 31:
|
|
|
2023
|
|
|
2022
|
|
|
Incentive stock options
|
|
|
|
|
948,464 |
|
|
|
|
|
8,512,225 |
|
|
|
Temporary redeemable preferred stock
|
|
|
|
|
3,978,898 |
|
|
|
|
|
3,874,946 |
|
|
|
Total
|
|
|
|
|
4,927,362 |
|
|
|
|
|
12,387,171 |
|
|
10.
RELATED PARTY TRANSACTIONS
GII and its related parties
GII and its related parties hold the controlling interest on the Company’s Board of Directors.
In May 2019, the Company entered into a loan and security agreement with bSpace, a related party with GII. The bSpace loan was amended multiple times throughout 2021 and 2022, the details are fully described in Note 5. As of December 31, 2022, the Company owed total principal amounts of $31.5 million to bSpace under the loan and security agreement and subsequent amendments. As of December 31, 2022, the Company was not in compliance with certain covenants related to the loan; therefore, the loan has been reclassified to short-term debt. As of December 31, 2023, the Company has been released from all further obligations under the loan.
As more fully described in Note 5, on August 12, 2022 bSpace forgave amounts due under its loan and security agreement, in exchange for 58,972 shares of NCNV preferred stock. On December 30, 2023, the Company entered into a loan conversion agreement under which all remaining amounts outstanding under the bSpace loan, plus unearned interest of $1.5 million, were redeemed for 36,918 shares of newly created NCNV Preferred Stock 3. Refer to Note 6 and Note 14 for details regarding the rights and privileges of the NCNV preferred stock series. The December 2023 conversion agreements relieved the Company of any further obligations under the loan and security agreement.
Kuwait Investment Authority
In February 2019, the Company entered into a loan security agreement with a related party, KIA, for $5.0 million. The KIA loan was amended during 2020 and 2021 and the details surrounding the initial and subsequent modifications are fully described in Note 5. As of December 31, 2022 the Company owed principal amounts of $5.0 million to KIA under the original agreement and subsequent amendments to the KIA loan.
As more fully described in Note 5, on August 12, 2022, KIA forgave amounts due under its loan and security agreement in exchange for 8,062 shares of NCNV preferred stock.
11.
COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business. In accordance with ASC Topic 450, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of December 31, 2023 and 2022, there were no matters pending that required provision.
The Original Merger Agreement with Edtech was terminated on June 21, 2023. Edtech may pursue legal action against the Company for not effectuating the terms of the agreement. At this time, the Company is not aware of any pending litigation related to this matter and as such has not recorded any provision for loss.
Purchase Obligations
The Company has agreements with hardware suppliers to purchase inventory. As of December 31, 2023, the Company had $11.5 million in purchase obligations outstanding.
12.
MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the year ended December 31, 2023 there were no individual customers which represented 10% or more of the Company’s total revenue. For the year ended December 31, 2022, one customer accounted for approximately 16% of total revenue.
As of December 31, 2023 three customers accounted for approximately 17%, 15% and 10% of accounts receivable, respectively. As of December 31, 2022, one customer accounted for approximately 13% of accounts receivable.
13.
EMPLOYEE BENEFITS
The Company maintains a qualified 401(k) plan (the “Plan”) which allows participants to defer from 0% to 100% of cash compensation. The Plan allows employees to contribute on a pretax and after-tax basis to a Traditional and Roth 401(k). The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make catch-up contributions (which are eligible for matching contributions). Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. The company matches pretax and Roth employee contributions up to $2,000 per participant annually and all matching contributions vest immediately. The matching contributions to the Plan totaled approximately $0.1 million for both of the years ended December 31, 2023 and 2022.
14.
SUBSEQUENT EVENTS
Management has evaluated subsequent events that have occurred through May 13, 2024, which is the date that the financial statements were available to be issued and has determined that there were no subsequent events that required recognition or disclosure in the financial statements as of and for the period ending December 31, 2023, except as disclosed below.
Related Party Debt
In January 2024, the Company entered into loan conversion agreements (similar to bSpace as described in Note 5) under which all remaining amounts outstanding under the KIA loan, plus unearned interest calculated post the maturity date through July 31, 2024 of $0.1 million, were exchanged for 5,190 shares of newly created NCNV Preferred Stock 2. Refer to Notes 6 and Note 14 for details regarding the rights and privileges of the NCNV preferred stock series. The January 2024 conversion agreement relieves the Company of any further obligations under the KIA loan.
Convertible Debt
In March 2024, the Company entered into a loan for an additional $5.0 million from Fiza Investments Limited (Note 5). The loan has an annual interest rate of 20% that is accrued daily, compounds annually, and is paid on the maturity date. The loan matures on March 11, 2026, subject to acceleration in an event of default. If the Company has not paid the entire balance prior to an IPO, next financing or the maturity date, the loan is convertible into the capital stock of the Company. Upon the occurrence of an IPO, the loan will automatically convert into common shares of the Company at a conversion rate of the original issue price of the listing equal to (i) 85% if the conversion occurs before December 31, 2024 and (ii) 100% if the conversion occurs thereafter. Upon the occurrence of the next financing or post the maturity date, the holder has the option to convert the loan into shares of the Company issued in the next financing at the issuance price or into the most senior preferred stock of the Company, in both cases subject to minimum pre-money fully-diluted capitalization amounts.
Stock Options
In March 2024, the Company granted employees and members of the Board of Directors stock options to purchase a total of 5,028,756 shares of common stock. The stock options have varying vesting periods ranging from immediate at time of the grant to three years from grant date or service start date, are exercisable at $2.57 per share and have an expiration period of 10 years. These stock option grants were issued from the 2017 Stock Plan.
Through and including , 2024 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to an unsold allotment or subscription.
Shares
ZSPACE, INC.
COMMON STOCK
PRELIMINARY PROSPECTUS
Joint Book-Running Managers
Roth Capital PartnersCraig-Hallum Capital Group
Co-Manager
Barrington Research
, 2024
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table presents the costs and expenses, other than underwriting discounts and commissions, payable in connection with this offering. All amounts are estimates except the SEC registration fee, the FINRA filing fee and listing fee. Except as otherwise noted, all the expenses below will be paid by us.
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SEC registration fee
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$ |
*
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FINRA filing fee
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*
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|
|
| |
Exchange listing fee
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*
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Printing and engraving expenses
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|
|
|
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*
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| |
Legal fees and expenses
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*
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| |
Accounting fees and expenses
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*
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Transfer agent and registrar fees
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*
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Miscellaneous fees and expenses
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*
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Total
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$ |
*
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*
To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, our Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws contain provisions relating to the limitation of liability and indemnification of directors and officers. Our Amended and Restated Certificate of Incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability:
•
for any breach of the director’s duty of loyalty to us or our stockholders;
•
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
•
in respect of unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
•
for any transaction from which the director derives any improper personal benefit.
Our Second Amended and Restated Certificate of Incorporation also provides that if Delaware law is amended after the approval by our stockholders of the certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.
Our Second Amended and Restated Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for or on our behalf. Our Second Amended and Restated Bylaws provide that we shall advance the expenses incurred by a director or officer in advance of the final disposition of an action or proceeding, and permit us to secure insurance on behalf of any director, officer, employee, or other enterprise agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.
We intend to enter into indemnification agreements with each of our directors and executive officers and certain other key employees, a form of which is included as Exhibit 10.1 to this registration statement. The form of agreement provides that we will indemnify each of our directors, executive officers and such other key employees against any and all expenses incurred by that director, executive officer, or other key employee because of his or her status as one of our directors, executive officers, or other key employees, to the fullest extent permitted by Delaware law, our restated certificate of incorporation and our Bylaws. In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, we will advance all expenses incurred by our directors, executive officers and other key employees in connection with a legal proceeding.
Reference is made to the underwriting agreement contained in Exhibit 1.1 to this registration statement, indemnifying our directors and officers against limited liabilities. In addition, Section 2.8 of our Amended and Restated Voting and Rights Agreement contained in Exhibit 4.2 to this registration statement provides for indemnification of certain of our stockholders against certain liabilities described in such agreement.
We currently carry and intend to continue to carry liability insurance for our directors and officers.
Item 15. Recent Sales of Unregistered Securities
The following information relates to all securities issued or sold by us within the past three years and not registered under the Securities Act. All share and per share information in this Item 15 has been adjusted to reflect the 1-for-75 reverse stock split that we effected on December 29, 2023.
Since June 21, 2021, we have issued the following unregistered securities:
•
In August 2022, we issued 58,972 shares of NCNV preferred stock to bSpace in exchange for the forgiveness of $59.0 million of our indebtedness.
•
On December 30, 2023, we entered into a loan termination agreement with bSpace pursuant to which we issued 36,918 shares of our NCNV 3 Preferred Stock 3 for $36.9 million.
Kuwait Investment Authority (“KIA”):
•
In August 2022, we issued 8,062 shares of NCNV preferred stock in exchange for the cancellation of approximately $8.1 million in debt obligations held by KIA.
•
In January 2024, we issued 5,750 shares our NCNV 2 Preferred Stock in exchange for the cancellation of approximately $5.8 million in debt obligations held by KIA.
Fiza Investments Limited (“Fiza”):
•
In September 2022, we issued a promissory note to Fiza with an aggregate principal amount of $2.5 million.
•
In November 2022, we issued a promissory note to Fiza pursuant to a convertible loan and security agreement with an aggregate principal amount of $2.5 million.
•
On May 29, 2023, we issued a promissory note to Fiza with an aggregate principal amount of $3.0.
•
On November 20, 2023, we issued a promissory note to Fiza with an aggregate principal amount of $1.3 million.
•
In March 2024, we issued a convertible promissory note to Fiza with an aggregate principal amount of $5.0 million.
Other:
•
In September 2022, we granted 7,533,334 stock options, of which 210,107 stock options were granted to recently hired employees and 7,323,227 stock options were granted to other employees, at weighted average exercise prices of $1.66 and $3.00 per share, respectively.
•
In March 2024, we granted our employees and members of our board of directors stock options to purchase a total of 5,028,756 shares of common stock at an exercise price of $2.57 per share.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe that the offers, sales and issuances of the above securities were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering, or in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate information about us or had adequate access, through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following exhibits are included herein or incorporated herein by reference:
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Exhibit
Number
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Description
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1.1*
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Form of Underwriting Agreement.
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3.1
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3.2
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3.3
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3.4
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4.1*
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Form of Registrant’s common stock certificate.
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4.2*
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Form of Representative’s Warrant.
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5.1*
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Opinion of Pryor Cashman LLP.
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10.1*
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Form of Indemnification Agreement by and between the Registrant and each of its directors and executive officers.
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10.2#
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10.3#
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10.4#
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10.5#
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10.6#
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10.7#
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10.8#
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10.9#
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Transition and Separation Agreement between the Registrant and Joe Powers, dated October 3, 2023.
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10.10
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10.11
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Warrant to Purchase Common Stock, by and between Western Alliance Bank and the Registrant, dated July 21, 2015.
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10.12
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Warrant to Purchase Common Stock, by and between Artiman Ventures II, L.P. and the Registrant.
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10.13
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Series A Preferred Stock Purchase Agreement, by and among dSpace Investments Limited, the Registrant and certain other investors, dated December 4, 2020.
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10.14
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Amendment and Conversion Agreement, by and between Kuwait Investment Authority and the Registrant, dated May 16, 2022.
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10.15
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Conversion Agreement, by and between bSpace Investments Limited and the Registrant, dated August 12, 2022.
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Exhibit
Number
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Description
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10.16
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Loan and Security Agreement, by and between Fiza Investments Limited and the Registrant, dated November 3, 2022.
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10.17
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Loan Agreement, by and between Fiza Investments Limited and the Registrant, dated September 12, 2022.
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10.18
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Business Loan and Security Agreement #1, by and between Itria Ventures LLC and the Registrant, dated January 31, 2023.
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10.19
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Business Loan and Security Agreement #2, by and between Itria Ventures LLC and the Registrant, dated January 31, 2023.
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10.20
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Intercreditor Agreement, by and between Itria Ventures LLC, bSpace Investments Limited, Fiza Investments Limited and the Registrant, dated January 31, 2023.
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10.21
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Business Loan and Security Agreement #3, by and between Itria Ventures LLC and the Registrant, dated April 12, 2023.
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10.22
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Loan Agreement, by and between Fiza Investments Limited and the Registrant, dated May 29, 2023.
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10.23
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Loan Agreement, by and between Fiza Investments Limited and the Registrant, dated November 16, 2023.
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10.24
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Exchange Agreement, by and between bSpace Investments Limited and the Registrant, dated December 29, 2023.
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10.25
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Conversion and Loan Termination Agreement, by and between bSpace Investments Limited and the Registrant, dated December 30, 2023.
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10.26
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Conversion and Loan Termination Agreement, by and between Kuwait Investment Authority and the Registrant, dated December 30, 2023.
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10.27
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Convertible Promissory Note, issued by the Registrant in favor of Fiza Investments Limited, dated March 9, 2024.
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10.28
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Business Loan and Security Agreement, by and between Itria Ventures LLC and the Registrant, dated May 17, 2024.
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10.29
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Intercreditor Agreement, by and between Itria Ventures LLC and Fiza Investments Limited with respect to their security interests in the assets of the Registrant, dated May 17, 2024.
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10.30
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Letter Agreement, by and between Fiza Investments Limited and the Registrant, dated May 17, 2024.
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10.31
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Letter Agreement, by and between Fiza Investments Limited and the Registrant, dated June 5, 2024.
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10.32
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Intercreditor Agreement, by and between Itria Ventures LLC and Fiza Investments Limited with respect to their security interests in the assets of the Registrant, dated June 5, 2024.
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10.33*
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License Agreement, by and between Supplier and the Registrant, dated November 10, 2023.
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10.34*
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Master Supply Agreement, by and between Supplier and the Registrant, dated August 20, 2021.
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10.35*
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Amendment to Master Supply Agreement, by and between Supplier and the Registrant, dated March 11, 2024.
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10.36*
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Supply Agreement, by and between Supplier and the Registrant, dated July 14, 2023.
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23.1
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23.2*
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Consent of Pryor Cashman LLP (contained in Exhibit 5.1).
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24.1
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99.1
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Consent of Jane Swift, director nominee.
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99.2
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Consent of Abhay Pande, director nominee.
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99.3
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99.4
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Exhibit
Number
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Description
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107
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*
To be filed by amendment.
#
Indicates a management contract or compensatory plan or arrangement.
†
Pursuant to Item 601(a)(10) of Regulation S-K, certain exhibits and schedules to this agreement have been omitted. We hereby agree to furnish supplementally to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits and/or schedules.
(b) Financial Statement Schedules. All schedules have been omitted because the information required to be presented in them is not applicable or is shown in the financial statements or related notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in San Jose, California, on the 21st day of June, 2024.
ZSPACE, INC.
By:
/s/ Paul Kellenberger
Paul Kellenberger
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Paul Kellenberger and Erick DeOliveira, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) under the Securities Act of 1933 increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Paul Kellenberger
Paul Kellenberger
|
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Chief Executive Officer and Director
(Principal Executive Officer)
|
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June 21, 2024
|
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/s/ Erick DeOliveira
Erick DeOliveira
|
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Chief Financial Officer
(Principal Financial Officer)
|
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June 21, 2024
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/s/ Joseph Powers
Joseph Powers
|
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|
Chief Accounting Officer
(Principal Accounting Officer)
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June 21, 2024
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/s/ Pankaj Gupta
Pankaj Gupta
|
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Director
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June 21, 2024
|
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/s/ Amit Jain
Amit Jain
|
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Director
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June 21, 2024
|
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Exhibit 3.1
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Delaware |
|
Page
1 |
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The First State |
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I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF “ZSPACE, INC.”, FILED IN THIS OFFICE ON THE TWENTY-NINTH DAY OF DECEMBER, A.D. 2023, AT 12:55 O`CLOCK P.M.
|
 |
|
4241700 8100
SR# 20234370996 |
Authentication: 204942103
Date: 12-29-23 |
| You may verify this certificate online at corp.delaware.gov/authver.shtml |
|
| |
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZSPACE, INC. |
 |
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
zSpace, Inc., a corporation
organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General
Corporation Law”),
DOES
HEREBY CERTIFY:
1. That
the name of this corporation is zSpace, Inc, and that this corporation was originally organized as Infinite Z, LLC. The original
Certificate of Incorporation was filed with the Secretary of State of the state of Delaware on October 26, 2006 under the name Infinite Z, Inc.
and was amended and restated by that certain Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the
state of Delaware on August 12, 2022, as amended on September 6, 2022.
2. That
the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring
said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed
amendment and restatement is as follows:
RESOLVED,
that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
First:
The name of this corporation is zSpace, Inc. (the “Corporation”).
Second:
The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, 19801,
County of New Castle. The name of its registered agent at such address is National Registered Agents, Inc.
Third:
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law.
Fourth:
Immediately upon the effective time of this Amended and Restated Certificate of Incorporation (the “Restated Certificate of Incorporation”
and such time, the “Effective Time”), (i) (A) each 75 shares of the Corporation’s Common Stock then
outstanding, par value $0.00001 per share, shall be and hereby is automatically converted and reconstituted into one (1) share of
such Common Stock and (B) and each 75 shares of the Corporation’s Series A Preferred Stock then outstanding, par value
$0.00001 per share, shall be and hereby is automatically converted and reconstituted into one (1) share of such Series A Preferred
Stock, in each case, which shares shall be fully paid and nonassessable, without any action on the part of the holders thereof (the “Reverse
Stock Split”) and (ii) each share of the Corporation’s Non-Convertible Non-Voting Preferred Stock then outstanding,
par value $0.00001 per share, shall be and hereby is automatically reclassified and reconstituted into one (1) share of such Non-Convertible
Non-Voting Preferred Stock 1, par value $0.00001, which shares shall be fully paid and nonassessable, without any action on the part of
the holders thereof (the “Reclassification”). No fractional shares shall be issued upon the Reverse Stock Split and,
in lieu of issuing fractional shares upon the Reverse Stock Split, the Corporation shall pay each holder the fair value, as of the Effective
Time, of the fractional shares that would otherwise be issued upon the Reverse Stock Split. Whether or not fractional shares would have
been issuable (but for the preceding sentence) upon the Reverse Stock Split shall be determined on the basis of the total number of shares
represented by each stock certificate. Each outstanding stock certificate of the Corporation, which, immediately prior to the Effective
Time, represents one or more shares of the Corporation’s capital stock shall thereafter be deemed to represent the appropriate number
and type of shares of the Corporation’s capital stock, taking into account the Reverse Stock Split and Reclassification, until such
stock certificate is exchanged for a new stock certificate, if such shares are certificated, or if the shares are uncertificated, the
stock records maintained by the Company shall be appropriately adjusted to reflect the number and type of shares resulting from the Reverse
Stock Split and Reclassification. Exept as otherwise noted, all numbers and class and series references herein shall reflect the Reverse
Stock Split and Reclassification. Immediately upon the Effective Time and after effecting the Reverse Stock Split and Reclassification,
the total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 13,333,333 shares of
Common Stock, $0.00001 par value per share (“Common Stock”), (ii) 4,014,946 shares of Preferred Stock, $0.00001
par value per share (“Preferred Stock”).
The following is a statement
of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each
class of capital stock of the Corporation.
A. COMMON
STOCK
1. General.
The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and
preferences of the holders of the Preferred Stock set forth herein.
2. Voting.
The holders of the Common Stock are entitled to one (1) vote for each share of Common Stock held at all meetings of stockholders
(and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this Restated Certificate of Incorporation that relates solely to the
terms of one (1) or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately
or together with the holders of one (1) or more other such series, to vote thereon pursuant to this Restated Certificate of Incorporation
or pursuant to the General Corporation Law; provided for purpose of clarity, the Non-Convertible Non-Voting Preferred Stock (as defined
below) shall not be entitled to vote on any such matters unless required by the General Corporation Law. The number of authorized shares
of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote
of the holders of one (1) or more series of Preferred Stock (excluding the Non-Convertible Non-Voting Preferred Stock for all purposes)
that may be required by the terms of this Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital
stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED
STOCK
3,874,946 shares of the authorized
and unissued Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock,” 70,000 shares
of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Non-Convertible Non-Voting Preferred
Stock 1,” 10,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Non-Convertible
Non-Voting Preferred Stock 2,” and 60,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby
designated “Non-Convertible Non-Voting Preferred Stock 3,” each with the following rights, preferences, powers, privileges
and restrictions, qualifications and limitations. References herein to “Non-Convertible Non-Voting Preferred Stock”
herein shall mean collectively the Non-Convertible Non-Voting Preferred Stock 1, the Non-Convertible Non-Voting Preferred Stock 2 and
the Non-Convertible Non-Voting Preferred Stock 3. Unless otherwise indicated, references to “sections” or “Sections”
in this Part B of this Article Fourth refer to sections of Part B of this Article Fourth.
1. Dividends.
1.1 Prior
to any dividends being paid on the Non-Voting Preferred Stock 2, Non-Voting Preferred Stock 1, Series A Preferred or Common Stock,
from and after the date of the issuance of any shares of Non-Convertible Non-Voting Preferred Stock 3, the holders of Non-Convertible
Non-Voting Preferred Stock 3 shall be entitled to receive non-cumulative dividends in an amount equal to five percent (5%) per annum of
the original issue price per Non-Convertible Non-Voting Preferred Stock 3 of $1,000 per share of Non-Convertible Non-Voting Preferred
Stock 3 (subject to adjustments for stock splits, stock dividends and similar events) (the “Non-Convertible Non-Voting Preferred
Stock Original Issue Price”) when and only if declared by the Board of Directors; provided, for purposes of clarity,
the holders of the Non-Convertible Non-Voting Preferred Stock 3 shall not be entitled to participate in any dividends paid on any other
shares of the Corporation’s capital stock.
1.2 Prior
to any dividends being paid on the Non-Voting Preferred Stock 1, Series A Preferred or Common Stock, from and after the date of the
issuance of any shares of Non-Convertible Non-Voting Preferred Stock 2, the holders of Non-Convertible Non-Voting Preferred Stock 2 shall
be entitled to receive non-cumulative dividends in an amount equal to five percent (5%) per annum of the Non-Convertible Non-Voting Preferred
Stock Issue Price when and only if declared by the Board of Directors; provided, for purposes of clarity, the holders of the Non-Convertible
Non-Voting Preferred Stock 2 shall not be entitled to participate in any dividends paid on any other shares of the Corporation’s
capital stock.
1.3 Prior
to any dividends being paid on the Series A Preferred or Common Stock, from and after the date of the issuance of any shares of Non-Convertible
Non-Voting Preferred Stock 1, the holders of Non-Convertible Non-Voting Preferred Stock 1 shall be entitled to receive non-cumulative
dividends in an amount equal to five percent (5%) per annum of the Non-Convertible Non-Voting Preferred Stock Issue Price when and only
if declared by the Board of Directors; provided, for purposes of clarity, the holders of the Non-Convertible Non-Voting Preferred
Stock 1 shall not be entitled to participate in any dividends paid on any other shares of the Corporation’s capital stock.
1.4 From
and after the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate per annum of 11% of the Original
Issuance Price for the Series A Preferred Stock shall accrue on such shares of Series A Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A
Preferred Stock) (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared,
and shall be cumulative; provided, however, that except as set forth in the following sentence of this Section 1,
in Section 2.1, or immediately prior to the Mandatory Conversion Time, such Accruing Dividends shall be payable only when,
as, and if declared by the Board of Directors and the Corporation shall be under no obligation to pay such Accruing Dividends. The Corporation
shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than
dividends on shares of Common Stock payable in shares of Common Stock or to the Non-Convertible Non-Voting Preferred Stock as provided
above) unless (in addition to the obtaining of any consents required elsewhere in this Restated Certificate of Incorporation) the holders
of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share
of Series A Preferred Stock in an amount at least equal to the sum of (i) the amount of the aggregate Accruing Dividends then
accrued on such share of Series A Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common
Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A Preferred Stock as would
equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of
such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of
a share of Series A Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive
such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share
of Series A Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series
of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying
such fraction by an amount equal to the applicable Original Issue Price (as defined below); provided that if the Corporation declares,
pays or sets aside, on the same date, a dividend on shares of more than one (1) class or series of capital stock of the Corporation
other than the Non-Convertible Non-Voting Preferred Stock, the dividend payable to the holders of Series A Preferred Stock pursuant
to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in
the highest Series A Preferred Stock dividend. The “Original Issue Price” shall mean, as to the Series A
Preferred Stock, $0.7744515, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar
recapitalization with respect to the Series A Preferred Stock.
2. Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1 Preferential
Payments to Holders of Preferred Stock.
2.1.1 Non-Convertible
Non-Voting Preferred Stock 3. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation,
the holders of shares of Non-Convertible Non-Voting Preferred Stock 3 then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders or, in the case of a Deemed Liquidation Event (as defined below), out
of the consideration payable to stockholders in such Deemed Liquidation Event or the Available Proceeds (as defined below), before
any payment shall be made to the holders of Non-Convertible Non-Voting Preferred Stock 2, Non-Convertible Non-Voting Preferred Stock 1,
Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the Non-Convertible Non-Voting
Preferred Stock Original Issue Price, less any amount previously paid in respect thereof in the form of dividends, plus any dividends
accrued but unpaid thereon and declared by the Board of Directors. If upon any such liquidation, dissolution or winding up of the Corporation
or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay
the holders of shares of Non-Convertible Non-Voting Preferred Stock 3 the full amount to which they shall be entitled under this Section 2.1.1,
the holders of shares of Non-Convertible Non-Voting Preferred Stock 3 shall share ratably in any distribution of the assets available
for distribution in proportion to the respective amounts which would otherwise be payable in respect of the Non-Convertible Non-Voting
Preferred Stock 3 held by them upon such distribution if all amounts payable on or with respect to such Non-Convertible Non-Voting Preferred
Stock 3 were paid in full. The aggregate amount which a holder of a share of Non-Convertible Non-Voting Preferred Stock 3 is entitled
to receive under this Section is hereinafter referred to as the “Non-Convertible Non-Voting Preferred Stock 3 Liquidation
Amount.”
2.1.2 Non-Convertible
Non-Voting Preferred Stock 2. Subject to the preferential payments to holders of Non-Convertible Non-Voting Preferred Stock 3 provided
above, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of
Non-Convertible Non-Voting Preferred Stock 2 then outstanding shall be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders or, in the case of a Deemed Liquidation Event (as defined below), out of the consideration payable
to stockholders in such Deemed Liquidation Event or the Available Proceeds (as defined below), before any payment shall be made to
the holders of Non-Convertible Non-Voting Preferred Stock 1, Series A Preferred Stock or Common Stock by reason of their ownership
thereof, an amount per share equal to the Non-Convertible Non-Voting Preferred Stock Original Issue Price, less any amount previously
paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the Board of Directors.
If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the holders of shares of Non-Convertible Non-Voting Preferred
Stock 2 the full amount to which they shall be entitled under this Section 2.1.2, the holders of shares of Non-Convertible
Non-Voting Preferred Stock 2 shall share ratably in any distribution of the assets available for distribution in proportion to the respective
amounts which would otherwise be payable in respect of the Non-Convertible Non-Voting Preferred Stock 2 held by them upon such distribution
if all amounts payable on or with respect to such Non-Convertible Non-Voting Preferred Stock 2 were paid in full. The aggregate amount
which a holder of a share of Non-Convertible Non-Voting Preferred Stock 2 is entitled to receive under this Section is hereinafter
referred to as the “Non-Convertible Non-Voting Preferred Stock 2 Liquidation Amount.”
2.1.3 Non-Convertible
Non-Voting Preferred Stock 1. Subject to the preferential payments to holders of Non-Convertible Non-Voting Preferred Stock 3 and
Non-Convertible Non-Voting Preferred Stock 2 provided above, in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Non-Convertible Non-Voting Preferred Stock 1 then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to its stockholders or, in the case of a Deemed Liquidation
Event (as defined below), out of the consideration payable to stockholders in such Deemed Liquidation Event or the Available Proceeds
(as defined below), before any payment shall be made to the holders of Series A Preferred Stock or Common Stock by reason of
their ownership thereof, an amount per share equal to the Non-Convertible Non-Voting Preferred Stock Original Issue Price, less any amount
previously paid in respect thereof in the form of dividends, plus any dividends accrued but unpaid thereon and declared by the Board of
Directors. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the holders of shares of Non-Convertible Non-Voting Preferred
Stock 1 the full amount to which they shall be entitled under this Section 2.1.3, the holders of shares of Non-Convertible
Non-Voting Preferred Stock 1 shall share ratably in any distribution of the assets available for distribution in proportion to the respective
amounts which would otherwise be payable in respect of the Non-Convertible Non-Voting Preferred Stock 1 held by them upon such distribution
if all amounts payable on or with respect to such Non-Convertible Non-Voting Preferred Stock 1 were paid in full. The aggregate amount
which a holder of a share of Non-Convertible Non-Voting Preferred Stock 1 is entitled to receive under this Section is hereinafter
referred to as the “Non-Convertible Non-Voting Preferred Stock 1 Liquidation Amount” and together with the Non-Convertible
Non-Voting Preferred Stock 3 Liquidation Amount and the Non-Convertible Non-Voting Preferred Stock 2 Liquidation Amount is hereinafter
referred to as the “Non-Convertible Non-Voting Preferred Stock Liquidation Amount.”
2.1.4 Subject
to the preferential payments to holders of Non-Convertible Non-Voting Preferred Stock provided above, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders or, in the case of a
Deemed Liquidation Event as defined below, out of the consideration payable to stockholders in such Deemed Liquidation Event or the Available
Proceeds (as defined below), before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the Original Issue Price, plus any dividends accrued but unpaid thereon. If upon any such liquidation, dissolution
or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders
shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under
this Section 2.1, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets
available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the Series A Preferred
Stock held by them upon such distribution if all amounts payable on or with respect to such Series A Preferred Stock were paid in
full.
2.2 Distribution
of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after
the payment in full of all amounts to be paid pursuant to Section 2.1, the remaining assets of the Corporation available for
distribution to its stockholders or, in the case of a Deemed Liquidation Event, the consideration remaining after payments to the holders
of shares of Non-Convertible Non-Voting Preferred Stock and Series A Preferred Stock pursuant to Section 2.1 or the remaining
Available Proceeds, as the case may be, shall be distributed among the holders of the shares of Series A Preferred Stock and Common
Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been
converted to Common Stock pursuant to the terms of this Restated Certificate of Incorporation immediately prior to such liquidation, dissolution
or winding up of the Corporation. The aggregate amount which a holder of a share of Series A Preferred Stock is entitled to receive
under Sections 2.1 and 2.2 is hereinafter referred to as the “Series A Preferred Stock Liquidation Amount.”
2.3 Deemed
Liquidation Events.
2.3.1 Definition.
Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least a majority
of the outstanding shares of Series A Preferred Stock (the “Requisite Holders”), elect otherwise by written notice
sent to the Corporation at least 20 days prior to the effective date of any such event:
(a) a
merger or consolidation in which
| (i) | the Corporation is a constituent party or |
| (ii) | a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital
stock pursuant to such merger or consolidation, |
except any such merger or consolidation involving
the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following
such merger or consolidation, at least a majority by voting power of the capital stock of (1) the surviving or resulting corporation;
or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger
or consolidation, the parent corporation of such surviving or resulting corporation; or
(b) (1) the
sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation
or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole,
or (2) the sale or disposition (whether by merger, consolidation or otherwise, and whether in a single transaction or a series of
related transactions) of one (1) or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and
its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license
or other disposition is to a wholly owned subsidiary of the Corporation.
2.3.2 Effecting
a Deemed Liquidation Event.
(a) The
Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Section 2.3.1(a)(i) unless the
agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration
payable to the stockholders of the Corporation in such Deemed Liquidation Event shall be allocated to the holders of capital stock of
the Corporation in accordance with Sections 2.1 and 2.2.
(b) In
the event of a Deemed Liquidation Event referred to in Section 2.3.1(a)(ii) or 2.3.1(b), if the Corporation does not effect
a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then
(i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90th)
day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant
to the terms of the following sub-clause (ii) to require the redemption of such shares of Preferred Stock, and (ii) if
the Requisite Holders so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days
after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation
Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board
of Directors), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted
by Delaware law governing distributions to stockholders (the “Available Proceeds”), on the one hundred fiftieth (150th)
day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the applicable
Non-Convertible Non-Voting Preferred Stock Liquidation Amount in respect of the Non-Convertible Non-Voting Preferred Stock and the Series A
Preferred Stock Liquidation Amount in respect of the Series A Preferred Stock. Notwithstanding the foregoing, in the event of a redemption
pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock,
the Corporation shall redeem the Preferred Stock in the order of priority stated in Clause 2.1 (i.e., first towards payment of the entire
Non-Convertible Non-Voting Preferred Stock 3 Liquidation Amount, then towards payment of the entire Non-Convertible Non-Voting Preferred
Stock 2 Liquidation Amount, then towards payment of the entire Non-Convertible Non-Voting Preferred Stock 1 Liquidation Amount and thereafter
towards payment of the Series A Preferred Stock Liquidation Amount) based on the respective amounts which would otherwise be payable
in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining
shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. Prior to the distribution or redemption
provided for in this Section 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation
Event, except (i) as contemplated by such Deemed Liquidation Event, (ii) to discharge expenses incurred in connection with such
Deemed Liquidation Event, (iii) in the ordinary course of business, or (iv) as approved by the Board of Directors
2.3.3 Amount
Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such
merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property,
rights or securities to be paid or distributed to such holders pursuant to such Deemed Liquidation Event. The value of such property,
rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
2.3.4 Allocation
of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Section 2.3.1(a)(i), if
any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the
“Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that
is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of
capital stock of the Corporation in accordance with Sections 2.1 and 2.2 as if the Initial Consideration were the only
consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable
to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of
the Corporation in accordance with Sections 2.1 and 2.2 after taking into account the previous payment of the Initial
Consideration as part of the same transaction. For the purposes of this Section 2.3.4, consideration placed into escrow or
retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation
Event shall be deemed to be Initial Consideration.
3. Voting.
3.1 General.
On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the
Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock
shall be entitled to cast the number of votes equal to one hundred (100) times the number of whole shares of Common Stock into which
the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled
to vote on such matter. Except as provided by law or by the other provisions of this Restated Certificate of Incorporation, holders of
Series A Preferred Stock shall vote together with the holders of Common Stock as a single class and on an as-converted to Common
Stock basis. The Non-Convertible Non-Voting Preferred Stock shall not be entitled to vote on any matter.
3.2 Election
of Directors. The holders of record of the shares of
Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect three directors of the Corporation (the
“Series A Preferred Directors” or “Series A Directors”), and the holders of record of
the shares of Common Stock and Series A Preferred Stock voting together as a single class with the holders of Series A Preferred
Stock having one hundred (100) votes per whole share, shall be entitled to elect the remaining directors of the Corporation (the “Remaining
Directors”). Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative
vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at
a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders.
The Series A Preferred Directors shall be
entitled to cast the number of votes on any matter brought before the Board for approval, whether at a meeting of the Board of Directors
or in connection with an action by unanimous written consent of the Board of Directors, or any committee thereof as provided in Section 3.3.
If the holders of shares of Series A Preferred Stock or Common Stock, as applicable, fail to elect a sufficient number of directors
to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the
first sentence of this Section 3.2, then any directorship not so filled shall remain vacant until such time as the holders
of the Series A Preferred Stock elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no
such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled
to elect a person to fill such directorship, voting exclusively and as a separate class.
At any meeting held for the purpose of electing
a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled
to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Section 3.2,
a vacancy in any directorship filled by the holders of any class or classes or series shall be filled only by vote or written consent
in lieu of a meeting of the holders of such class or classes or series or by any remaining director or directors elected by the holders
of such class or classes or series pursuant to this Section 3.2.
For
the purpose of clarity, every reference in this Restated Certificate of Incorporation and the Bylaws of the Corporation, in each case
as the same may be amended or restated from time to time, to a majority or other proportion of the directors of the Corporation shall
refer to a majority or other proportion of the votes of the directors. The voting rules set forth in this Section 3.2
and Section 3.3 shall apply to any vote taken at any meeting of a committee or sub-committee of the Board of Directors,
such that, at any meeting of a committee or sub-committee of the Board of Directors, each director shall be entitled to cast the number
of votes he or she would be entitled to cast if the vote were being taken at a meeting of the Board of Directors.
3.3 Director
Voting Power. Subject to the proviso below, each director who is serving on the Board of Directors shall be entitled to cast one (1) vote
on all matters submitted to the Board of Directors or a committee thereof for a vote; provided, however, that (i) if
there is only one (1) Series A Preferred Director serving on the Board, then such Series A Preferred Director shall be
automatically deemed the Super-Voting Preferred Designee (as defined in the Amended and Restated Voting and Rights Agreement, dated December 4,
2020, by and between the Corporation and the investors party thereto (the “Voting Agreement”)) and shall then be entitled
to cast five (5) votes on all matters submitted to the Board of Directors or a committee thereof for a vote or written consent; (ii) if
there are only two (2) Series A Preferred Directors serving on the Board, the Super-Voting Preferred Designee shall then be
entitled to cast four (4) votes on all matters submitted to the Board of Directors or a committee thereof for a vote or written consent;
and (iii) if there are three (3) Series A Preferred Directors then serving on the Board, the Super-Voting Preferred Designee
shall then be entitled to cast three (3) votes on all matters submitted to the Board of Directors or a committee thereof for a vote
or written consent. For so long as the Super-Voting Preferred Designee is entitled to more than one (1) vote in accordance with preceding
sentence on any matter submitted to a vote of the Board of Directors or any committee thereof, any reference in this Restated Certificate
of Incorporation, the Bylaws of the Corporation or the General Corporation Law, as each may be amended or restated from time to time,
to a majority or other proportion of the Board of Directors or of any committee thereof shall refer to a majority or other proportion
of the votes of the Board of Directors or of such committee. The foregoing provisions of this Section 3.3 are intended to confer
additional voting power on the Super-Voting Preferred Designee under certain circumstances in accordance with and as permitted under Section 141(d) of
the General Corporation Law.
3.4 Series A
Preferred Stock Protective Provisions. At any time when at least 2,666 shares of Series A Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A
Preferred Stock) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation, recapitalization,
reclassification, or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate
of Incorporation) the written consent or affirmative vote of the Requisite Holders given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall
be null and void ab initio, and of no force or effect.
3.4.1 liquidate,
dissolve or wind-up the business and affairs of the Corporation, effect any merger or consolidation or any other Deemed Liquidation Event,
or consent to any of the foregoing;
3.4.2 amend,
alter or repeal any provision of this Restated Certificate of Incorporation or Bylaws of the Corporation;
3.4.3 create,
or authorize the creation of, or issue or obligate itself to issue shares of, or reclassify, any capital stock other than (i) equity
issuances to non-executive service providers pursuant to the Corporation’s 2017 Equity Incentive Plan that are approved by the Board
of Directors, including the Series A Director, if any, or (ii) increase the authorized number of shares of Series A Preferred
Stock or any additional class or series of capital stock of the Corporation;
3.4.4 cause
or permit any of its subsidiaries to sell, issue, sponsor, create or distribute any digital tokens, cryptocurrency or other blockchain-based
assets (collectively, “Tokens”), including through a pre-sale, initial coin offering, token distribution event or crowdfunding,
or through the issuance of any instrument convertible into or exchangeable for Tokens;
3.4.5 purchase
or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital
stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock as expressly
authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common
Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services
for the Corporation or any subsidiary in connection with the cessation of such employment or service at no greater than the original purchase
price thereof;
3.4.6 create,
or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except
for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising
or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations
and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien,
security interest or other indebtedness for borrowed money, unless, in each case, such debt security has received the prior approval of
the Board of Directors, including the Series A Director;
3.4.7 create,
or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one (1) or more other subsidiaries)
by the Corporation, or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue, any shares
of any class or series of capital stock, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary
of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in
a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary, unless, in each
case, approved by the Board of Directors, including the Series A Director, if any; or
3.4.8 increase
or decrease the authorized number of directors constituting the Board of Directors, change the number of votes entitled to be cast by
any director or directors on any matter, or adopt any provision inconsistent with Article Sixth.
Notwithstanding anything to the contrary set forth
in this Section 3.4, the consent of the Requisite Holders will not be required under any circumstance to initiate any insolvency
proceeding, without limitation, a filing under Chapter 7 or Chapter 11 of the United States Bankruptcy Code. Furthermore, unless
required by law or explicitly provided elsewhere in this Restated Certificate of Incorporation, the consent of the Requisite Holders will
not be required to pursue or consummate a Qualified Public Offering.
4. Optional
Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
4.1 Right
to Convert.
4.1.1 Conversion
Ratio. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the Original Issue Price by the Conversion Price (as defined below) in effect at the
time of conversion. The “Conversion Price” applicable to the Series A Preferred Stock shall initially be equal
to the Series A Original Issuance Price. Such initial Conversion Price, and the rate at which shares of Series A Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2 Termination
of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the
Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such consideration
distributable on such event to the holders of Series A Preferred Stock; provided that the foregoing termination of Conversion
Rights shall not affect the amount(s) otherwise paid or payable in accordance with Section 2.1 to holders of Series A
Preferred Stock pursuant to such liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event.
4.2 Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the number of shares of Common Stock to be issued upon conversion of
the Series A Preferred Stock shall be rounded to the nearest whole share.
4.3 Conversion.
4.3.1 Notice
of Conversion. In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock
into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office
of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as
its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Series A Preferred
Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder’s shares are certificated,
surrender the certificate or certificates for such shares of Series A Preferred Stock (or, if such registered holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation
to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction
of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation
if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in
which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or
lost certificate affidavit and agreement) shall be the time of conversion (the “Conversion Time”), and the shares of
Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation
shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Series A Preferred Stock, or
to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion
in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series A Preferred Stock represented
by the surrendered certificate that were not converted into Common Stock, and (ii) pay all declared but unpaid dividends on the shares
of Series A Preferred Stock converted.
4.3.2 Reservation
of Shares. The Corporation shall at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series A Preferred Stock, such
number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding
Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation shall take such corporate
action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Restated Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.
4.3.3 Effect
of Conversion. All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion
Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any
dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so converted shall be retired and cancelled and may
not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
4.3.4 No
Further Adjustment. Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends
on the Series A Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5 Taxes.
The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A Preferred Stock pursuant to this Section 4. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares
of Common Stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such
issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4 Adjustments
to Conversion Price for Diluting Issues.
4.4.1 Special
Definitions. For purposes of this Article Fourth, the following definitions shall apply:
(a) “Additional
Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3 below, deemed
to be issued) by the Corporation after the Original Issue Date, other than (1) the following shares of Common Stock and (2) shares
of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively,
“Exempted Securities”):
| (i) | as to any series of Series A Preferred Stock, shares of Common Stock, Options or Convertible Securities
issued as a dividend or distribution on such series of Series A Preferred Stock; |
| (ii) | shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock that is covered by Section 4.5, 4.6, 4.7 or 4.8; |
| (iii) | shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to,
the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation; |
| (iv) | shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares
of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant
to the terms of such Option or Convertible Security and such Option or Convertible Security was outstanding prior to the Original Issue
Date or is approved or ratified after the Original Issue Date by the Board of Directors of the Corporation, including the Series A
Director, if any; or |
| (v) | shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other
financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction
approved by the Board of Directors of the Corporation. |
(b) “Convertible
Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or
exchangeable for Common Stock, but excluding Options.
(c) “Option”
shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
4.4.2 No
Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made as the result of the issuance or deemed issuance
of Additional Shares of Common Stock if the Corporation receives written notice from the Requisite Holders agreeing that no such adjustment
shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3 Deemed
Issue of Additional Shares of Common Stock.
(a) If
the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding
Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders
of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility
or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date.
(b) If
the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price pursuant to the
terms of Section 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions
of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions
of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock
issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease
in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or
decrease becoming effective, the Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the
occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised
terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment
pursuant to this clause (b) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower
of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option
or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common
Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security)
between the original adjustment date and such readjustment date.
(c) If
the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities),
the issuance of which did not result in an adjustment to the Conversion Price pursuant to the terms of Section 4.4.4 (either
because the consideration per share (determined pursuant to Section 4.4.5) of the Additional Shares of Common Stock subject
thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible Security was issued before
the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment
pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution
or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration
payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted,
and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 4.4.3(a) shall
be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon
the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which
resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price pursuant to the
terms of Section 4.4.4, the Conversion Price shall be readjusted to such Conversion Price as would have obtained had such
Option or Convertible Security (or portion thereof) never been issued.
(e) If
the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or
the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or
Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion
Price provided for in this Section 4.4.3 shall be effected at the time of such issuance or amendment based on such number
of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall
be treated as provided in clauses (b) and (c) of this Section 4.4.3). If the number of shares
of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable
to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible
Security is issued or amended, any adjustment to the Conversion Price that would result under the terms of this Section 4.4.3
at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is
first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price
that such issuance or amendment took place at the time such calculation can first be made.
4.4.4 Adjustment
of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3),
without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or
deemed issuance, then the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth
of a cent) determined in accordance with the following formula:
CP2 = CP1* (A + B) ÷
(A + C).
For purposes of the foregoing formula, the following
definitions shall apply:
(a) “CP2”
shall mean the Conversion Price in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock
(b) “CP1”
shall mean the Conversion Price in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock;
(c) “A”
shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance of Additional Shares
of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately
prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities (including the Series A Preferred
Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d) “B”
shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued
or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation
in respect of such issue by CP1); and
(e) “C”
shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5 Determination
of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issuance or
deemed issuance of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash
and Property. Such consideration shall:
| (i) | insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation,
excluding amounts paid or payable for accrued interest; |
| (ii) | insofar as it consists of property other than cash, be computed at the fair market value thereof at the
time of such issue, as determined in good faith by the Board of Directors of the Corporation; and |
| (iii) | in the event Additional Shares of Common Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as
provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation. |
(b) Options
and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:
| (i) | The total amount, if any, received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible
Securities, by |
| (ii) | the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible Securities. |
4.4.6 Multiple
Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of
one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price pursuant to the terms
of Section 4.4.4, then, upon the final such issuance, the Conversion Price shall be readjusted to give effect to all such
issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result
of any such subsequent issuances within such period).
4.5 Adjustment
for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date effect
a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before that subdivision shall be proportionately
decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion
to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time
after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination
shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Section shall
become effective at the close of business on the date the subdivision or combination becomes effective.
4.6 Adjustment
for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution
payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Price in effect immediately
before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction:
(1) the
numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date, and
(2) the
denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or
distribution
Notwithstanding the foregoing, (a) if such
record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this Section as of the time of actual payment of such dividends or distributions; and (b) that
no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution
of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares
of Series A Preferred Stock had been converted into Common Stock on the date of such event.
4.7 Adjustments
for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common
Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each
such event the holders of Series A Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock,
a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property
as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date
of such event.
4.8 Adjustment
for Merger or Reorganization, etc. Subject to the provisions of Section 2.3, if there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series A
Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Sections 4.4,
4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each
share of Series A Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior
to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of
the Corporation issuable upon conversion of one (1) share of Series A Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in
such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application
of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series A
Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes
in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities
or other property thereafter deliverable upon the conversion of the Series A Preferred Stock.
4.9 Certificate
as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter,
compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into
which the Series A Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A
Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate
setting forth (i) the Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any,
of other securities, cash or property which then would be received upon the conversion of Series A Preferred Stock.
4.10 Notice
of Record Date. In the event:
(a) the
Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion
of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or
to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any
other security; or
(b) of
any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation
Event; or
(c) of
the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will
send or cause to be sent to the holders of the Series A Preferred Stock a notice specifying, as the case may be, (i) the record
date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the
effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up
is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital
stock or securities at the time issuable upon the conversion of the Series A Preferred Stock) shall be entitled to exchange their
shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such
exchange applicable to the Series A Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior
to the record date or effective date for the event specified in such notice.
4.11 No
Optional Conversion of Non-Convertible Non-Voting Preferred Stock. The shares of Non-Convertible Non-Voting Preferred Stock shall
not be convertible into any other security and do not otherwise have any conversion rights, except as set forth in Section 5.2.
5. Mandatory
Conversion.
5.1 Series A
Preferred Stock.
5.1.1 Trigger
Events. Upon either (a) immediately prior to the closing of the sale of shares of Common Stock to the public in a firm-commitment
underwritten public offering (i) pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting
in at least $30,000,000 of gross proceeds to the Corporation or (ii) pursuant to a similar regulatory framework applicable to a
non-U.S. public offering resulting in at least $10,000,000 of gross proceeds to the Corporation, in either case, with such offering resulting
in the Common Stock being listed for trading on an exchange or marketplace approved by the Board of Directors (a “Qualified
Public Offering”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the
Requisite Holders (the time of such closing or the date and time specified or the time of the event specified in such vote or written
consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Series A
Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant
to Section 4.1.1 and (ii) such shares may not be reissued by the Corporation.
5.1.2 Procedural
Requirements. All holders of record of shares of Series A Preferred Stock shall be sent written notice of the Mandatory Conversion
Time and the place designated for mandatory conversion of all such shares of Series A Preferred Stock pursuant to this Section 5.1.
Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of
shares of Series A Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such
shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement
reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account
of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required
by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized
in writing. All rights with respect to the Series A Preferred Stock converted pursuant to Section 5.1, including the
rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time
(notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the
rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement)
therefor, to receive the items provided for in the next sentence of this Section 5.1.2. As soon as practicable after the Mandatory
Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for
Series A Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate
or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and
(b) pay any declared but unpaid dividends on the shares of Series A Preferred Stock converted. Such converted Series A
Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take
such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock accordingly.
5.2 Non-Convertible
Non-Voting Preferred Stock.
5.2.1 Trigger
Events. Immediately prior to the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public
offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, or pursuant to a similar regulatory
framework applicable to a non-U.S. public offering, in each case, that is approved by the Board of Directors (a “Conversion Public
Offering” and the time of such closing is referred to herein as the “NCNV Conversion Time”), then (i) all
of the outstanding Non-Convertible Non-Voting Preferred Stock shall automatically be converted into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the aggregate Non-Convertible Non-Voting Preferred Stock Liquidation Amount by the
per share offering price to the public of the Common Stock in the Conversion Public Offering and (ii) such shares of Non-Convertible
Non-Voting Preferred Stock may not be reissued by the Corporation.
5.2.2 Procedural
Requirements. All holders of record of shares of Non-Convertible Non-Voting Preferred Stock shall be sent written notice of the NCNV
Conversion Time and the place designated for mandatory conversion of all such shares of Non-Convertible Non-Voting Preferred Stock pursuant
to this Section 5.2. Such notice need not be sent in advance of the occurrence of the NCNV Conversion Time. Upon receipt of
such notice, each holder of shares of Non-Convertible Non-Voting Preferred Stock in certificated form shall surrender his, her or its
certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed,
a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that
may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the
place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied
by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by
his, her or its attorney duly authorized in writing. All rights with respect to the Non-Convertible Non-Voting Preferred Stock converted
pursuant to Section 5.2, including the rights, if any, to receive notices, will terminate at the NCNV Conversion Time (notwithstanding
the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders
thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to
receive the items provided for in the next sentence of this Section 5.2.2. As soon as practicable after the NCNV Conversion
Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Non-Convertible
Non-Voting Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate
or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and
(b) pay any declared but unpaid dividends on the shares of Non-Convertible Non-Voting Preferred Stock converted. Such converted Non-Convertible
Non-Voting Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter
take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of
Non-Convertible Non-Voting Preferred Stock accordingly.
6. Redeemed
or Otherwise Acquired Shares. Any shares of the Corporation’s capital stock that are redeemed, converted or otherwise acquired
by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued,
sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders
of capital stock following redemption, conversion or acquisition.
7. Waiver.
Except as otherwise set forth herein, (a) any of the rights, powers, preferences and other terms of the Series A Preferred Stock
set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of
the holders of at least a majority of the shares of Series A Preferred Stock then outstanding and (b) at any time more than
one (1) series of Preferred Stock is issued and outstanding, any of the rights, powers, preferences and other terms of any series
of Preferred Stock set forth herein may be waived on behalf of all holders of such series of Preferred Stock by the affirmative written
consent or vote of the holders of at least a majority of the shares of such series of Preferred Stock then outstanding.
8. Notices.
Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall
be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication
in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
Fifth:
Subject to any additional vote required by this Restated Certificate of Incorporation or Bylaws, in furtherance and not in limitation
of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all
of the Bylaws of the Corporation.
Sixth:
Subject to any additional vote required by this Restated Certificate of Incorporation, the number of directors of the Corporation shall
be determined in the manner set forth in the Bylaws of the Corporation. Each director shall be entitled to one (1) vote on each matter
presented to the Board of Directors except as provided in Article Fourth, Section B.3.3.
Seventh:
Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
Eighth:
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books
of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board
of Directors or in the Bylaws of the Corporation.
Ninth:
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware
is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law as so amended.
Any repeal or modification
of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with
respect to any acts or omissions of such director occurring prior to, such repeal or modification.
Tenth:
To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses
to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation
to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation
Law.
Any amendment, repeal or modification
of the foregoing provisions of this Article Tenth shall not (a) adversely affect any right or protection of any director, officer
or other agent of the Corporation existing at the time of such amendment, repeal or modification or (b) increase the liability of
any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
Eleventh:
The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered
an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or
interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director
of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Series A Preferred
Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder, other than someone who is an employee
of the Corporation or any of its subsidiaries (collectively, the persons referred to in clauses (i) and (ii) are
“Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed
by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director
of the Corporation while such Covered Person is performing services in such capacity. Any repeal or modification of this Article Eleventh
will only be prospective and will not affect the rights under this Article Eleventh in effect at the time of the occurrence of any
actions or omissions to act giving rise to liability. Notwithstanding anything to the contrary contained elsewhere in this Restated Certificate
of Incorporation, the affirmative vote of the holders of at least a majority of the shares of Series A Preferred Stock the outstanding,
will be required to amend or repeal, or to adopt any provisions inconsistent with this Article Eleventh.
Twelfth:
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall
be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding
brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer
or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim
against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law
or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its
directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above,
any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court
of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten (10) days
following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or
for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth
shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then,
to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of
the remaining provisions of this Article Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth
containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable)
and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
Thirteenth:
For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of
shares of Common Stock permitted under this Restated Certificate of Incorporation from employees, officers, directors or consultants of
the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board
of Directors (in addition to any other consent required under this Restated Certificate of Incorporation), such repurchase may be made
without regard to any “preferential dividends arrears amount” or “preferential rights amount” (as those terms
are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California
Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount”
or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero (0).
* * *
3. That
the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance
with Section 228 of the General Corporation Law.
4. That
this Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s Certificate
of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
[Signature Page Follows]
IN
WITNESS WHEREOF, this Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation
on this 29th day of December, 2023.
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By: |
/s/ Paul Kellenberger |
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Paul Kellenberger, President |
Exhibit 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZSPACE, INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
[•], 2024
zSpace, Inc. (the “Corporation”),
a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), does
hereby certify as follows:
1. The
name of the Corporation is zSpace, Inc. The original Certificate of Incorporation of the Corporation was filed with the office of
the Secretary of State of the State of Delaware (the “Delaware Secretary”) on [●]. The Amended and Restated
Certificate of Incorporation of the Corporation was filed with the Delaware Secretary on December 29, 2023.
2. This
Second Amended and Restated Certificate of Incorporation was duly adopted in accordance with Section 242 and Section 245 of
the DGCL.
3. This
Second Amended and Restated Certificate of Incorporation restates and integrates and further amends the Amended and Restated Certificate
of Incorporation of the Corporation, as heretofore amended or supplemented.
4. The
text of the Amended and Restated Certificate of Incorporation is hereby amended and restated to read in its entirety as set forth in
Exhibit A attached hereto.
[Signature page follows]
IN WITNESS WHEREOF, the Corporation
has caused this Second Amended and Restated Certificate of Incorporation to be duly executed by an authorized officer this [●]
day of [●], 2024.
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ZSPACE, INC. |
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By: |
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Name: Paul Kellenberger |
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Title: Chief Executive Officer |
[Signature Page to Second
Amended and Restated Certificate of Incorporation]
Exhibit A
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZSPACE, INC.
ARTICLE I
The name of the corporation
is zSpace, Inc. (the “Corporation”).
ARTICLE II
The address of the Corporation’s
registered office in the State of Delaware is 160 Greentree Drive, Suite 101, City of Dover, County of Kent, 19904, and the name
of its registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The purpose of the Corporation
is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of
Delaware (the “DGCL”) as it now exists or may hereafter be amended and supplemented.
ARTICLE IV
The Corporation is authorized
to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.”
The total number of shares of capital stock that the Corporation shall have authority to issue is 105,000,000. The total number of shares
of Common Stock that the Corporation is authorized to issue is 100,000,000, having a par value of $0.00001 per share, and the total number
of shares of Preferred Stock that the Corporation is authorized to issue is 5,000,000, having a par value of $0.00001 per share.
ARTICLE V
The designations and the
powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock
of the Corporation are as follows:
A. Common
Stock.
1. General.
The voting, dividend, liquidation and other rights and powers of the Common Stock are subject to and qualified by the rights, powers
and preferences of any series of Preferred Stock as may be designated by the Board of Directors of the Corporation (the “Board
of Directors”) and outstanding from time to time.
2. Voting.
Except as otherwise provided herein or expressly required by law or this Second Amended and Restated Certificate of Incorporation (including
any Certificate of Designation (as defined below)), the holders of the Common Stock shall exclusively possess all voting power with respect
to the Corporation. Except as otherwise required by law or this Second Amended and Restated Certificate of Incorporation (including any
Certificate of Designation), the holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly
submitted to the stockholders on which the holders of the Common Stock are entitled to vote. Except as otherwise required by law or this
Second Amended and Restated Certificate of Incorporation (including any Certificate of Designation), at any annual or special meeting
of the stockholders of the Corporation, holders of Common Stock shall have the exclusive right to vote for the election of directors
and on all other matters properly submitted to a vote of the stockholders. Notwithstanding the foregoing, except as otherwise required
by law or this Second Amended and Restated Certificate of Incorporation (including any Certificate of Designation), holders of shares
of any Common Stock shall not be entitled to vote on any amendment to this Second Amended and Restated Certificate of Incorporation (including
any Certificate of Designation or amendment thereof) that relates solely to the rights, powers, preferences (or the qualifications, limitations
or restrictions thereof) or other terms of one or more outstanding series of Preferred Stock if the holders of such affected series of
Preferred Stock are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant
to this Second Amended and Restated Certificate of Incorporation (including any Certificate of Designation) or pursuant to the DGCL.
The number of authorized shares of the Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled
to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no
vote of the holders of any of the Common Stock or the Preferred Stock voting separately as a class shall be required therefor, unless
a vote of any such holder is required pursuant to this Second Amended and Restated Certificate of Incorporation (including any Certificate
of Designation). Any increase in the number of securities authorized under the Corporation’s 2024 Equity Incentive Plan, as such
plan may be amended or restated from time to time, shall require the approval of a majority of the stockholders of the Corporation.
3. Dividends.
Subject to applicable law, the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of Common Stock
shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when,
as and if declared thereon by the Board of Directors from time to time out of any assets or funds of the Corporation legally available
therefor and shall share equally on a per share basis in such dividends and distributions.
4. Liquidation,
Dissolution or Winding Up of the Corporation. Subject to applicable law, the rights, if any, of the holders of any outstanding series
of Preferred Stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after payment
or provision for payment of the debts and other liabilities of the Corporation, the holders of shares of Common Stock shall be entitled
to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number
of shares of Common Stock held by them.
5. Transfer
Rights. Subject to applicable law, this Second Amended and Restated Certificate of Incorporation (including any Certificate of Designation)
and any agreement as may be entered into from time to time amongst the stockholders, shares of Common Stock and the rights and obligations
associated therewith shall be fully transferable to any transferee.
B. Preferred
Stock.
1. Shares
of Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the creation and issuance of such series adopted by the Board of Directors
as hereinafter provided.
2. Preferred
Stock may be issued from time to time in one or more series. The Board of Directors is expressly authorized, by adopting a resolution
or resolutions providing for the issuance of the shares thereof and by filing a certificate of designation relating thereto in accordance
with the DGCL (a “Certificate of Designation”), to provide, out of unissued shares of Preferred Stock that have not
been designated as to series, for series of Preferred Stock and, with respect to each series, to determine and fix the number of shares
of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating,
optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend
rights, conversion rights, redemption privileges and liquidation preferences, and to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series as shall be stated and expressed in such resolutions, all
to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions
providing for the creation and issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally
or be junior to any other series of Preferred Stock to the extent permitted by law and this Second Amended and Restated Certificate of
Incorporation (including any Certificate of Designation). Except as otherwise required by law, holders of any series of Preferred Stock
shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Second Amended and Restated Certificate
of Incorporation (including any Certificate of Designation). Any shares of any series of Preferred Stock purchased, exchanged, converted
or otherwise acquired by the Corporation, in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock, without designation as to series,
and may be reissued as part of any series of Preferred Stock created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth in this Second Amended and Restated Certificate of Incorporation (including
any Certificate of Designation) or in such resolution or resolutions.
3. Subject
to the rights of any holders of any outstanding series of Preferred Stock, the number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.
ARTICLE VI
For the management of the
business and for the conduct of the affairs of the Corporation it is further provided that:
A. Except
as otherwise expressly provided by the DGCL or this Second Amended and Restated Certificate of Incorporation, the business and affairs
of the Corporation shall be managed by or under the direction of the Board of Directors. The number of directors of the Corporation shall
be as from time to time fixed by, or in the manner provided in, the Second Amended and Restated Bylaws of the Corporation (as such Bylaws
may be amended from time to time, the “Bylaws”).
B. The
Board of Directors shall be divided into two classes, designated as Class I and Class II. Class I shall consist of independent
directors and Class II shall consist of non-independent directors. The initial term of office of the Class I directors shall
expire at the Corporation’s first annual meeting of stockholders following the closing of the Corporation’s initial public
offering pursuant to an effective registration statement under the Securities Act of 1933, as amended and as may be further amended from
time to time (the “Securities Act”), covering the offer and sale of Common Stock to the public (the “Initial Public
Offering Closing”) or until a director’s earlier death, resignation or removal and the initial term of office of the Class II
directors shall expire at the Corporation’s second annual meeting of stockholders following the Initial Public Offering Closing
or until a director’s earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director. No person entitled to vote at an election for directors may cumulate votes to which
such person is entitled.
C. Subject
to the special rights of the holders of one or more outstanding series of Preferred Stock to elect directors, the Board of Directors
or any individual director may be removed from the Board of Directors at any time, but only for cause and only by the affirmative vote
of the holders of at least two-thirds (66 and 2/3%) of the voting power of all of the then outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors. As used in this paragraph C of Article VI, the term “for cause”
shall mean (i) the director’s conviction (treating a nolo contendere plea as a conviction) of a crime involving (a) moral
turpitude, (b) a violation of federal or state securities laws, but specifically excluding any conviction based entirely on vicarious
liability or (c) any other illegal act that materially and adversely reflects upon the business, affairs or reputation of the Corporation
or on one’s ability to perform one’s duties to the Corporation; (ii) the director’s commission of any material
act of dishonesty resulting or intended to result in material personal gain or enrichment of such director at the expense of the Corporation
or any of its subsidiaries; (iii) the director’s fraud or intentional misrepresentation, including falsifying use of funds
and intentional misstatements made in financial statements, books, records or reports to stockholders or governmental agencies; (iv) the
director’s material violation of any agreement between the director and the Corporation; (v) the director’s knowingly
causing the Corporation to commit violations of applicable law (including by failure to act), (vi) willful and continued material
failure, refusal or inability to perform one’s duties to the Corporation or the willful engaging in gross misconduct materially
and demonstrably damaging to the Corporation or (vii) the director being adjudged legally incompetent by a court of competent jurisdiction.
D. Subject
to the special rights of the holders of one or more outstanding series of Preferred Stock to elect directors, except as otherwise provided
by law, any vacancies on the Board of Directors resulting from death, resignation, disqualification, retirement, removal or other causes
and any newly created directorships resulting from any increase in the number of directors shall be filled exclusively by the affirmative
vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director (other than any directors
elected by the separate vote of one or more outstanding series of Preferred Stock), and shall not be filled by the stockholders. Any
director appointed in accordance with the preceding sentence shall hold office until the expiration of the term to which such director
shall have been appointed or until his or her earlier death, resignation, retirement, disqualification, or removal.
E. Whenever
the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately as a series
or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, removal and other features of such directorships shall be governed by the terms of this Second Amended and
Restated Certificate of Incorporation (including any Certificate of Designation) and the Bylaws. Notwithstanding anything to the contrary
in this Article VI, the number of directors that may be elected by the holders of any such series of Preferred Stock shall be in
addition to the number fixed pursuant to paragraph A of this Article VI, and the total number of directors constituting the whole
Board of Directors shall be automatically adjusted accordingly. Except as otherwise provided in the Certificate of Designation(s) in
respect of one or more series of Preferred Stock, whenever the holders of any series of Preferred Stock having such right to elect additional
directors are divested of such right pursuant to the provisions of such Certificate of Designation(s), the terms of office of all such
additional directors elected by the holders of such series of Preferred Stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional directors, shall forthwith terminate (in which case each such director thereupon
shall cease to be qualified as, and shall cease to be, a director) and the total authorized number of directors of the Corporation shall
automatically be reduced accordingly.
F. Any
increase in the number of securities authorized under the Corporation’s 2024 Equity Incentive Plan, as such plan may be amended
or restated from time to time, shall require the approval of the Board of Directors.
G. In
furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend
or repeal the Bylaws, subject to the power of the stockholders of the Corporation entitled to vote with respect thereto to adopt, amend
or repeal the Bylaws. In addition to any vote of the holders of any class or series of stock of the Corporation required by applicable
law or by this Second Amended and Restated Certificate of Incorporation (including any Certificate of Designation) or the Bylaws, the
adoption, amendment or repeal of the Bylaws by the stockholders of the Corporation shall require the affirmative vote of the holders
of at least two-thirds (66 and 2/3%) of the voting power of all of the then outstanding shares of voting stock of the Corporation entitled
to vote with respect thereto.
H. The
directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
ARTICLE VII
A. Any
action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the
stockholders of the Corporation, and shall not be taken by written consent in lieu of a meeting. Notwithstanding the foregoing, any action
required or permitted to be taken by the holders of any series of Preferred Stock, voting separately as a series or separately as a class
with one or more other such series, may be taken without a meeting, without prior notice and without a vote, to the extent expressly
so provided by the applicable Certificate of Designation relating to such series of Preferred Stock, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding shares of the relevant series of Preferred Stock having
not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled
to vote thereon were present and voted and shall be delivered to the Corporation in accordance with the applicable provisions of the
DGCL.
B. Subject
to the special rights of the holders of one or more series of Preferred Stock, and to the requirements of applicable law, special meetings
of the stockholders of the Corporation may be called for any purpose or purposes, at any time only by a majority of the Board of Directors,
the Chairperson of the Board of Directors, the Chief Executive Officer, the President or stockholders collectively holding more than
30% of the voting securities of the Corporation, in accordance with the Bylaws, and shall not be called by any other person or persons.
Any such special meeting so called may be postponed, rescheduled or cancelled by the Board of Directors or other person calling the meeting.
C. Advance
notice of stockholder nominations for the election of directors and of other business proposed to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws. Any business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or purposes identified in the notice of meeting.
ARTICLE VIII
No director of the Corporation
shall have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL or other applicable law as the
same exists or hereafter may be amended. Any amendment, repeal or modification of this Article VIII, or the adoption of any provision
of this Second Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, shall not adversely affect
any right or protection of a director of the Corporation with respect to any act or omission occurring prior to such amendment, repeal,
modification or adoption. If the DGCL or other applicable law is amended after approval by the stockholders of this Article VIII
to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL or other applicable law as so amended.
ARTICLE IX
A. The
Corporation shall indemnify, to the fullest extent authorized or permitted by applicable law, including Section 145 of the DGCL,
as now or hereafter in effect, any person who is made or threatened to be made a party to or is otherwise involved (as a witness or otherwise)
in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter,
a “proceeding”), by reason of the fact that such person is or was a director or officer of the Corporation, against expenses
(including attorneys’ fees), judgments, fines (including ERISA excise taxes or penalties) and amounts paid in settlement actually
and reasonably incurred by him or her in connection with such proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and
legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not
be obligated to indemnify (or advance expenses to) any director or officer (or his or her heirs, executors or personal or legal representatives)
in connection with a proceeding (or part thereof) initiated by such person or in defending any counterclaim, cross-claim, affirmative
defense, or like claim by the Corporation in such a proceeding unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors. The right to indemnification conferred by this Article IX shall include the right to be paid by the Corporation
the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition upon receipt by the
Corporation of an undertaking by or on behalf of the director or officer receiving advancement to repay the amount advanced if it shall
ultimately be determined that such person is not entitled to be indemnified by the Corporation under this Article IX. The Corporation
may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred in this Article IX to directors and officers of the
Corporation. The rights to indemnification and to the advancement of expenses conferred in this Article IX shall not be exclusive
of any other right which any person may have or hereafter acquire under this Second Amended and Restated Certificate of Incorporation,
the Bylaws, any statute, agreement, vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing provisions
of this Article IX, no indemnification nor advancement of expenses will extend to any claims made by the Corporation’s officers
and directors to cover any loss that such individuals may sustain as a result of such individuals’ agreement to pay debts and obligations
to target businesses or vendors or other entities that are owed money by the Corporation for services rendered or contracted for or products
sold to the Corporation. Any repeal or modification of this Article IX by the stockholders of the Corporation shall not adversely
affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation (collectively, the
“Covered Persons”) existing at the time of such repeal or modification with respect to any acts or omissions occurring
prior to such repeal or modification.
B. The
Corporation hereby acknowledges that certain Covered Persons may have rights to indemnification and advancement of expenses (directly
or through insurance obtained by any such entity) provided by one or more third parties (collectively, the “Other Indemnitors”),
and which may include third parties for whom such Covered Person serves as a manager, member, officer, employee or agent. The Corporation
hereby agrees and acknowledges that notwithstanding any such rights that a Covered Person may have with respect to any Other Indemnitor(s),
(i) the Corporation is the indemnitor of first resort with respect to all Covered Persons and all obligations to indemnify and provide
advancement of expenses to Covered Persons, (ii) the Corporation shall be required to indemnify and advance the full amount of expenses
incurred by the Covered Persons, to the fullest extent required by law, the terms of this Second Amended and Restated Certificate of
Incorporation, the Bylaws, any agreement to which the Corporation is a party, any vote of the stockholders or the Board of Directors,
or otherwise, without regard to any rights the Covered Persons may have against the Other Indemnitors and (iii) to the fullest extent
permitted by law, the Corporation irrevocably waives, relinquishes and releases the Other Indemnitors from any and all claims for contribution,
subrogation or any other recovery of any kind in respect thereof. The Corporation further agrees that no advancement or payment by the
Other Indemnitors with respect to any claim for which the Covered Persons have sought indemnification from the Corporation shall affect
the foregoing, and the Other Indemnitors shall have a right of contribution and/or subrogation to the extent of any such advancement
or payment to all of the rights of recovery of the Covered Persons against the Corporation. These rights shall be a contract right, and
the Other Indemnitors are express third party beneficiaries of the terms of this paragraph. Notwithstanding anything to the contrary
herein, the obligations of the Corporation under this paragraph shall only apply to Covered Persons in their capacity as Covered Persons.
ARTICLE X
A. Unless
the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery (the “Chancery Court”)
of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District
of Delaware or other state courts of the State of Delaware) and any appellate court thereof (the “Chosen Courts”)
shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action, suit or proceeding
brought on behalf of the Corporation, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by
any director, officer, employee, agent or stockholder of the Corporation to the Corporation or to the Corporation’s stockholders,
(iii) any action, suit or proceeding arising pursuant to any provision of the DGCL, the Bylaws or this Second Amended and Restated
Certificate of Incorporation (as any of the foregoing may be amended from time to time), (iv) any action, suit or proceeding as
to which the DGCL confers jurisdiction on the Chancery Court, or (v) any action, suit or proceeding asserting a claim governed by
the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of this
Second Amended and Restated Certificate of Incorporation or the Bylaws. If any action, suit or proceeding the subject matter of which
is within the scope of the immediately preceding sentence is filed in a court other than the Chosen Courts (a “Foreign Action”)
in the name of any stockholder, such stockholder shall be deemed to have notice of and consented to (a) the personal jurisdiction
of the Chosen Courts in connection with any action brought in any such court to enforce the provisions of the immediately preceding sentence
and (b) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel
in the Foreign Action as agent for such stockholder.
B. Unless
the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district
courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of
action arising under the Securities Act.
C. Notwithstanding
the foregoing, the provisions of paragraph A of this Article X shall not apply to suits brought to enforce any liability or duty
created by the Securities Exchange Act of 1934 or any other claim over which the federal courts of the United States have exclusive jurisdiction.
D. Any
person or entity purchasing or otherwise acquiring or holding any interest in any security of the Corporation (including, but not limited
to, shares of capital stock of the Corporation) shall be deemed to have notice of and consented to the provisions of this Article X.
Failure to enforce the provisions contained in this Article X would cause the Corporation irreparable harm, and the Corporation
shall be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions.
ARTICLE XI
A. Except
as otherwise provided in this Second Amended and Restated Certificate of Incorporation, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Second Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding
anything contained in this Second Amended and Restated Certificate of Incorporation to the contrary, in addition to any vote required
by applicable law and any affirmative vote of the holders of any particular class or series of capital stock of the Corporation required
by law or by this Second Amended and Restated Certificate of Incorporation or any Certificate of Designation filed with respect to a
series of Preferred Stock, the following provisions in this Second Amended and Restated Certificate of Incorporation may be amended,
altered, repealed or rescinded, in whole or in part, or any provision inconsistent therewith or herewith may be adopted, only by the
affirmative vote of the holders of at least two thirds (66 and 2/3%) of the total voting power of all the then outstanding shares of
stock of the Corporation entitled to vote thereon, voting together as a single class: Part B of Article V, Article VI,
Article VII, Article VIII, Article IX, Article X and this Article XI; provided, that if at least two-thirds
(66 and 2/3%) of the Board of Directors has approved an amendment to any of the foregoing provisions, then only the affirmative vote
of a majority of the voting power of all of the then outstanding shares of stock of the Corporation entitled to vote thereon shall be
required to amend the foregoing provisions of the Second Amended and Restated Certificate of Incorporation.
B. If
any provision or provisions of this Second Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or
unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions
in any other circumstance and of the remaining provisions of this Second Amended and Restated Certificate of Incorporation (including,
without limitation, each portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such
provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not, to
the fullest extent permitted by applicable law, in any way be affected or impaired thereby and (ii) to the fullest extent permitted
by applicable law, the provisions of this Second Amended and Restated Certificate of Incorporation (including, without limitation, each
such portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such provision held to
be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees
and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent
permitted by law.
* * * * *
Exhibit 3.3
AMENDED
AND RESTATED BYLAWS
OF
zSpace, INC.
(Adopted
DECEMBER 4, 2020)
Article I
CORPORATE OFFICES
1.1 Offices
In addition to the corporation’s registered
office set forth in the certificate of incorporation, the Board of Directors may at any time establish other offices at any place or places
where the corporation is qualified to do business.
Article II
MEETINGS OF STOCKHOLDERS
2.1 Place
Of Meetings
Meetings of stockholders shall be held at any place,
within or outside the state of Delaware, designated by the Board of Directors. The Board of Directors may, in its sole discretion, determine
that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized
by Section 211(a)(2) of the Delaware General Corporation Law. In the absence of any such designation or determination, stockholders’
meetings shall be held at the principal place of business of the corporation.
2.2 Annual
Meeting
Unless directors are elected by written consent in
lieu of an annual meeting as permitted by Section 211(b) of the Delaware General Corporation Law, an annual meeting of stockholders
shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Stockholders
may, unless the certificate of incorporation otherwise provides, act by written consent to elect directors; provided, however,
that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of
the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are
filled by such action. Any other proper business may be transacted at the annual meeting.
2.3 Special
Meeting
A special meeting of the stockholders may be called
at any time by the Board of Directors, the chairperson of the board, the chief executive officer, the president or shall be called by
the president upon the written request of one or more stockholders holding shares in the aggregate entitled to cast not less than 10%
of the votes at that meeting.
If a special meeting is called by any person or persons
other than the Board of Directors, the chairperson of the board, the chief executive officer or the president, the request shall be in
writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by electronic mail, or other facsimile or electronic transmission to the chairperson of the board,
the chief executive officer, the president or the secretary of the corporation. No business may be transacted at such special meeting
otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders
entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request.
If the notice is not given within 20 days after the receipt of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when
a meeting of stockholders called by action of the Board of Directors may be held.
2.4 Notice
Of Stockholders’ Meetings
Unless otherwise provided by law, all notices of
meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws
not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, as of the
record date for determining the stockholders entitled to notice of the meeting. The notice shall specify the place (if any), date and
hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.5 Manner
Of Giving Notice; Affidavit Of Notice
Written notice of any meeting of stockholders, if
mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on
the records of the corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice
to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware
General Corporation Law. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.6 Quorum
The holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings
of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting
or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to
adjourn the meeting to another place (if any), date or time.
2.7 Adjourned
Meeting; Notice
When a meeting is adjourned to another place (if
any), date or time, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if
any), thereof and the means of remote communications (if any) by which stockholders and proxyholders may be deemed to be present and vote
at such adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may
transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting
and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote
at such adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.8 Organization;
Conduct of Business
Such person as the Board of Directors may have designated
or, in the absence of such a person, the chief executive officer, or in his or her absence, the president or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairperson of the meeting. In the absence of the secretary of the corporation, the
secretary of the meeting shall be such person as the chairperson of the meeting appoints.
The chairperson of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The date
and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at
the meeting.
2.9 Voting
The stockholders entitled to vote at any meeting
of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions
of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate
of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. All elections
shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by
a majority of the votes cast affirmatively or negatively. At any time that, pursuant to the then-effective certificate of incorporation,
any shares of stock have more or less than one (1) vote per share on any matter, every reference in these bylaws to a majority or
other proportion of the shares shall refer to a majority or other proportion of the votes of the shares.
2.10 Waiver
Of Notice
Whenever notice is required to be given under any
provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice
by electronic transmission, unless so required by the certificate of incorporation or these bylaws.
2.11 Stockholder
Action By Written Consent Without A Meeting
Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at
any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent
in writing, setting forth the action so taken, is (a) signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were
present and voted, and (b) delivered to the corporation in accordance with Section 228 of the Delaware General Corporation Law.
No written consent shall be effective to take the
corporate action referred to therein unless, within 60 days of the first date a written consent is delivered to the corporation, a written
consent or consents signed by a sufficient number of holders to take action are delivered to the corporation in the manner prescribed
in this Section. A facsimile, electronic mail or other electronic transmission consenting to an action to be taken and transmitted by
a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written
and signed for purposes of this Section to the extent permitted by law. Any such consent shall be delivered in accordance with Section 228
of the Delaware General Corporation Law.
Any copy, facsimile or other reliable reproduction
of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing
could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing (including
by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required
the filing of a certificate under any section of the Delaware General Corporation Law if such action had been voted on by stockholders
at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning
any vote of stockholders, that written consent has been given as provided in Section 228 of the Delaware General Corporation Law.
2.12 Record
Date For Stockholder Notice; Voting; Giving Consents
(a) In
order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of
stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, shall, unless otherwise required by law, not
be more than 60 nor less than 10 days before the date of such meeting and, unless the Board of Directors determines, at the time it fixes
such record date, that a later date on or before the date of the meeting shall be the date for determining the stockholders entitled to
vote at such meeting, the record date for determining the stockholders entitled to notice of such meeting shall also be the record date
for determining the stockholders entitled to vote at such meeting; (2) in the case of determination of stockholders entitled to express
consent to corporate action in writing without a meeting, shall not be more than 10 days from the date upon which the resolution fixing
the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than 60 days prior
to such other action.
(b) If
the Board of Directors does not so fix a record date: (1) the record date for determining stockholders entitled to notice of and
to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the
Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed
to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required
by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) A
determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new record date for the determination of stockholders entitled to
vote at the adjourned meeting, and in such case shall also fix as the record date for the stockholders entitled to notice of such adjourned
meeting the same or an earlier date as that fixed for the determination of stockholders entitled to vote in accordance with the foregoing
provisions of this Section 2.12 at the adjourned meeting.
2.13 Proxies
Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons
to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of
the corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting,
facsimile, electronic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General
Corporation Law.
Article III
DIRECTORS
3.1 Powers
Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by
the stockholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under
the direction of the Board of Directors. At any time that, pursuant to the then-effective certificate of incorporation, any director or
directors have more or less than one (1) vote per director on any matter, every reference in these bylaws to a majority or other
proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.2 Number
Of Directors
The number of directors constituting the entire Board
of Directors is four (4). This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4
of these bylaws and the terms of the certificate of incorporation. No reduction of the authorized number of directors shall have the effect
of removing any director before such director’s term of office expires.
3.3 Election,
Qualification And Term Of Office Of Directors
Except as provided in Section 3.4 of these bylaws,
and unless otherwise provided in the certificate of incorporation, directors shall be elected at each annual meeting of stockholders to
hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or
these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Unless otherwise specified in the certificate of
incorporation, elections of directors need not be by written ballot.
3.4 Resignation
And Vacancies
Any director may resign at any time upon written
notice to the attention of the Secretary of the corporation. Notwithstanding the provisions of Section 223(a)(1) and 223(a)(2) of
the Delaware General Corporation Law, any vacancy or newly created directorship may be filled by a majority of the directors then in office
(including any directors that have tendered a resignation effective at a future date), though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced; provided, however, that where such vacancy or newly created directorship occurs among the directors
elected by the holders of a class or series of stock, the holders of shares of such class or series may override the Board of Directors’
action to fill such vacancy or newly created directorship by (i) voting for their own designee to fill such vacancy or newly created
directorship at a meeting of the corporation’s stockholders or (ii) written consent, if the consenting stockholders hold a
sufficient number of shares to elect their designee at a meeting of the stockholders.
If at any time, by reason of death or resignation
or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may
apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation
Law.
If, at the time of filling any vacancy or any newly
created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior
to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the
total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held
to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the Delaware General Corporation Law as far as applicable.
3.5 Place
Of Meetings; Meetings By Telephone
The Board of Directors of the corporation may hold
meetings, both regular and special, either within or outside the state of Delaware.
Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate
in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular
Meetings
Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be determined by the board.
3.7 Special
Meetings; Notice
Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the chairperson of the board, the chief executive officer, the president, the secretary
or any two directors.
Notice of the time and place of special meetings
shall be delivered personally or by telephone to each director or sent by first-class mail, facsimile, electronic mail or other electronic
transmission, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation.
If the notice is mailed, it shall be deposited in the United States mail at least 7 days before the time of the holding of the meeting.
If the notice is delivered personally or by facsimile, electronic mail or other electronic transmission, or telephone, it shall be delivered
at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of the meeting. The notice need not specify the place of the meeting,
if the meeting is to be held at the principal executive office of the corporation. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
3.8 Quorum
At all meetings of the Board of Directors, a majority
of the total number of duly elected directors then in office (but in no case less than 1/3 of the total number of authorized directors)
shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate
of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.9 Waiver
Of Notice
Whenever notice is required to be given under any
provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these bylaws.
3.10 Board
Action By Written Consent Without A Meeting
Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing or by
electronic transmission. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of the proceedings
of the Board of Directors, or the committee thereof, in the same paper or electronic form as the minutes are maintained.
Any copy, facsimile or other reliable reproduction
of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing
could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
3.11 Fees
And Compensation Of Directors
Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation
shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
3.12 Approval
Of Loans To Officers
The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee
who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance
may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.13 Removal
Of Directors
Unless otherwise restricted by statute, by the certificate
of incorporation or by these bylaws, any director or the entire Board of Directors may be removed, with or without cause, by, and only
by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given
either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any
vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to written
consent; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board
of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors
shall have the effect of removing any director prior to the expiration of such director’s term of office.
3.14 Chairperson
Of The Board Of Directors
The corporation may also have, at the discretion
of the Board of Directors, a chairperson of the Board of Directors who shall not be considered an officer of the corporation.
Article IV
COMMITTEES
4.1 Committees
Of Directors
The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors
as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting
in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors,
or in these bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending
to the stockholders, any action or matter expressly required by the General Corporate Law of Delaware to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any Bylaw of the corporation.
4.2 Committee
Minutes
Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
4.3 Meetings
And Action Of Committees
Meetings and actions of committees shall be governed
by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6
(regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these bylaws, with such changes in the context of such provisions as are necessary to
substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions of these bylaws.
Article V
OFFICERS
5.1 Officers
The officers of the corporation shall be a president
and a secretary. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, a chief financial
officer, a treasurer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other
officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held
by the same person.
5.2 Appointment
Of Officers
The officers of the corporation, except such officers
as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the Board of
Directors, subject to the rights (if any) of an officer under any contract of employment.
5.3 Subordinate
Officers
The Board of Directors may appoint, or empower the
chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each
of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board
of Directors may from time to time determine.
5.4 Removal
And Resignation Of Officers
Subject to the rights (if any) of an officer under
any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board
of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by
any officer upon whom the power of removal is conferred by the Board of Directors.
Any officer may resign at any time by giving written
notice to the corporation (including written notice by electronic mail, or other facsimile or electronic transmission). Any resignation
shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified
in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to
the rights (if any) of the corporation under any contract to which the officer is a party.
5.5 Vacancies
In Offices
Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
5.6 Chief
Executive Officer
Subject to such supervisory powers (if any) as may
be given by the Board of Directors to the chairperson of the board (if any), the chief executive officer of the corporation (if such an
officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the
business and the officers of the corporation and shall have the general powers and duties of management usually vested in the office of
chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or
these bylaws.
The person serving as chief executive officer shall
also be the acting president of the corporation whenever no other person is then serving in such capacity.
5.7 President
Subject to such supervisory powers (if any) as may
be given by the Board of Directors to the chairperson of the board (if any) or the chief executive officer, the president shall have general
supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and
duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
The person serving as president shall also be the
acting chief executive officer, secretary or treasurer of the corporation, as applicable, whenever no other person is then serving in
such capacity.
5.8 Vice
Presidents
In the absence or disability of the chief executive
officer and president, the vice presidents (if any) in order of their rank as fixed by the Board of Directors or, if not ranked, a vice
president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the president or the chairperson
of the board.
5.9 Secretary
The secretary shall keep or cause to be kept, at
the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings
and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names
of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at
the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined
by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of certificates (if any) evidencing such shares, and the
number and date of cancellation of every certificate (if any) surrendered for cancellation.
The secretary shall give, or cause to be given, notice
of all meetings of the stockholders and of the Board of Directors required to be given by law or by these bylaws. He or she shall have
such other powers and perform such other duties as may be prescribed by the Board of Directors or by these bylaws.
5.10 Chief
Financial Officer
The chief financial officer (if such an officer is
appointed) shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any member of the Board of Directors.
The chief financial officer shall render to the chief
executive officer, the president, or the Board of Directors, upon request, an account of all his or her transactions as chief financial
officer and of the financial condition of the corporation. He or she shall have the general powers and duties usually vested in the office
of chief financial officer of a corporation and shall have such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.
The person serving as the chief financial officer
shall also be the acting treasurer of the corporation whenever no other person is then serving in such capacity. Subject to such supervisory
powers (if any) as may be given by the Board of Directors to another officer of the corporation, the chief financial officer shall supervise
and direct the responsibilities of the treasurer whenever someone other than the chief financial officer is serving as treasurer of the
corporation.
5.11 Treasurer
The treasurer (if such an officer is appointed) shall
keep and maintain, or cause to be kept and maintained, adequate and correct books and records with respect to all bank accounts, deposit
accounts, cash management accounts and other investment accounts of the corporation. The books of account shall at all reasonable times
be open to inspection by any member of the Board of Directors.
The treasurer shall deposit, or cause to be deposited,
all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board
of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors and shall render to the
chief financial officer, the chief executive officer, the president or the Board of Directors, upon request, an account of all his or
her transactions as treasurer. He or she shall have the general powers and duties usually vested in the office of treasurer of a corporation
and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws.
The person serving as the treasurer shall also be
the acting chief financial officer of the corporation whenever no other person is then serving in such capacity.
5.12 Representation
Of Shares Of Other Corporations
The chairperson of the board, the chief executive
officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized
to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
5.13 Authority
And Duties Of Officers
In addition to the foregoing authority and duties,
all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the Board of Directors or the stockholders.
Article VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 Indemnification
Of Directors And Officers
The corporation shall, to the maximum extent and
in the manner permitted by the Delaware General Corporation Law, indemnify each of its directors and officers against expenses (including
attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a “director”
or “officer” of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who
is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation
or of another enterprise at the request of such predecessor corporation.
6.2 Indemnification
Of Others
The corporation shall have the power, to the maximum
extent and in the manner permitted by the Delaware General Corporation Law, to indemnify each of its employees and agents (other than
directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation.
For purposes of this Section 6.2, an “employee” or “agent” of the corporation (other than a director or officer)
includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was
an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
6.3 Payment
Of Expenses In Advance
Expenses incurred in defending any action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2
following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately
be determined by final judicial decision from which there is no further right to appeal that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 Indemnity
Not Exclusive
The indemnification provided by this Article VI
shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity
while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation.
6.5 Insurance
The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the
Delaware General Corporation Law.
6.6 Conflicts
No indemnification or advance shall be made under
this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of
competent jurisdiction, in any circumstance where it appears:
(a) That
it would be inconsistent with a provision of the certificate of incorporation, these bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred
or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That
it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
Article VII
RECORDS AND REPORTS
7.1 Maintenance
And Inspection Of Records
The corporation shall, either at its principal executive
offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and
other records.
A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder
and the number of shares registered in each such stockholder’s name, shall be open to the examination of any such stockholder for
a period of at least 10 days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination
of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by each of them.
If and so long as there are fewer than one hundred
(100) holders of record of the corporation’s shares, any state law requirement of sending of an annual report to the stockholders
of the corporation is hereby expressly waived, to the extent permitted.
7.2 Inspection
By Directors
Any director shall have the right to examine the
corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his
or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books
and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe
any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and
proper.
Article VIII
GENERAL MATTERS
8.1 Checks
From time to time, the Board of Directors shall determine
by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences
of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse
those instruments.
8.2 Execution
Of Corporate Contracts And Instruments
The Board of Directors, except as otherwise provided
in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified
by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3 Stock
Certificates and Notices; Uncertificated Stock; Partly Paid Shares
The shares of the corporation may be certificated
or uncertificated, as provided under Delaware law, and shall be entered in the books of the corporation and recorded as they are issued.
Any duly appointed officer of the corporation is authorized to sign share certificates. Any or all of the signatures on any certificate
may be a facsimile or electronic signature. In case any officer, transfer agent or registrar who has signed or whose facsimile or electronic
signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of
issue.
Within a reasonable time after the issuance or transfer
of uncertificated stock and upon the request of a stockholder, the corporation shall send to the record owner thereof a written notice
that shall set forth the name of the corporation, that the corporation is organized under the laws of Delaware, the name of the stockholder,
the number and class (and the designation of the series, if any) of the shares, and any restrictions on the transfer or registration of
such shares of stock imposed by the corporation’s certificate of incorporation, these bylaws, any agreement among stockholders or
any agreement between stockholders and the corporation.
The corporation may issue the whole or any part of
its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each
stock certificate (if any) issued to represent any such partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 Special
Designation On Certificates and Notices of Issuance
If the corporation is authorized to issue more than
one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue
to represent such class or series of stock or the notice of issuance to the record owner of uncertificated stock; provided, however, that,
except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements there
may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock or
the notice of issuance to the record owner of uncertificated stock, or the purchase agreement for such stock a statement that the corporation
will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.5 Lost
Certificates
Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation
and cancelled at the same time. The corporation may issue a new certificate of stock or notice of uncertificated stock in the place of
any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of
the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify
it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate or uncertificated shares.
8.6 Construction;
Definitions
Unless the context requires otherwise, the general
provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular,
and the term “person” includes both a corporation and a natural person.
8.7 Dividends
The directors of the corporation, subject to any
restrictions contained in (a) the Delaware General Corporation Law or (b) the certificate of incorporation, may declare and
pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s
capital stock.
The directors of the corporation may set apart out
of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.
Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and
meeting contingencies.
8.8 Fiscal
Year
The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors and may be changed by the Board of Directors.
8.9 Transfer
Restrictions
Notwithstanding anything to the contrary, except
as expressly permitted in this Section 8.9, a stockholder shall not Transfer (as such term is defined below) any shares of the corporation’s
stock (or any rights of or interests in such shares) to any person unless such Transfer is approved by the Board of Directors prior to
such Transfer, which approval may be granted or withheld in the Board of Directors’ sole and absolute discretion. “Transfer”
shall mean, with respect to any security, the direct or indirect assignment, sale, transfer, tender, pledge, hypothecation, or the grant,
creation or suffrage of a lien or encumbrance in or upon, or the gift, placement in trust, or the Constructive Sale (as such term is defined
below) or other disposition of such security (including transfer by testamentary or intestate succession, merger or otherwise by operation
of law) or any right, title or interest therein (including, but not limited to, any right or power to vote to which the holder thereof
may be entitled, whether such right or power is granted by proxy or otherwise), or the record or beneficial ownership thereof, the offer
to make such a sale, transfer, Constructive Sale or other disposition, and each agreement, arrangement or understanding, whether or not
in writing, to effect any of the foregoing. “Constructive Sale” shall mean, with respect to any security, a short sale with
respect to such security, entering into or acquiring an offsetting derivative contract with respect to such security, entering into or
acquiring a futures or forward contract to deliver such security, or entering into any other hedging or other derivative transaction that
has the effect of materially changing the economic benefits and risks of ownership. Any purported Transfer of any shares of the corporation’s
stock effected in violation of this Section 8.9 shall be null and void and shall have no force or effect and the corporation shall
not register any such purported Transfer.
Any stockholder seeking the approval of the Board
of Directors of a Transfer of some or all of its shares shall give written notice thereof to the Secretary of the corporation that shall
include: (a) the name of the stockholder; (b) the proposed transferee; (c) the number of shares of the Transfer of which
approval is thereby requested; and (d) the purchase price (if any) of the shares proposed for Transfer. The corporation may require
the stockholder to supplement its notice with such additional information as the corporation may request.
Certificates representing, and in the case of uncertificated
securities, notices of issuance with respect to, shares of stock of the corporation shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
THE TRANSFER OF THE
SECURITIES referenced herein IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN THE COMPANY’S BYLAWS, COPIES OF WHICH MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS. THE COMPANY SHALL NOT REGISTER OR OTHERWISE RECOGNIZE
OR GIVE EFFECT TO ANY PURPORTED TRANSFER OF SECURITIES THAT DOES NOT COMPLY WITH SUCH TRANSFER RESTRICTIONS.
The corporation shall take all such actions as are
practicable to cause the certificates representing, and notices of issuance with respect to, shares that are subject to the restrictions
on transfer set forth in this Section to contain the foregoing legend.
8.10 Transfer
Of Stock
Upon receipt by the corporation or the transfer agent
of the corporation of proper transfer instructions from the record holder of uncertificated shares or upon surrender to the corporation
or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation
or authority to transfer, it shall be the duty of the corporation to issue a new certificate or, in the case of uncertificated securities
and upon request, a notice of issuance of shares, to the person entitled thereto, cancel the old certificate (if any) and record the transaction
in its books.
8.11 Stock
Transfer Agreements
The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer
of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware
General Corporation Law.
8.12 Stockholders
of Record
The corporation shall be entitled to recognize the
exclusive right of a person recorded on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled
to hold liable for calls and assessments the person recorded on its books as the owner of shares, and shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
8.13 Facsimile
or Electronic Signature
In addition to the provisions for use of facsimile
or electronic signatures elsewhere specifically authorized in these bylaws, facsimile or electronic signatures of any stockholder, director
or officer of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
Article IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer
the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall
not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
Exhibit 3.4
Second Amended and Restated Bylaws
of
zSpace, Inc.
(a Delaware corporation)
Effective [ ], 2024
Table of Contents
Page
| Article I - Corporate Offices |
1 |
| |
|
| 1.1 |
Registered Office |
1 |
| 1.2 |
Other Offices |
1 |
| |
|
|
| Article II - Meetings of Stockholders |
1 |
| |
|
| 2.1 |
Place of Meetings |
1 |
| 2.2 |
Annual Meeting |
1 |
| 2.3 |
Special Meeting |
1 |
| 2.4 |
Notice of Business to be Brought before a Meeting |
2 |
| 2.5 |
Notice of Nominations for Election to the Board of
Directors |
5 |
| 2.6 |
Additional Requirements for Valid Nomination of Candidates
to Serve as Director and, if Elected, to be Seated as Directors |
7 |
| 2.7 |
Notice of Stockholders’ Meetings |
8 |
| 2.8 |
Quorum |
9 |
| 2.9 |
Adjourned Meeting; Notice |
9 |
| 2.10 |
Conduct of Business |
9 |
| 2.11 |
Voting |
10 |
| 2.12 |
Record Date for Stockholder Meetings and Other Purposes |
10 |
| 2.13 |
Proxies |
11 |
| 2.14 |
List of Stockholders Entitled to Vote |
11 |
| 2.15 |
Inspectors of Election |
11 |
| 2.16 |
Delivery to the Corporation |
12 |
| |
|
|
| Article III - Directors |
12 |
| |
|
| 3.1 |
Powers |
12 |
| 3.2 |
Number of Directors |
12 |
| 3.3 |
Chairperson of the Board; Vice Chairperson of the Board;
Executive Chairman |
13 |
| 3.4 |
Election, Qualification and Term of Office of Directors |
13 |
| 3.5 |
Resignation and Vacancies |
13 |
| 3.6 |
Place of Meetings; Meetings by Telephone |
13 |
| 3.7 |
Regular Meetings |
14 |
| 3.8 |
Special Meetings; Notice |
14 |
| 3.9 |
Quorum |
15 |
| 3.10 |
Board Action without a Meeting |
15 |
| 3.11 |
Fees and Compensation of Directors |
15 |
| |
|
|
| Article IV - Committees |
15 |
| |
|
| 4.1 |
Committees of Directors |
15 |
| 4.2 |
Subcommittees |
16 |
| |
|
|
| Article V - Officers |
16 |
| 5.1 |
Officers |
16 |
| 5.2 |
Appointment of Officers |
16 |
| 5.3 |
Subordinate Officers |
16 |
TABLE OF CONTENTS
(continued)
Page
| 5.4 |
Removal and Resignation of Officers |
17 |
| 5.5 |
Vacancies in Offices |
17 |
| 5.6 |
Representation of Shares of Other Corporations |
17 |
| 5.7 |
Chief Executive Officer |
17 |
| 5.8 |
Other Officers |
17 |
| 5.9 |
Compensation |
18 |
| |
|
|
| Article VI - Records |
18 |
| |
|
| Article VII - General Matters |
18 |
| |
|
| 7.1 |
Execution of Corporate Contracts and Instruments |
18 |
| 7.2 |
Stock Certificates |
18 |
| 7.3 |
Special Designation of Certificates |
19 |
| 7.4 |
Lost Certificates |
19 |
| 7.5 |
Shares Without Certificates |
19 |
| 7.6 |
Construction; Definitions |
19 |
| 7.7 |
Dividends |
19 |
| 7.8 |
Fiscal Year |
20 |
| 7.9 |
Seal |
20 |
| 7.10 |
Transfer of Stock |
20 |
| 7.11 |
Stock Transfer Agreements |
20 |
| 7.12 |
Registered Stockholders |
20 |
| 7.13 |
Waiver of Notice |
20 |
| 7.14 |
Lock-up |
21 |
| |
|
|
| Article VIII - Notice |
21 |
| |
|
| 8.1 |
Delivery of Notice; Notice by Electronic Transmission |
21 |
| |
|
|
| Article IX - Indemnification |
22 |
| |
|
| 9.1 |
Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation |
22 |
| 9.2 |
Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation |
22 |
| 9.3 |
Authorization of Indemnification |
23 |
| 9.4 |
Good Faith Defined |
23 |
| 9.5 |
Indemnification by a Court |
23 |
| 9.6 |
Expenses Payable in Advance |
24 |
| 9.7 |
Nonexclusivity of Indemnification and Advancement of
Expenses |
24 |
| 9.8 |
Insurance |
24 |
| 9.9 |
Certain Definitions |
24 |
| 9.10 |
Survival of Indemnification and Advancement of Expenses |
25 |
| 9.11 |
Limitation on Indemnification |
25 |
| 9.12 |
Indemnification of Employees and Agents |
25 |
| 9.13 |
Primacy of Indemnification |
25 |
TABLE OF CONTENTS
(continued)
Page
| Article X
- Amendments |
25 |
| |
|
| Article XI - Definitions |
26 |
Second Amended and Restated
Bylaws
of
zSpace, Inc.
Article I - Corporate Offices
1.1 Registered
Office.
The address of the registered
office of zSpace, Inc. (the “Corporation”) in the State of Delaware, and the name of its registered agent at
such address, shall be as set forth in the Corporation’s certificate of incorporation, as the same may be amended and/or restated
from time to time (the “Certificate of Incorporation”).
1.2 Other
Offices.
The Corporation may have
additional offices and places of business at any place or places, within or outside the State of Delaware, as the Corporation’s
board of directors (the “Board”) may from time to time determine or as the affairs of the Corporation may require.
Article II - Meetings of Stockholders
2.1 Place
of Meetings.
Meetings of stockholders
shall be held at any place within or outside the State of Delaware, designated by the Board, provided that the Board may, in its sole
discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote
communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”).
In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal
executive office.
2.2 Annual
Meeting.
The Board shall designate
the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought
before the meeting in accordance with Section 2.4 of these bylaws may be transacted. The Board may postpone or reschedule any previously
scheduled annual meeting of stockholders.
2.3 Special
Meeting.
Subject to the rights of
the holders of any outstanding series of the preferred stock of the Corporation and to the requirements of applicable law, special meetings
of the stockholders for any purpose or purposes may be called, postponed, rescheduled or cancelled only by (i) the Board pursuant
to a resolution adopted by a majority of the Board, (ii) the Chairperson of the Board, (iii) the Chief Executive Officer, (iv) the
President or (v) stockholders collectively holding more than 30% of the voting securities of the Corporation. Special meetings shall
be held at such place, either within or without the State of Delaware, and at such time and on such date as shall be determined by the
Board and stated in the Corporation’s notice of the meeting, provided that the Board may in its sole discretion determine that
the meeting shall not be held at any place, but may instead be held solely by means of remote communication pursuant to Section 211(a)(2) of
the DGCL.
No business may be transacted
at any special meeting of stockholders other than the business specified in the notice of such meeting.
2.4 Notice
of Business to be Brought before a Meeting.
(i) At
an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting, business (other than the nominations of persons for election to the Board) must constitute
a proper matter for stockholder action and must be (a) specified in a notice of meeting given by or at the direction of the Board
or any duly authorized committee thereof, (b) if not specified in a notice of meeting, otherwise brought before the meeting by the
Board or any duly authorized committee thereof, the Executive Chairman of the Board or Chairperson of the Board or (c) otherwise
properly brought before the meeting by a stockholder present in person who (A) (1) was a record owner of shares of the Corporation
both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (2) is entitled to vote
at the meeting, and (3) has complied with this Section 2.4 in all applicable respects or (B) properly made such proposal
in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder
(as so amended and inclusive of such rules and regulations, the “Exchange Act”). The foregoing clause (c) shall
be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. For purposes
of this Section 2.4, “present in person” shall mean that the stockholder proposing that the business be brought
before the annual meeting of the Corporation, or a qualified representative of such proposing stockholder, appear at such annual meeting.
A “qualified representative” of such proposing stockholder shall be a duly authorized officer, manager or partner
of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered
by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or
electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. Stockholders
seeking to nominate persons for election to the Board must comply with Section 2.5 and Section 2.6, and this Section 2.4
shall not be applicable to nominations except as expressly provided in Section 2.5 and Section 2.6.
(ii) Without
qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (a) provide Timely
Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (b) provide any updates
or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice
must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than the close of business
on the 90th day nor more than the opening of business on the 120th day prior to the one-year anniversary of the
immediately preceding year’s annual meeting of the stockholders; provided, however, that if the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered, or
mailed and received, not earlier than the close of business on the 120th day before the meeting and not later than the later
of (x) the close of business on the 90th day prior to such annual meeting or(y) the close of business on the 10th
day following the day on which public disclosure of the date of such annual meeting was first made by the Corporation (such notice
within such time periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting
or the announcement thereof commence a new time period (or extend any time period) for the giving of Timely Notice as described above.
(iii) To
be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary shall set forth:
(a) As
to each Proposing Person (as defined below), (1) the name and record address of such Proposing Person (including, if applicable,
the name and address that appear on the Corporation’s books and records) and the name and address of the beneficial owner, if any,
on whose behalf the proposal is made; and (2) the class or series and number of shares of the Corporation that are, directly or
indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person,
except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation
as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant
to the foregoing clauses (1) and (2) are referred to as “Stockholder Information”);
(b) As
to each Proposing Person, (1) the full notional amount of any securities that, directly or indirectly, underlie any “derivative
security” (as such term is defined in Rule 16a-1(c) under the Exchange Act) that constitutes a “call equivalent
position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) (“Synthetic Equity Position”)
and that is, directly or indirectly, held or maintained by such Proposing Person with respect to any shares of any class or series of
shares of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity Position,” the term “derivative
security” shall also include any security or instrument that would not otherwise constitute a “derivative security”
as a result of any feature that would make any conversion, exercise or similar right or privilege of such security or instrument becoming
determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of
securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument
is immediately convertible or exercisable at the time of such determination; and, provided, further, that any Proposing Person satisfying
the requirements of Rule 13d-1(b)(1) under the Exchange Act (other than a Proposing Person that so satisfies Rule 13d-1(b)(1) under
the Exchange Act solely by reason of Rule 13d-1(b)(1)(ii)(E)) shall not be deemed to hold or maintain the notional amount of any
securities that underlie a Synthetic Equity Position held by such Proposing Person as a hedge with respect to a bona fide derivatives
trade or position of such Proposing Person arising in the ordinary course of such Proposing Person’s business as a derivatives
dealer, (2) any rights to dividends on the shares of any class or series of shares of the Corporation owned beneficially by such
Proposing Person that are separated or separable from the underlying shares of the Corporation, (3) any material pending or threatened
legal proceeding in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or
directors, or any affiliate of the Corporation, (4) any other material relationship between such Proposing Person, on the one hand,
and the Corporation, or any of its officers or directors, or any affiliate of the Corporation, on the other hand, (5) any direct
or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation or any affiliate of
the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (6) a
representation that such Proposing Person is a holder of record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such business, (7) a representation that such Proposing Person intends
or is part of a group which intends to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s
outstanding capital stock required to approve or adopt the proposal or otherwise solicit proxies from stockholders in support of such
proposal and (8) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement
or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the
business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made
pursuant to the foregoing clauses (1) through (8) are referred to as “Disclosable Interests”); provided,
however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of
any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder
directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner; and
(c) As
to each item of business that the Proposing Person proposes to bring before the annual meeting, (1) a brief description of the business
desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest
in such business of each Proposing Person, (2) the text of the proposal or business (including the text of any resolutions proposed
for consideration and in the event that such business includes a proposal to amend the bylaws of the Corporation, the language of the
proposed amendment), and (3) a reasonably detailed description of all agreements, arrangements and understandings (x) between
or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or beneficial holder(s) or
persons(s) who have a right to acquire beneficial ownership at any time in the future of the shares of any class or series of the
Corporation or any other person or entity (including their names) in connection with the proposal of such business by such stockholder;
and (4) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other
filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting
pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this paragraph (c) shall
not include any disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person
solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial
owner.
For purposes of this Section 2.4,
the term “Proposing Person” shall mean (i) the stockholder providing the notice of business proposed to be brought
before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business
proposed to be brought before the annual meeting is made, and (iii) any participant (as defined in paragraphs (a)(ii)-(vi) of
Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
(iv) A
Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting, if
necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true
and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is 10 business days prior
to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received
by, the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for stockholders
entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later
than eight business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable,
on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and
supplement required to be made as of 10 business days prior to the meeting or any adjournment or postponement thereof). For the avoidance
of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these bylaws shall not
limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable
deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any
proposal or to submit any new proposal, including by changing or adding matters, business or resolutions proposed to be brought before
a meeting of the stockholders.
(v) Notwithstanding
anything in these bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the
meeting in accordance with this Section 2.4. The presiding officer of the meeting shall, if the facts warrant, determine that the
business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine,
he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Without
limiting the foregoing, in advance of any meeting of stockholders, the Board shall also have the power to determine whether any proposed
business was made in accordance with the provisions of this Section 2.4.
(vi) This
Section 2.4 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other
than any proposal made in accordance with Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement.
In addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting,
each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in
this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(vii) For
purposes of these bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news
service, in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act or by such other means as is reasonably designed to inform the public or securityholders of the Corporation in general
of such information including, without limitation, posting on the Corporation’s investor relations website.
2.5 Notice
of Nominations for Election to the Board of Directors.
(i) Subject
in all respects to the provisions of the Certificate of Incorporation, nominations of any person for election to the Board at an annual
meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at
the direction of the person calling such special meeting) may be made at such meeting only (x) by or at the direction of the Board,
including by any committee or persons authorized to do so by the Board or these bylaws, or (y) by a stockholder present in person
(A) who was a record owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.5
and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 2.5 and
Section 2.6 as to such notice and nomination. For purposes of this Section 2.5, “present in person” shall
mean that the stockholder proposing that the business be brought before the meeting of the Corporation, or a qualified representative
of such stockholder, appear at such meeting. A “qualified representative” of such proposing stockholder shall be a
duly authorized officer, manager or partner of such stockholder or any other person authorized by a writing executed by such stockholder
or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such
person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at
the meeting of stockholders. The foregoing clause (y) shall be the exclusive means for a stockholder to make any nomination of a
person or persons for election to the Board at an annual meeting or special meeting.
(ii) Without
qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder
must (1) provide Timely Notice (as defined in Section 2.4) thereof in writing and in proper form to the Secretary of the Corporation,
(2) provide the information, agreements and questionnaires with respect to such stockholder and its candidate for nomination as
required to be set forth by this Section 2.5 and Section 2.7 and (3) provide any updates or supplements to such notice
at the times and in the forms required by this Section 2.5 and Section 2.6.
(a) Without
qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person
calling a special meeting in accordance with the Certificate of Incorporation, then for a stockholder to make any nomination of a person
or persons for election to the Board at a special meeting, the stockholder must (1) provide timely notice thereof in writing and
in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, (2) provide the information
with respect to such stockholder and its candidate for nomination as required by this Section 2.5 and Section 2.6 and (3) provide
any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s
notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices
of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than
the later of (x) close of business on the 90th day prior to such special meeting or (y) the close of business on
the 10th day following the day on which public disclosure (as defined in Section 2.4) of the date of such special meeting
was first made.
(b) In
no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time
period for the giving of a stockholder’s notice as described above.
(c) In
no event may a Nominating Person provide Timely Notice with respect to a greater number of director candidates than are subject to election
by shareholders at the applicable meeting. If the Corporation shall, subsequent to such notice, increase the number of directors subject
to election at the meeting, such notice as to any additional nominees shall be due on the later of (1) the conclusion of the time
period for Timely Notice, (2) the date set forth in Section 2.5(ii)(a), or (3) the tenth day following the date of public
disclosure (as defined in Section 2.4) of such increase.
(iii) To
be in proper form for purposes of this Section 2.5, a stockholder’s notice to the Secretary shall set forth:
(a) As
to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(iii)(a), except that for purposes
of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person”
in all places it appears in Section 2.4(iii)(a));
(b) As
to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(iii)(b), except that for purposes of this Section 2.5
the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places
it appears in Section 2.4(iii)(b) and the disclosure with respect to the business to be brought before the meeting in Section 2.4(iii)(b) shall
be made with respect to the election of directors at the meeting); and
(c) As
to each candidate whom a Nominating Person proposes to nominate for election as a director, (1) all information with respect to
such candidate for nomination that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5
and Section 2.6 if such candidate for nomination were a Nominating Person, (2) all information relating to such candidate for
nomination that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations
of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such
candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (3) a
description of any direct or indirect material interest in any material contract or agreement between or among any Nominating Person,
on the one hand, and each candidate for nomination or his or her respective associates or any other participants in such solicitation,
on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation
S-K if such Nominating Person were the “registrant” for purposes of such rule and the candidate for nomination were
a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (1) through (3) are
referred to as “Nominee Information”), and (4) a completed and signed questionnaire, representation and agreement
as provided in Section 2.6(i).
For purposes of this Section 2.5,
the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to
be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination
proposed to be made at the meeting is made, and (iii) any other participant in such solicitation.
(iv) A
stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary,
so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct
as of the record date for stockholders entitled to vote at the meeting and as of the date that is 10 business days prior to the meeting
or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary
at the principal executive offices of the Corporation not later than five business days after the record date for stockholders entitled
to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight
business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable,
on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and
supplement required to be made as of 10 business days prior to the meeting or any adjournment or postponement thereof). For the avoidance
of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these bylaws shall not
limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable
deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any
nomination or to submit any new nomination.
(v) In
addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating
Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
2.6 Additional
Requirements for Valid Nomination of Candidates to Serve as Director and, if Elected, to be Seated as Directors.
(i) To
be eligible to be a candidate for election as a director of the Corporation at an annual or special meeting, a candidate must be nominated
in the manner prescribed in Section 2.5 and the candidate for nomination, whether nominated by the Board or by a stockholder of
record, must have previously delivered (in accordance with the time period prescribed for delivery in a notice to such candidate given
by or on behalf of the Board) to the Secretary at the principal executive offices of the Corporation (a) a completed written questionnaire
(in a form provided by the Corporation) with respect to the background, qualifications, stock ownership and independence of such proposed
nominee, and such additional information with respect to such proposed nominee as would be required to be provided by the Corporation
pursuant to Schedule 14A if such proposed nominee were a participant in the solicitation of proxies by the Corporation in connection
with such annual or special meeting and (b) a written representation and agreement (in form provided by the Corporation) that such
candidate for nomination (A) is not and, if elected as a director during his or her term of office, will not become a party to (1) any
agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity
as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting
Commitment”) or (2) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to
comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (B) is
not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation
with respect to any direct or indirect compensation or reimbursement for service as a director that has not been disclosed therein or
to the Corporation, (C) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict
of interest, confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to directors
and in effect during such person’s term in office as a director (and, if requested by any candidate for nomination, the Secretary
of the Corporation shall provide to such candidate for nomination all such policies and guidelines then in effect), (D) if elected
as director of the Corporation, intends to serve the entire term until the next meeting at which such candidate would face re-election
and (E) consents to being named as a nominee in the Corporation’s proxy statement pursuant to Rule 14a-4(d) under
the Exchange Act and any associated proxy card of the Corporation and agrees to serve if elected as a director.
(ii) The
Board may also require any proposed candidate for nomination as a Director to furnish such other information as may reasonably be requested
by the Board in writing prior to the meeting of stockholders at which such candidate’s nomination is to be acted upon in order
for the Board to determine the eligibility of such candidate for nomination to be an independent director of the Corporation in accordance
with the Corporation’s Corporate Governance Guidelines.
(iii) A
candidate for nomination as a director shall further update and supplement the materials delivered pursuant to this Section 2.6,
if necessary, so that the information provided or required to be provided pursuant to this Section 2.6 shall be true and correct
as of the record date for stockholders entitled to vote at the meeting and as of the date that is 10 business days prior to the meeting
or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary
at the principal executive offices of the Corporation (or any other office specified by the Corporation in any public announcement) not
later than five business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement
required to be made as of such record date), and not later than eight business days prior to the date for the meeting or, if practicable,
any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting
has been adjourned or postponed) (in the case of the update and supplement required to be made as of 10 business days prior to the meeting
or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this
paragraph or any other Section of these bylaws shall not limit the Corporation’s rights with respect to any deficiencies in
any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has
previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding
nominees, matters, business or resolutions proposed to be brought before a meeting of the stockholders.
(iv) No
candidate shall be eligible for nomination as a director of the Corporation unless such candidate for nomination and the Nominating Person
seeking to place such candidate’s name in nomination has complied with Section 2.5 and this Section 2.6, as applicable.
The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with
Section 2.5 and this Section 2.6, and if he or she should so determine, he or she shall so declare such determination to the
meeting, the defective nomination shall be disregarded and any ballots cast for the candidate in question (but in the case of any form
of ballot listing other qualified nominees, only the ballots cast for the nominee in question) shall be void and of no force or effect.
(v) Notwithstanding
anything in these bylaws to the contrary, no candidate for nomination shall be eligible to be seated as a director of the Corporation
unless nominated and elected in accordance with Section 2.5 and this Section 2.6.
2.7 Notice
of Stockholders’ Meetings.
Unless otherwise provided
by law, the Certificate of Incorporation or these bylaws, the notice of any meeting of stockholders shall be sent or otherwise given
in accordance with Section 8.1 of these bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, if any, date and time of the meeting, the means of remote communication,
if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
2.8 Quorum.
Unless otherwise provided
by law, the Certificate of Incorporation or these bylaws, the holders of a majority in voting power of the stock issued and outstanding
and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A quorum, once established at a meeting, shall not be broken by
the withdrawal of enough votes to leave less than a quorum. If, however, a quorum is not present or represented at any meeting of the
stockholders, then either (i) the person presiding over the meeting or (ii) a majority in voting power of the stockholders
entitled to vote at the meeting, present in person, or by remote communication, if applicable, or represented by proxy, shall have power
to recess the meeting or adjourn the meeting from time to time in the manner provided in Section 2.9 of these bylaws until a quorum
is present or represented. At any recessed or adjourned meeting at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.9 Adjourned
Meeting; Notice.
When a meeting is adjourned
to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place,
if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present
in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At any adjourned meeting,
the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than
30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the
adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall
fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that
fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to
each stockholder of record entitled to vote at such meeting as of the record date so fixed for notice of such adjourned meeting.
2.10 Conduct
of Business.
The date and time of the
opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting
by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting
of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the
Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason)
to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures (which need not be in writing) and to do all
such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations
or procedures, whether adopted by the Board or prescribed by the person presiding over the meeting, may include, without limitation,
the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present (including, without limitation, rules and procedures for removal
of disruptive persons from the meeting); (iii) limitations on attendance at or participation in the meeting to stockholders entitled
to vote at the meeting, their duly authorized and constituted proxies or such other persons as the person presiding over the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations
on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making
any other determinations that may be appropriate to the conduct of the meeting (including, without limitation, determinations with respect
to the administration and/or interpretation of any of the rules, regulations or procedures of the meeting, whether adopted by the Board
or prescribed by the person presiding over the meeting), shall, if the facts warrant, determine and declare to the meeting that a matter
of business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall
so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.
Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required
to be held in accordance with the rules of parliamentary procedure.
2.11 Voting.
Except as may be otherwise
provided in the Certificate of Incorporation or the DGCL, each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
Except as otherwise provided
in the Certificate of Incorporation, at all duly called or convened meetings of stockholders at which a quorum is present, for the election
of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided in the Certificate
of Incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law
or pursuant to any regulation applicable to the Corporation or its securities, each other matter presented to the stockholders at a duly
called or convened meeting at which a quorum is present shall be decided by the affirmative vote of the holders of a majority in voting
power of the votes cast (excluding abstentions and broker non-votes) on such matter.
2.12 Record
Date for Stockholder Meetings and Other Purposes.
In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board
may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the
Board, and which record date shall, unless otherwise required by law, not be more than 60 days nor less than 10 days before the date
of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote
at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting
shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day immediately preceding the day
on which notice is first given, or, if notice is waived, at the close of business on the day immediately preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled
to vote at the adjourned meeting; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned
meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned
meeting.
In order that the Corporation
may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purposes of any other lawful
action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating
thereto.
2.13 Proxies.
Each stockholder entitled
to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument
in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in
the form of an electronic transmission that sets forth or is submitted with information from which it can be determined that the transmission
was authorized by the stockholder.
2.14 List
of Stockholders Entitled to Vote.
The Corporation shall prepare,
at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided,
however, that if the record date for determining the stockholders entitled to vote is less than 10 days before the date of the meeting,
the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall
not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on
a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice
of the meeting, or (ii) during ordinary business hours, at the Corporation’s principal executive office. In the event that
the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that
such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be
produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is
present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of
any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access
such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by each of them. Except as otherwise provided by law, the stock ledger
shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.14
or to vote in person or by proxy at any meeting of stockholders.
2.15 Inspectors
of Election.
Before any meeting of stockholders,
the Board may, and shall if required by law, appoint an inspector or inspectors of election to act at the meeting or its adjournment
and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails
to act. If any person appointed as inspector or any alternate fails to appear or fails or refuses to act, then the person presiding over
the meeting shall appoint a person to fill that vacancy.
Such inspectors shall:
(i) determine
the number of shares outstanding and the voting power of each, the number of shares represented at the meeting and the validity of any
proxies and ballots;
(ii) count
all votes or ballots;
(iii) count
and tabulate all votes;
(iv) determine
and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspector(s); and
(v) certify
its or their determination of the number of shares represented at the meeting and its or their count of all votes and ballots.
Each inspector, before entering
upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspection with strict
impartiality and according to the best of such inspector’s ability. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein. The inspectors of election may appoint such persons to assist them in performing
their duties as they determine. If there is more than one inspector, the report of a majority shall be the report of the inspectors.
2.16 Delivery
to the Corporation.
Whenever this Article II
requires one or more persons (including a record or beneficial owner of stock) to deliver a document or information to the Corporation
or any officer, employee or agent thereof (including any notice, request, questionnaire, revocation, representation or other document
or agreement), such document or information shall be in writing exclusively (and not in an electronic transmission) and shall be delivered
exclusively by hand (including, without limitation, overnight courier service) or by certified or registered mail, return receipt requested,
and the Corporation shall not be required to accept delivery of any document not in such written form or so delivered. For the avoidance
of doubt, the Corporation expressly opts out of Section 116 of the DGCL with respect to the delivery of information and documents
to the Corporation required by this Article II.
Article III - Directors
3.1 Powers.
Except as otherwise provided
by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction
of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these bylaws required to be exercised or done by the stockholders.
3.2 Number
of Directors.
Subject to the Certificate
of Incorporation, the total number of directors constituting the Board shall initially be seven directors and shall be determined from
time to time by resolution adopted by at least a majority of the Board. No reduction of the authorized number of directors shall have
the effect of removing any director before that director’s term of office expires. Subject to the provisions set forth herein,
for so long as a stockholder owns more than 40% of the voting securities of the Corporation, such stockholder shall be entitled to nominate
two (2) persons for election to the Board. For so long as a stockholder owns 40% or less of the voting securities of the Corporation
but more than 25% of the voting securities of the Corporation, such stockholder shall be entitled to nominate one (1) person for
election to the Board.
3.3 Chairperson
of the Board; Vice Chairperson of the Board; Executive Chairman.
The Board may appoint, in
its discretion, from its members a Chairperson of the Board and a Vice Chairperson of the Board, neither of whom need be an employee
or officer of the Corporation. The Board may appoint, in its discretion, from its members an Executive Chairman who shall not be an employee
or officer of the Corporation. If the Board appoints a Chairperson of the Board, such Chairperson shall perform such duties and possess
such powers as are assigned by the Board. If the Board appoints an Executive Chairman, the Executive Chairman shall be delegated the
primary responsibility for overseeing and advising the senior management of the Corporation and shall perform such other duties and possess
such powers as are assigned by the Board; provided that notwithstanding anything to the contrary herein, the Executive Chairman shall
not have charge over the non-delegable duties of the Board. If the Board appoints a Vice Chairperson of the Board, such Vice Chairperson
shall perform such duties and possess such powers as are assigned by the Board. Unless otherwise provided by the Board, the Chairman
of the Board or, in the Chairman’s absence, the Vice Chairman of the Board, if any, shall preside at all meetings of the Board.
3.4 Election,
Qualification and Term of Office of Directors.
Except as provided in Section 3.5
of these bylaws, and subject to the Certificate of Incorporation, each director, including a director elected to fill a vacancy or newly
created directorship, shall hold office until the expiration of the term of the class, if any, for which elected and until such director’s
successor is elected and qualified or until such director’s earlier death, resignation, disqualification, retirement or removal
in accordance with the Certificate of Incorporation and applicable law. Directors need not be stockholders. The Certificate of Incorporation
or these bylaws may prescribe qualifications for directors.
3.5 Resignation
and Vacancies.
Any director may resign at
any time upon notice given in writing or by electronic transmission to the Corporation. The resignation shall take effect at the time
specified therein or upon the happening of an event specified therein, and if no time or event is specified, at the time of its receipt.
When one or more directors so resigns and the resignation is effective at a future date or upon the happening of an event to occur on
a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in Section 3.4.
Unless otherwise provided
in the Certificate of Incorporation or these bylaws, vacancies resulting from the death, resignation, disqualification, retirement or
removal of any director, and newly created directorships resulting from any increase in the authorized number of directors shall be filled
only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director.
3.6 Place
of Meetings; Meetings by Telephone.
The Board may hold meetings,
both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted
by the Certificate of Incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate
in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation in a meeting pursuant to these bylaws shall constitute
presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully called or convened
3.7 Regular
Meetings.
Regularly scheduled, periodic
meetings of the Board may be held within or outside the State of Delaware and at such time and at such place as which has been designated
by the Board and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other
system designed to record and communicate messages, facsimile, or by electronic mail or other means of electronic transmission. No further
notice shall be required for regular meetings of the Board.
3.8 Special
Meetings; Notice.
Special meetings of the Board
for any purpose or purposes may be called at any time by the Chairperson of the Board, the Executive Chairman of the Board, the Chief
Executive Officer, a President, or the Secretary.
Notice of the time and place
of special meetings shall be:
(i) delivered
personally by hand, by courier or by telephone;
(ii) sent
by United States first-class mail, postage prepaid;
(iii) sent
by facsimile or electronic mail;
(iv) sent
by other means of electronic transmission; or
(v) sent
by a nationally recognized overnight delivery service,
directed to each director at that director’s
address, telephone number, facsimile number or electronic mail address, or other address for electronic transmission, as the case may
be, as shown on the Corporation’s records.
If the notice is (i) delivered
personally by hand, by courier or by telephone, (ii) sent by facsimile or electronic mail, or (iii) sent by other means of
electronic transmission, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice
is sent by a nationally recognized overnight delivery service, at least two days before the time of the holding of the meeting. If the
notice is sent by U.S. mail, it shall be deposited in the U.S. mail at least five days before the time of the holding of the meeting.
Except as may be otherwise expressly provided by applicable law, the Certificate of Incorporation, or these bylaws, the notice or the
waiver of notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive
office) nor the purpose of the meeting.
Any and all business that
may be transacted at a regular meeting of the Board may be transacted at a special meeting. A special meeting may be held at any time
without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 7.13.
3.9 Quorum.
At all meetings of the Board,
unless otherwise provided by the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum
for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be
the act of the Board, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or these bylaws.
If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is present.
3.10 Board
Action without a Meeting.
Unless otherwise restricted
by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of
any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in
writing or by electronic transmission. After an action is taken, the consent or consents relating thereto shall be filed with the minutes
of the proceedings of the Board, or the committee thereof, in the same paper or electronic form as the minutes are maintained. Such action
by written consent or consent by electronic transmission shall have the same force and effect as a unanimous vote of the Board.
3.11 Fees
and Compensation of Directors.
Unless otherwise restricted
by the Certificate of Incorporation or these bylaws, the Board shall have the authority to fix the compensation, including fees and reimbursement
of expenses, of directors for services to the Corporation in any capacity, subject to any applicable limit set forth in the Corporation’s
equity compensation plan as in effect from time to time.
Article IV - Committees
4.1 Committees
of Directors.
The Board may designate one
or more committees, each committee to consist of one or more of the directors of the Corporation and shall have the power at any time
to fill vacancies in, to change the membership of, or to dissolve any such committee. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting
in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or
in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. However, no such committee
shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the
election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend
or repeal any bylaw of the Corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board when
required by the resolution designating such committee. Meetings and Actions of Committees.
Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of:
(i) Section 3.6
(Place of Meetings; Meetings by Telephone);
(ii) Section 3.7
(Regular Meetings);
(iii) Section 3.8
(Special Meetings; Notice);
(iv) Section 3.10
(Board Action without a Meeting); and
(v) Section 7.13
(Waiver of Notice),
with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the Board and its members. However:
(i) the
time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii) special
meetings of committees may also be called by resolution of the Board or the chairperson of the applicable committee; and
(iii) the
Board may adopt rules for the governance of any committee to override the provisions that would otherwise apply to the committee
pursuant to this Section 4.2, provided that such rules do not violate the provisions of the Certificate of Incorporation or
applicable law.
4.2 Subcommittees.
Unless otherwise provided
in the Certificate of Incorporation, these bylaws, the resolutions of the Board designating the committee or the charter of such committee
adopted by the Board, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee,
and delegate to a subcommittee any or all of the powers and authority of the committee.
Article V - Officers
5.1 Officers.
The officers of the Corporation
shall include a Chief Executive Officer, one or more Presidents and a Secretary. The Corporation may also have, at the discretion of
the Board, a Chief Financial Officer, a Treasurer, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant
Treasurers, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these
bylaws. Any number of offices may be held by the same person. No officer need be a stockholder or director of the Corporation.
5.2 Appointment
of Officers.
The Board shall appoint the
officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these
bylaws.
5.3 Subordinate
Officers.
The Board may appoint, or
empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, a President, to appoint, such other officers and
agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such
authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
5.4 Removal
and Resignation of Officers.
Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board or, except
in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at
any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 Vacancies
in Offices.
Any vacancy occurring in
any office of the Corporation shall be filled as provided in Section 5.2 or Section 5.3, as applicable.
5.6 Representation
of Shares of Other Corporations.
The Chairperson of the Board,
the Chief Executive Officer or a President of this Corporation, or any other person authorized by the Board, the Chief Executive Officer
or a President, is authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares
or voting securities of any other corporation or other person standing in the name of this Corporation. The authority granted herein
may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
5.7 Chief
Executive Officer.
The Chief Executive Officer
shall, subject to the provisions of these bylaws, any employment agreement, any employee plan and the control of the Board, have general
supervision, direction and control over the business of the Corporation and over its officers, employees and agents and shall have full
authority to execute all documents and take all actions that the Corporation may legally take. The Chief Executive Officer shall perform
all duties incident to the office of the Chief Executive Officer, and any other duties as may be from time to time assigned to the Chief
Executive Officer by the Board, in each case subject to the control of the Board.
5.8 Other
Officers.
All officers of the Corporation
shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be provided
herein or designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board.
5.9 Compensation.
The compensation of the officers
of the Corporation for their services as such shall be fixed from time to time by or at the direction of the Board. An officer of the
Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.
Article VI - Records
A stock ledger consisting
of one or more records in which the names of all of the Corporation’s stockholders of record, the address and number of shares
registered in the name of each such stockholder, and all issuances and transfers of stock of the Corporation shall be recorded in accordance
with Section 224 of the DGCL and shall be administered by or on behalf of the Corporation. Any records administered by or on behalf
of the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept
on, or by means of, or be in the form of, any information storage device, or method, or one or more electronic networks or databases
(including one or more distributed electronic networks or databases), provided that the records so kept can be converted into clearly
legible paper form within a reasonable time and, with respect to the stock ledger, that the records so kept (i) can be used to prepare
the list of stockholders specified in Sections 219 and 220 of the DGCL, (ii) record the information specified in Sections 156, 159,
217(a) and 218 of the DGCL, and (iii) record transfers of stock as governed by Article 8 of the Uniform Commercial Code
as adopted in the State of Delaware.
Article VII - General Matters
7.1 Execution
of Corporate Contracts and Instruments.
The Board, except as otherwise
provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances.
7.2 Stock
Certificates.
The shares of the Corporation
shall be represented by certificates, provided that the Board by resolution may provide that some or all of the shares of any class or
series of stock of the Corporation shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is
consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled
to have a certificate signed by, or in the name of the Corporation by, any two officers authorized to sign stock certificates representing
the number of shares registered in certificate form. The Executive Chairman, Chairperson or Vice Chairperson of the Board, Chief Executive
Officer, a President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation shall be specifically
authorized to sign stock certificates. Any or all of the signatures on the certificate may be a facsimile or other electronic means.
In case any officer, transfer agent or registrar who has signed or whose facsimile or other electronic signature has been placed upon
a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue
the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon
the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation
in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid
shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
7.3 Special
Designation of Certificates.
If the Corporation is authorized
to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the
relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or on the back of the certificate
that the Corporation shall issue to represent such class or series of stock (or, in the case of uncertificated shares, set forth in a
notice provided pursuant to Section 151 of the DGCL); provided, however, that except as otherwise provided in Section 202 of
the DGCL, in lieu of the foregoing requirements, there may be set forth on the face of back of the certificate that the Corporation shall
issue to represent such class or series of stock (or, in the case of any uncertificated shares, included in the aforementioned notice)
a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences
and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights.
7.4 Lost
Certificates.
Except as provided in this
Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered
to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the
owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient
to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate or uncertificated shares.
7.5 Shares
Without Certificates
The Corporation may adopt
a system of issuance, recordation and transfer of its shares of stock by electronic or other means not involving the issuance of certificates,
provided the use of such system by the Corporation is permitted in accordance with applicable law.
7.6 Construction;
Definitions.
Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws.
Without limiting the generality of this provision, the singular number includes the plural and the plural number includes the singular.
7.7 Dividends.
The Board, subject to any
restrictions contained in either (i) the DGCL or (ii) the Certificate of Incorporation, may declare and pay dividends upon
the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart,
out of any of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any
such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation,
and meeting contingencies.
7.8 Fiscal
Year.
The fiscal year of the Corporation
shall be the calendar year unless otherwise fixed by resolution of the Board, and may be changed by the Board.
7.9 Seal.
The Corporation may adopt
a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing
it or a facsimile or other electronic version thereof to be impressed or affixed or in any other manner reproduced.
7.10 Transfer
of Stock.
Shares of stock of the Corporation
shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized
in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate
person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity
of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied
by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall
have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.
7.11 Stock
Transfer Agreements.
The Corporation shall have
power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the Corporation
to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL or other applicable law.
7.12 Registered
Stockholders.
The Corporation:
(i) shall
be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote
as such owner; and
(ii) shall
not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether
or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
7.13 Waiver
of Notice.
Whenever notice is required
to be given under any provision of the DGCL, the Certificate of Incorporation or these bylaws, a written waiver, signed by the person
entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or convened. All such waivers shall be kept with the books
of the Corporation. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders
need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation
or these bylaws.
7.14 Compliance
with the DGCL.
In the event any provision
hereof conflicts with the DGCL or any other applicable law, such provision shall be deemed modified, consistent with the aforementioned
intent, to the extent necessary to resolve such conflict.
Article VIII - Notice
8.1 Delivery
of Notice; Notice by Electronic Transmission.
Without limiting the manner
by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provisions
of the DGCL, the Certificate of Incorporation, or these bylaws may be given in writing directed to the stockholder’s mailing address
(or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it appears on the records
of the Corporation and shall be given (1) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (2) if
delivered by courier service, the earlier of when the notice is received or left at such stockholder’s address or (3) if given
by electronic mail, when directed to such stockholder’s electronic mail address unless the stockholder has notified the Corporation
in writing or by electronic transmission of an objection to receiving notice by electronic mail. A notice by electronic mail must include
a prominent legend that the communication is an important notice regarding the Corporation.
Without limiting the manner
by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision
of the DGCL, the Certificate of Incorporation or these bylaws shall be effective if given by a form of electronic transmission consented
to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice or electronic
transmission to the Corporation. Notwithstanding the provisions of this paragraph, the Corporation may give a notice by electronic mail
in accordance with the first paragraph of this section without obtaining the consent required by this paragraph.
Any notice given pursuant
to the preceding paragraph shall be deemed given:
(i) if
by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if
by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such
posting and (B) the giving of such separate notice; and
(iii) if
by any other form of electronic transmission, when directed to the stockholder.
Notwithstanding the foregoing,
a notice may not be given by an electronic transmission (including electronic mail) from and after the time that (1) the Corporation
is unable to deliver by such electronic transmission two consecutive notices given by the Corporation and (2) such inability becomes
known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving
of notice, provided, however, the inadvertent failure to discover such inability shall not invalidate any meeting or other action.
An affidavit of the Secretary
or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
Article IX - Indemnification
9.1 Power
to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation.
Subject to Section 9.3
and Section 9.11, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to or is
otherwise involved (as a witness or otherwise) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person
is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that such person’s conduct was unlawful.
9.2 Power
to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation.
Subject to Section 9.3
and Section 9.11, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to or is
otherwise involved (as a witness or otherwise) in any threatened, pending or completed action or suit by or in the right of the Corporation
to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court
of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity
by the Corporation for such expenses which the Court of Chancery or such other court shall deem proper.
9.3 Authorization
of Indemnification.
Any indemnification under
this Article IX (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 9.1 or Section 9.2, as the case may be. Such determination shall be made, with respect
to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated
by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with
respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation.
To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith,
without the necessity of authorization in the specific case.
9.4 Good
Faith Defined.
For purposes of any determination
under Section 9.3, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable
cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other
expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 9.4 shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct
set forth in Section 9.1 or 9.2, as the case may be.
9.5 Indemnification
by a Court.
Notwithstanding any contrary
determination in the specific case under Section 9.3, and notwithstanding the absence of any determination thereunder, any director
or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware
for indemnification to the extent otherwise permissible under Section 9.1 or 9.2; provided, that if no determination has been made
pursuant to Section 9.3, no such application shall be permitted unless and until thirty (30) days shall have elapsed from the date
such director or officer shall have notified the Corporation in writing requesting such determination. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because
such person has met the applicable standard of conduct set forth in Section 9.1 or Section 9.2, as the case may be. Neither
a contrary determination in the specific case under Section 9.3 nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard
of conduct. Notice of any application for indemnification pursuant to this Article IX shall be given to the Corporation promptly
upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
9.6 Expenses
Payable in Advance.
Subject to Section 9.11,
expenses (including without limitation attorneys’ fees) incurred by a current or former director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding to which such person is a party or is threatened to be made a party
or otherwise involved as a witness or otherwise by reason of the fact that such person is or was a director or officer of the Corporation
or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee
or agent of another enterprise, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such current or former director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article IX.
9.7 Nonexclusivity
of Indemnification and Advancement of Expenses.
The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action
on another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in
Section 9.1 or 9.2 shall be made to the fullest extent permitted by law. The provisions of this Article IX shall not be deemed
to preclude the indemnification of any person who is not specified in Section 9.1 or Section 9.2 but whom the Corporation has
the power or obligation to indemnify under the provisions of the DGCL, or otherwise.
9.8 Insurance.
The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer
of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power
or the obligation to indemnify such person against such liability under the provisions of this Article IX.
9.9 Certain
Definitions.
For purposes of this Article IX,
references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent
corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation
as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another
enterprise” as used in this Article IX shall mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee
or agent. For purposes of this Article IX, references to “fines” shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any
service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director
or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article IX.
9.10 Survival
of Indemnification and Advancement of Expenses.
The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article IX shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of
such a person.
9.11 Limitation
on Indemnification.
Notwithstanding anything
contained in this Article IX to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed
by Section 9.5) or advancement of expenses (which shall be governed by Section 9.6), the Corporation shall not be obligated
to indemnify any current or former director or officer (or his or her heirs, executors or personal or legal representatives) or advance
expenses in connection with a proceeding (or part thereof) initiated by such person or in defending any counterclaim, cross-claim, affirmative
defense, or like claim by the Corporation in such proceeding unless such proceeding (or part thereof) was authorized or consented to
by the Board of the Corporation.
9.12 Indemnification
of Employees and Agents.
The Corporation may, to the
extent authorized from time to time by the Board, provide rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article IX to directors and officers of the Corporation.
9.13 Primacy
of Indemnification.
Notwithstanding that a director
or officer (or, to the extent authorized pursuant to Section 9.12 from time to time, an employee or agent) of the Corporation (collectively,
the “Covered Persons”) may have certain rights to indemnification, advancement of expenses and/or insurance provided
by other persons (collectively, the “Other Indemnitors”), with respect to the rights to indemnification, advancement
of expenses and/or insurance set forth herein, the Corporation: (i) shall be the indemnitor of first resort (i.e., its obligations
to Covered Persons are primary and any obligation of the Other Indemnitors to advance expenses or to provide indemnification for the
same expenses or liabilities incurred by Covered Persons are secondary); and (ii) shall be required to advance the full amount of
expenses incurred by Covered Persons and shall be liable for the full amount of all liabilities, without regard to any rights Covered
Persons may have against any of the Other Indemnitors. No advancement or payment by the Other Indemnitors on behalf of Covered Persons
with respect to any claim for which Covered Persons have sought indemnification from the Corporation shall affect the immediately preceding
sentence, and the Other Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment
to all of the rights of recovery of Covered Persons against the Corporation. Notwithstanding anything to the contrary herein, the obligations
of the Corporation under this Section 9.13 shall only apply to Covered Persons in their capacity as Covered Persons.
Article X - Amendments
The Board is expressly empowered
to adopt, amend or repeal the bylaws of the Corporation. The stockholders also shall have power to adopt, amend or repeal the bylaws
of the Corporation; provided, however, that such action by stockholders shall require, in addition to any other vote required
by the Certificate of Incorporation or applicable law, the affirmative vote of the holders of at least two-thirds of the voting power
of all the then-outstanding shares of voting stock of the Corporation with the power to vote, voting together as a single class.
Article XI - Definitions
As used in these bylaws,
unless the context otherwise requires, the following terms shall have the following meanings:
An “electronic transmission”
means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in,
one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record
that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient
through an automated process.
An “electronic mail”
means an electronic transmission directed to a unique electronic mail address (which electronic mail shall be deemed to include any files
attached thereto and any information hyperlinked to a website if such electronic mail includes the contact information of an officer
or agent of the Corporation who is available to assist with accessing such files and information).
An “electronic mail
address” means a destination, commonly expressed as a string of characters, consisting of a unique user name or mailbox (commonly
referred to as the “local part” of the address) and a reference to an internet domain (commonly referred to as the “domain
part” of the address), whether or not displayed, to which electronic mail can be sent or delivered.
The term “person”
means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint
stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever
nature, and shall include any successor (by merger or otherwise) of such entity.
* * * * *
Adopted as of: [•], 2024
Last amended as of: N/A
Exhibit 10.2
INFINITE Z, INC.
2007 STOCK PLAN
1. Purposes
of the Plan. The purposes of this Plan are to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
| 2. | Definitions. As used herein, the following definitions shall apply: |
(a) “Administrator”
means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
(b) “Applicable
Laws” means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable
laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.
(c) “Board” means the Board of Directors of the Company.
(d) “Change in Control” means the occurrence of any of the following events:
(i) Any “person”
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more
of the total voting power represented by the Company’s then outstanding voting securities; or
(ii) The consummation
of the sale or disposition by the Company of all or substantially all of the Company’s assets; or
(iii) The consummation
of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented
by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
(e) “Code” means the Internal Revenue Code of 1986, as amended.
(f) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.
(g) “Common Stock” means the Common
Stock of the Company.
(h) “Company” means Infinite Z, Inc., a Delaware corporation.
(i) “Consultant” means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(j) “Director” means a member of the Board.
(k) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.
(l) “Employee” means any person,
including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute “employment” by the Company.
(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(n) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock
is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If the Common Stock
is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between
the high bid and low asked prices for the Common Stock on the day of determination; or
(iii) In the absence
of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(o) “Incentive
Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(p) “Nonstatutory Stock Option” means
an Option not intended to qualify as an Incentive Stock Option.
(q) “Option” means a stock option granted pursuant to the Plan.
(r) “Option Agreement” means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) “Optioned Stock” means the Common
Stock subject to an Option or a Stock Purchase Right.
(t) “Optionee” means the
holder of an outstanding Option or Stock Purchase Right granted under the Plan.
(u) “Parent” means a “parent
corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(v) “Plan” means this 2007 Stock Plan.
(w) “Restricted Stock” means Shares issued pursuant to a Stock Purchase Right or Shares of restricted stock issued pursuant to an Option.
(x) “Restricted Stock Purchase
Agreement” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying
to Shares purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the notice of grant.
(y) “Securities Act means the Securities Act of 1933, as amended.
(z) “Service Provider” means an Employee, Director or Consultant.
(aa) “Share”
means a share of the Common Stock, as adjusted in accordance with Section 13 below.
(bb) “Stock
Purchase Right” means a right to purchase Common Stock pursuant to Section 11 below.
(cc) “Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the
Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option
and sold under the Plan is 3,000,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed
3,000,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase
Right expires or becomes unexercisable without having been exercised in full, the unpurchased Shares that were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under
the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if unvested Shares of Restricted Stock are repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Administrator.
The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) Powers of the Administrator.
Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:
(i) to
determine the Fair Market Value;
(ii) to select the Service Providers to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to
determine the number of Shares to be covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions
of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase
Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to prescribe, amend
and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for
the purpose of satisfying applicable foreign laws;
(vii) to allow Optionees
to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option
or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All
elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator
may deem necessary or advisable; and
(viii) to
construe and interpret the terms of the Plan and Options granted pursuant to the Plan.
(c) Effect
of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final
and binding on all Optionees. Unless the Administrator determines in
writing that Section 409A of the Code is to apply with respect to a particular Option or Stock Purchase Right granted to a
Participant, the terms of each Option or Stock Purchase Right granted hereunder shall be such as shall not cause such Option or
Stock Purchase Right to be subject to Section 409A of the Code. Any term in any such Option or Stock Purchase Right in conflict
with this provision shall automatically be modified to not be in conflict with this provision and if such modification is not
possible then the Administrator shall determine whether such provision shall be void and without effect or the entire Option or
Stock Purchase Right shall be rescinded.
5. Eligibility.
Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
(a) Incentive
Stock Option Limit. Agreement as either an Incentive Stock Option Each Option shall be designated in the Option or a
Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is
granted.
(b) At-Will Employment.
Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to
terminate such relationship at any time, with or without cause, and with or without notice.
7. Term
of Plan. Subject to shareholder approval in accordance with Section 19, the Plan shall become effective upon its adoption by
the Board. Unless sooner terminated under Section 15, it shall continue in effect for a term of ten (10) years from the later
of (i) the effective date of the Plan, or (ii) the earlier of the most recent board or shareholder approval of an increase in
the number of Shares reserved for issuance under the Plan.
8. Term
of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
| 9. | Option Exercise Price and Consideration. |
(a) Exercise Price.
The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In
the case of an Incentive Stock Option
(A) granted to an Employee
who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other
Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In
the case of a Nonstatutory Stock Option
(A) granted to a Service
Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other
Service Provider, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding
the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate
transaction consistent with the provisions of Section 424(a) of the Code.
(b) Forms of
Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of
grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note,
(4) other Shares, provided Shares acquired directly from the Company (x) have been owned by the Optionee for more than six
months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, (6) cancellation of indebtedness, or (7) any
combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise;
Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such
conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share. In the case of Options granted to non-officer Employees, Options shall become exercisable at a rate of no less than 20% per year
over five (5) years from the date the Options are granted. No Option granted to an Employee who is eligible for the overtime benefits
provided under the Fair Labor Standards Act of 1938 shall be exercisable prior to six (6) months after the date of its grant except
under those circumstances that do not require including compensation from the Option in the calculation of such Employee’s overtime
pay.
An Option shall be deemed
exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and
the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares
promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 13 of the Plan.
Exercise of an Option in any
manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option,
by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship
as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within ninety
(90) days of termination, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested
on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement).
If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion
of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified
by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee.
If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within
six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).
If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion
of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of
Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within six (6) months following
Optionee’s death, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested
on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by
the Optionee’s designated beneficiary, provided such beneficiary has been designated prior to Optionee’s death in a form
acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by
the personal representative of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to
the Optionee’s will or in accordance with the laws of descent and distribution. If, at the time of death, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the
Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) Leaves of Absence.
(i) Unless the Administrator
provides otherwise, vesting of Options granted hereunder to officers and Directors shall be suspended during any unpaid leave of absence.
(ii) A Service Provider shall not cease to
be an Employee in the case of (A) any
leave of absence approved by the Company or (B) transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor.
(iii) For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three
(3) months following the 91st day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(f) Tolling Due to
Section 409A of the Code. If exercise would subject the Optionee to tax or penalty under Section 409A(a)(2)(B)(i) of
the Code, then the Optionee shall not be permitted to exercise the Option during the period when such tax or penalty would apply and
the applicable post-termination exercise period shall be extended by the number of days during which exercise by such Optionee would
be subject to such tax or penalty, but in no event beyond the Option’s regular expiration date.
11. Stock Purchase Rights.
(a) Rights to Purchase.
Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards
made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise
the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares
that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The
terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase
Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s service with the
Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock
Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine.
(c) Other Provisions.
The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may
be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder.
Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder
when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 13 of the Plan.
12. Limited Transferability
of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, Options and Stock Purchase Rights may not
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution,
and may be exercised during the lifetime of the Optionee, only by the Optionee. If the Administrator in its sole discretion makes an Option
or Stock Purchase Right transferable, such Option or Stock Purchase Right may only be transferred (i) by will, (ii) by the laws
of descent and distribution, or (iii) to family members (within the meaning of Rule 701 of the Securities Act) through gifts
or domestic relations orders, as permitted by Rule 701 of the Securities Act.
13. Adjustments; Dissolution or Liquidation; Merger or
Change in Control.
(a) Adjustments.
In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares
or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator,
in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, may
(in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price
of Shares covered by each outstanding Option or Stock Purchase Right; provided, however, that the Administrator shall make such adjustments
to the extent required by Section 25102(o) of the California Corporations Code.
(b) Dissolution or Liquidation.
In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable
prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Option or Stock Purchase
Right will terminate immediately prior to the consummation of such proposed action.
(c) Merger or Change
in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option
and Stock Purchase Right shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation in a merger or Change in Control refuses to assume or substitute
for the Option or Stock Purchase Right, then the Option or Stock Purchase Right shall terminate upon such merger or Change in Control.
For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change
in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property)
received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received
upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right,
to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received
by holders of common stock in the merger or Change in Control.
14. Time of Granting Options
and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option or Stock Purchase Right, or such later date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable
time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination.
The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval.
The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment
or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such
Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations.
As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
17. Inability
to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
18. Reservation
of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
19. Shareholder
Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.
20. Information
to Optionees. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less
frequently than annually during the period such Optionee has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company
assure their access to equivalent information.
Exhibit 10.3
ZSPACE,
INC.
2017
EQUITY INCENTIVE PLAN
As Adopted on February
16, 2017
1. PURPOSE.
The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in
the Company’s future performance through the grant of Awards covering Shares. Capitalized terms not defined in the text are defined
in Section 14 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701, grants
may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan
that is required in law only because of Section 25102(o) need not apply if the Committee so provides.
| 2. | SHARES
SUBJECT TO THE PLAN. |
2.1
Number of Shares Available. Subject to Sections 2.2 and 11 hereof, the total
number of Shares reserved and available for grant and issuance pursuant to this Plan will be (a) any authorized shares not issued or
subject to outstanding grants under the Company’s 2007 Stock Plan (the “Prior Plan”) on the Effective
Date (as defined in Section 13.1 hereof); (b) shares that are subject to issuance under the Prior Plan but cease to be subject to an
award for any reason other than exercise of an option after the Effective Date; and (c) shares that were issued under the Prior Plan
which are repurchased by the Company or which are forfeited or used to pay withholding obligations or pay the exercise price of an Option
(all shares referenced in clauses (a), (b) and (c) equal to 49,761,940 shares as of the Effective Date). Subject to Sections 2.2 and
11 hereof, Shares subject to Awards that are cancelled, forfeited, settled in cash, used to pay withholding obligations or pay the exercise
price of an Option or that expire by their terms at any time will again be available for grant and issuance in connection with other
Awards. In the event that Shares previously issued under the Plan are reacquired by the Company pursuant to a forfeiture provision, right
of first refusal, or repurchase by the Company, such Shares shall be added to the number of Shares then available for issuance under
the Plan. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements
of all Awards granted and outstanding under this Plan. In no event shall the total number of Shares issued (counting each reissuance
of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise
of ISOs exceed One Hundred Million (100,000,000) Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the
term of the Plan (the “ISO Limit”). Subject to Sections 2.2 and 11 hereof, in the event that the number of
Shares reserved for issuance under the Plan is increased, the ISO Limit shall be automatically increased by such number of Shares such
that the ISO Limit equals the greater of the initial ISO Limit (as set forth above) and (a) two (2) multiplied by (b) the number of Shares
reserved for issuance under the Plan.
2.2 Adjustment
of Shares. In the event that the number of outstanding shares of the Company’s Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or other change in the capital structure
of the Company affecting Shares without consideration, then in order to prevent diminution or enlargement of the benefits or potential
benefits intended to be made available under the Plan (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise
Prices of and number of Shares subject to outstanding Options and SARs, and (c) the Purchase Prices of and/or number of Shares subject
to other outstanding Awards will (to the extent appropriate) be proportionately adjusted, subject to any required action by the Board
or the stockholders of the Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will
be rounded down to the nearest whole Share, as determined by the Committee.
3. PLAN
FOR BENEFIT OF SERVICE PROVIDERS.
3.1
Eligibility. The Committee will have the authority
to select persons to receive Awards. ISOs (as defined in Section 4 hereof) may be granted only to employees (including officers and directors
who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 4 hereof) and all other
types of Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company;
provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising
transaction when Rule 701 is to apply to the Award granted for such services. A person may be granted more than one Award under this
Plan.
3.2
No Obligation to Employ. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer
on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary
or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participant’s employment or other relationship
at any time, with or without Cause.
4.
OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether
such Options will be Incentive Stock Options within the meaning of the Code (“ISOs”) or Nonqualified Stock
Options (“NQSOs”), the number of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following.
4.1
Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly
identify the Option as an ISO or an NQSO (“ Stock Option Agreement”), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply
with and be subject to the terms and conditions of this Plan.
4.2
Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to
grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will
be delivered to the Participant within a reasonable time after the granting of the Option.
4.3
Exercise Period. Options may be exercisable within the time or upon the events determined by the Committee in the
Award Agreement and may be awarded as immediately exercisable but subject to repurchase pursuant to Section 10 hereof or may be exercisable
within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided,
however, that (a) no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted;
and (b) no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary (“Ten Percent Stockholder”) will be exercisable
after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable
at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
4.4
Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and
shall not be less than the Fair Market Value per Share unless expressly determined in writing by the Committee on the Option’s
date of grant; provided that the Exercise Price of an ISO granted to a Ten Percent Stockholder will not be less than one
hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made
in accordance with Section 8 hereof.
4.5 Method
of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise
Agreement”) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement
will state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares purchased under such Exercise Agreement,
if any, and (c) such representations and agreements regarding Participant’s investment intent and access to information and other
matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Each Participant’s Exercise
Agreement may be modified by (i) agreement of Participant and the Company or (ii) substitution by the Company, upon becoming a public
company, in order to add the payment terms set forth in Section 8.1 that apply to a public company and such other terms as shall be necessary
or advisable in order to exercise a public company option. Upon exercise of an Option, Participant shall execute and deliver to the Company
the Exercise Agreement then in effect, together with payment in full of the Exercise Price for the number of Shares being purchased and
payment of any applicable taxes. No adjustment will be made for a dividend or other right for which the record date is prior to the date
the Shares are issued, except as provided in Section 2.2 of the Plan. Exercising an Option in any manner will decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option
is exercised.
4.6
Termination. Subject to earlier termination pursuant to Sections 11 and 13.3
hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject
to the following terms and conditions.
4.6.1
Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability
or for Cause, then the Participant may exercise such Participant’s Options only to the extent that such Options are exercisable
as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant,
if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee,
within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such
longer time period after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after
the date Participant ceases to be an employee deemed to be an NQSO) but in any event, no later than the expiration date of the Options.
4.6.2 Death
or Disability. If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within
three (3) months after a Termination other than for Cause), then Participant’s Options may be exercised only to the extent that
such Options ar e exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee.
Such options must be exercised by Participant (or Participant’s legal representative or authorized assignee), if at all, as to
all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve
(12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time
period, after the Termination Date as may be determined by the Committee, with any exercise beyond (a) three (3) months after the date
Participant ceases to be an employee when the Termination is for any reason other than the Participant’s death or disability, within
the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participant ceases to be an employee when the Termination
is for Participant’s disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no
later than the expiration date of the Options.
4.6.3
For Cause. If the Participant is terminated for Cause, the Participant may exercise such Participant’s Options, but
not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participant’s Options
shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.
4.7
Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on
any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for
the full number of Shares for which it is then exercisable.
4.8
Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect
to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive
stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000).
If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant
during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars
($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred
Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date (as defined in Section 13.1 hereof) to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.
4.9
Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize
the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of
a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 4.10 hereof,
the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided,
however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section
4.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.
4.10
No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will
be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this
Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant’s ISO under Section
422 of the Code.
5.
RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that
are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person
may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted
Stock Award, subject to the following terms and conditions.
5.1 Form
of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement (“ Restricted Stock Purchase Agreement”) that will be in such form (which need not be the same for
each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of
this Plan. The Restricted Stock Award will be accepted by the Participant’s execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement
is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment
for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
5.2
Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the
Committee on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price
must be made in accordance with Section 8 hereof.
5.3
Dividends and Other Distributions. Participants holding Restricted Stock will be entitled to receive all dividends
and other distributions paid with respect to such Shares, unless the Committee provides otherwise at the time of award. If any such dividends
or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the
Shares of Restricted Stock with respect to which they were paid.
5.4
Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Sections 9 and 10 hereof or,
with respect to a Restricted Stock Award to which Section 25102(o) is to apply, such other restrictions not inconsistent with Section
25102(o).
6. RESTRICTED
STOCK UNITS.
6.1 Awards
of Restricted Stock Units. A Restricted Stock Unit (“RSU”) is an Award covering a number of Shares
that may be settled in cash, or by issuance of those Shares at a date in the future. No Purchase Price shall apply to an RSU settled
in Shares. All grants of Restricted Stock Units will be evidenced by an Award Agreement that will be in such form (which need not be
the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. No RSU will have a term longer than ten (10) years from the date the RSU is granted.
6.2
Form and Timing of Settlement. To the extent permissible under applicable law, the Committee may permit a Participant to
defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral
satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder. Payment
may be made in the form of cash or whole Shares or a combination thereof, all as the Committee determines.
6.3
Dividend Equivalent Payments. The Board may permit Participants
holding RSUs to receive dividend equivalent payments on outstanding RSUs if and when dividends are paid to stockholders on Shares. In
the discretion of the Board, such dividend equivalent payments may be paid in cash or Shares and they may either be paid at the same
time as dividend payments are made to stockholders or delayed until when Shares are issued pursuant to the RSU grants and may be subject
to the same vesting requirements as the RSUs. If the Board permits dividend equivalent payments to be made on RSUs, the terms and conditions
for such payments will be set forth in the Award Agreement.
7. STOCK
APPRECIATION RIGHTS.
7.1
Awards of SARs. Stock Appreciation Rights (“SARs”) may be settled in cash, or Shares (which
may consist of Restricted Stock or RSUs), having a value equal to the value determined by multiplying the difference between the Fair
Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being settled.
All grants of SARs made pursuant to this Plan will be evidenced by an Award Agreement that will be in such form (which need not be the
same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions
of this Plan.
7.2
Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events
determined by the Committee and set forth in the Award Agreement governing such SAR. The Award Agreement shall set forth the Expiration
Date; provided that no SAR will be exercisable after the expiration of ten years from the date the SAR is granted.
7.3
Exercise Price. The Committee will determine the Exercise Price of the SAR when the SAR is granted, and which may not be
less than the Fair Market Value on the date of grant and may be settled in cash or in Shares.
7.4
Termination. Subject to earlier termination pursuant to Sections 11 and 13.1 hereof
and notwithstanding the exercise periods set forth in the Award Agreement, exercise of SARs will always be subject to the following terms
and conditions.
7.4.1
Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability or for
Cause, then the Participant may exercise such Participant’s SARs only to the extent that such SARs are exercisable as to Vested
Shares upon the Termination Date or as otherwise determined by the Committee. SARs must be exercised by the Participant, if at all, as
to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three
(3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time
period after the Termination Date as may be determined by the Committee) but in any event, no later than the expiration date of the SARs.
7.4.2 Death
or Disability. If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within
three (3) months after a Termination other than for Cause), then Participant’s SARs may be exercised only to the extent that such
SARs are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such SARs
must be exercised by Participant (or Participant’s legal representative or authorized assignee), if at all, as to all or some of
the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after
the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period after the Termination
Date as may be determined by the Committee) but in any event no later than the expiration date of the SARs.
7.4.3
For Cause. If the Participant is terminated for Cause, the Participant may exercise such Participant’s SARs, but not to
an extent greater than such SARs are exercisable as to Vested Shares upon the Termination Date and Participant’s SARs shall expire
on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.
8. PAYMENT
FOR PURCHASES AND EXERCISES.
8.1
Payment in General. Payment for Shares acquired pursuant to this Plan may be made in cash (by check) or, where expressly
approved for the Participant by the Committee and where permitted by law:
| (a) | by
cancellation of indebtedness of the Company owed to the Participant; |
(b)
by surrender of shares of the Company that are clear of all liens, claims, encumbrances or security interests and: (i) for which the
Company has received “full payment of the purchase price” within the meaning of SEC Rule 144 (and, if such shares were purchased
from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by
Participant in the public market;
(c)
by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that
Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless
the note is adequately secured by collateral other than the Shares; provided, further, that the portion of
the Exercise Price or Purchase Price, as the case may be, equal to the par value (if any) of the Shares must be paid in cash or other
legal consideration permitted by the laws under which the Company is then incorporated or organized;
(d)
by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e)
by participating in a formal cashless exercise program implemented
by the Committee in connection with the Plan;
(f)
subject to compliance with applicable law, provided that a public
market for the Company’s Common Stock exists, by exercising through a “same day sale” commitment from the Participant
and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased
sufficient to pay the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such
Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(g)
by any combination of the foregoing or any other method of payment
approved by the Committee.
8.2 Withholding
Taxes.
8.2.1
Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require
the Participant to remit to the Company an amount sufficient to satisfy applicable tax withholding requirements prior to the delivery
of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash
by the Company, such payment will be net of an amount sufficient to satisfy applicable tax withholding requirements.
8.2.2
Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise
or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to
be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum tax withholding obligation by electing
to have the Company withhold from the Shares to be issued up to the minimum number of Shares having a Fair Market Value on the date that
the amount of tax to be withheld is to be determined that is not more than the minimum amount to be withheld; or to arrange a ma ndatory
“sell to cover” on Participant’s behalf (without further authorization) but in no event will the Company withhold Shares
or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. Any elections to have
Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections
and be in writing in a form acceptable to the Committee.
9. RESTRICTIONS
ON AWARDS.
9.1
Transferability. Except as permitted by the Committee, Awards granted under this Plan, and any interest therein,
will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect
to NQSOs, by instrument to an inter vivos or testamentary trust in which the NQSOs are to be passed to beneficiaries upon the death of
the trustor (settlor), or by gift to “family member” as that term is defined in Rule 701, and may not be made subject to
execution, attachment or similar process. For the avoidance of doubt, the prohibition against assignment and transfer applies to a stock
option and, prior to exercise, the shares to be issued on exercise of a stock option, and pursuant to the foregoing sentence shall be
understood to include, without limitation, a prohibition against any pledge, hypothecation, or other transfer, including any short position,
any “put equivalent position” or any “call equivalent position” (in each case, as defined in Rule 16a-1 promulgated
under the Exchange Act). Unless an Award is transferred pursuant to the terms of this Section, during the lifetime of the Participant
an Award will be exercisable only by the Participant or Participant’s legal representative and any elections with respect to an
Award may be made only by the Participant or Participant’s legal representative. The terms of an Option shall be binding upon the
executor, administrator, successors and assigns of the Participant who is a party thereto.
9.2
Securities Law and Other Regulatory Compliance. Although this Plan is intended to be a written compensatory benefit
plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify
for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan which is required in law only because of Section 25102(o)
need not apply with respect to a particular Award to which Section 25102(o) will not apply. An Award will not be effective unless such
Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect
on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan,
the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals
from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion
of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect
compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or failure so do.
9.3
Exchange and Buyout of Awards. The Committee may, at any time or from time to time, authorize the Company, with
the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding
Awards. Without prior stockholder approval the Committee may reprice Options or SARs (and where such repricing is a reduction in the
Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided
to them). The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted
Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
10. RESTRICTIONS
ON SHARES.
10.1
Privileges of Stock Ownership. No Participant will have any of the rights of a stockholder with respect to any Shares
until such Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and
have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions
made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional
or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock
split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted
Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that
are repurchased as described in this Section 10.
10.2
Rights of First Refusal and Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or
its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee)
may propose to transfer to a third party, provided that such right of first refusal terminates upon the Company’s
initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act and (b) a right
to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by
the Participant following such Participant’s Termination at any time.
10.3
Escrow; Pledge of Shares. To enforce any restrictions on a Participant’s Shares, the Committee may require
the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved
by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such
restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the
certificate. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure
the payment of Participant’s obligation to the Company under the promissory note; provided, however,
that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any
event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s
Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written
pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released
from the pledge on a pro rata basis as the promissory note is paid.
10.4
Securities Law Restrictions. All certificates for Shares or other securities delivered under this Plan will be subject
to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions
under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or quoted.
11. CORPORATE
TRANSACTIONS.
11.1
Acquisitions or Other Combinations. In the event that the Company is subject to an Acquisition or Other Combination,
outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Acquisition or Other Combination, which need
not treat all outstanding Awards in an identical manner. Such agreement, without the Participant’s consent, shall provide for one
or more of the following with respect to all outstanding Awards as of the effective date of such Acquisition or Other Combination:
(a)
The continuation of such outstanding Awards by the Company (if the Company is the successor entity).
(b)
The assumption of outstanding Awards by the successor or acquiring entity (if any) in such Acquisition or Other Combination (or by any
of its Parents, if any), which assumption, will be binding on all Participants; provided that the exercise price and the number and nature
of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the
Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code. For the purposes of this Section 11, an
Award will be considered assumed if, following the Acquisition or Other Combination, the Award confers the right to purchase or receive,
for each Share subject to the Award immediately prior to the Acquisition or Other Combination, the consideration (whether stock, cash,
or other securities or property) received in the Acquisition or Other Combination by holders of Shares for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such consideration received in the Acquisition or Other Combination is
not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted
Stock Unit, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock in the Acquisition or Other Combination.
(c)
The substitution by the successor or acquiring entity in
such Acquisition or Other Combination (or by any of its Parents, if any) of equivalent awards with substantially the same terms for such
outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock
appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a)
and Section 409A of the Code).
(d) The
full or partial exercisability or vesting and accelerated expiration of outstanding Awards.
(e)
The settlement of the full value of such outstanding Award (whether
or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its Parent, if any) with a Fair
Market Value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled
without consideration if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code,
such payment may be made in installments and may be deferred until the date or dates when the Award would have become exercisable or
vested. Such payment may be subject to vesting based on the Participant’s continued service, provided that without the Participant’s
consent, the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become
vested or exercisable. For purposes of this Section 11.1(e), the Fair Market Value of any security shall be determined without regard
to any vesting conditions that may apply to such security.
(f) The
cancellation of outstanding Awards in exchange for no consideration.
Immediately following an
Acquisition or Other Combination, outstanding Awards shall terminate and cease to be outstanding, except to the extent such Awards, have
been continued, assumed or substituted, as described in Sections 11.1(a), (b) and/or Error! Reference source not found..
11.2
Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards
granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award
under this Plan in substitution of such other entity’s award or (b) assuming and/or converting such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan
if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity,
the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable
upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option or SAR rather than assuming
an existing option or stock appreciation right, such new Option or SAR may be granted with a similarly adjusted Exercise Price.
12. ADMINISTRATION.
12.1
Committee Authority. This Plan will be administered by the Committee or the Board if no Committee is created by
the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will
have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a)
construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
(b)
prescribe, amend, expand, modify and rescind or terminate rules
and regulations relating to this Plan;
| (c) | approve
persons to receive Awards; |
| (d) | determine
the form and terms of Awards; |
(e)
determine the number of Shares or other consideration subject to Awards granted under this Plan;
(f)
determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair
Market Value in connection with circumstances that impact the Fair Market Value, if necessary;
(g)
determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the
Company;
| (h) | grant
waivers of any conditions of this Plan or any Award; |
(i)
determine the terms of vesting, exercisability and payment of Awards to be granted pursuant to this Plan;
(j)
correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;
| (k) | determine
whether an Award has been earned; |
| (l) | extend
the vesting period beyond a Participant’s Termination Date; |
(m)
adopt rules and/or procedures (including the adoption of any subplan under
this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of
the United States;
(n)
delegate any of the foregoing to a subcommittee consisting of one or more
executive officers pursuant to a specific delegation as may otherwise be permitted by applicable law;
(o)
change the vesting schedule of Awards under the Plan prospectively in the event that the Participant’s service status changes
between full and part time status in accordance with Company policies relating to work schedules and vesting of awards; and
(p)
make all other determinations necessary or advisable in connection
with the administration of this Plan.
12.2
Committee Composition and Discretion. The Board may delegate full administrative authority over the Plan and Awards
to a Committee consisting of at least one member of the Board (or such greater number as may then be required by applicable law). Unless
in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be
made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 4.9 hereof, at any later time. Any
such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. To the
extent permitted by applicable law, the Committee may delegate to one or more officers of the Company the authority to grant an Award
under this Plan, provided that each such officer is a member of the Board.
12.3
Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders
of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options
and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in
specific cases.
12.4
Governing Law. This Plan and all agreements hereunder shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.
13. EFFECTIVENESS,
AMENDMENT AND TERMINATION OF THE PLAN.
13.1
Adoption and Stockholder Approval. This Plan will become effective on the date that it is adopted by the Board (the
“Effective Date”). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date,
the Board may grant Awards pursuant to this Plan; provided, however, that: (a) no Option or SAR may be exercised
prior to initial stockholder approval of this Plan; (b) no Option or SAR granted pursuant to an increase in the number of Shares approved
by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event
that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from
California’s securities qualification requirements provided by Section 25102(o) can apply shall be canceled, any Shares issued
pursuant to any such Award shall be canceled and any purchase of such Shares issued hereunder shall be rescinded; and (d) Awards (to
which only the exemption from California’s securities qualification requirements provided by Section 25102(o) can apply) granted
pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time
then required under Section 25102(o) shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase
of Shares subject to any such Award shall be rescinded.
13.2
Term of Plan. Unless earlier terminated as provided herein, this Plan will automatically terminate ten (10) years
after the later of (i) the Effective Date, or (ii) the most recent increase in the number of Shares reserved under Section 2 that was
approved by stockholders.
13.3
Amendment or Termination of Plan. Subject to Section 4.9 hereof, the Board may at any time (a) terminate or amend
this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan and (b) terminate any and all outstanding Options, SARs or RSUs upon a dissolution or liquidation of the Company, followed
by the payment of creditors and the distribution of any remaining funds to the Company’s stockholders; provided,
however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner
that requires such stockholder approval pursuant to Section 25102(o) or pursuant to the Code or the regulations promulgated under the
Code as such provisions apply to ISO plans. The termination of the Plan, or any amendment thereof, shall not affect any Share previously
issued or any Award previously granted under the Plan.
14.
DEFINITIONS. For all purposes of this Plan, the following terms will have the following meanings.
“Acquisition,” for purposes of Section
11, means:
(a)
any consolidation or merger in which the Company is a constituent
entity or is a party in which the voting stock and other voting securities of the Company that are outstanding immediately prior to the
consummation of such consolidation or merger represent, or are converted into, securities of the surviving entity of such consolidation
or merger (or of any Parent of such surviving entity) that, immediately after the consummation of such consolidation or merger, together
possess less than fifty percent (50%) of the total voting power of all voting securities of such surviving entity (or of any of its Parents,
if any) that are outstanding immediately after the consummation of such consolidation or merger;
(b)
a sale or other transfer by the holders thereof of outstanding voting stock and/or other voting securities of the Company possessing
more than fifty percent (50%) of the total voting power of all outstanding voting securities of the Company, whether in one transaction
or in a series of related transactions, pursuant to an agreement or agreements to which the Company is a party and that has been approved
by the Board, and pursuant to which such outstanding voting securities are sold or transferred to a single person or entity, to one or
more persons or entities who are Affiliates of each other, or to one or more persons or entities acting in concert; or
(c) the
sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company and/or any Subsidiary
or Subsidiaries of the Company, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole, (or, if
substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by one or more Subsidiaries, the sale or
disposition (whether by consolidation, merger, conversion or otherwise) of such Subsidiaries of the Company), except where such sale,
lease, transfer or other disposition is made to the Company or one or more wholly owned Subsidiaries of the Company (an “Acquisition
by Sale of Assets”).
“Affiliate”
of a specified person means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified (where, for purposes of this definition, the term “control”
(including the terms controlling, controlled by and under common control with) means the possession,
direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise.
“Award”
means any award pursuant to the terms and conditions of this Plan, including any Option, Restricted Stock Unit, Stock Appreciation Right
or Restricted Stock Award.
“Award Agreement”
means, with respect to each Award, the signed written or electronic agreement between the Company and the Participant setting forth the
terms and conditions of the Award as approved by the Committee. For purposes of the Plan, the Award Agreement may be executed via written
or electronic means.
“Board” means the Board of Directors
of the Company.
“Cause”
means Termination because of (a) Participant’s unauthorized misuse of the Company or a Parent or Subsidiary of the Company’s
trade secrets or proprietary information, (b) Participant’s conviction of or plea of nolo contendere to a felony or a crime involving
moral turpitude, (c) Participant’s committing an act of fraud against the Company or a Parent or Subsidiary of the Company or (d)
Participant’s gross negligence or willful misconduct in the performance of his or her duties that has had or will have a material
adverse effect on the Company or Parent or Subsidiary of the Company’ reputation or business.
“Code” means the Internal Revenue
Code of 1986, as amended.
“Committee”
means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
“Company” means zSpace, Inc., a
Delaware corporation, or any successor corporation.
“Disability”
means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
“Exchange Act” means the Securities
Exchange Act of 1934, as amended.
“Exercise Price” means the price
per Share at which a holder of an Option may purchase Shares issuable upon exercise of the Option.
“Fair Market Value” means, as of
any date, the value of a share of the Company’s Common Stock determined as follows:
(a)
if such Common Stock is then publicly traded on a national securities
exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
(b)
if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average
of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported,
as otherwise reported by any newspaper or other source as the Committee may determine); or
(c)
if none of the foregoing is applicable to the valuation in question, by the Committee in good faith.
“Option” means an award of an option
to purchase Shares pursuant to Section 4 of this Plan.
“Other Combination”
for purposes of Section 11 means any (a) consolidation or merger in which the Company is a constituent entity and is not the surviving
entity of such consolidation or merger or (b) any conversion of the Company into another form of entity; provided that
such consolidation, merger or conversion does not constitute an Acquisition.
“Parent”
of a specified entity means, any entity that, either directly or indirectly, owns or controls such specified entity, where for this purpose,
“control” means the ownership of stock, securities or other interests that possess at least a majority of the
voting power of such specified entity (including indirect ownership or control of such stock, securities or other interests).
“Participant”
means a person who receives an Award under this Plan. “Plan” means this 2017 Equity Incentive Plan, as
amended from time to time.
“Purchase Price” means
the price at which a Participant may purchase Restricted Stock pursuant to this Plan.
“Restricted Stock” means Shares
purchased pursuant to a Restricted Stock Award under this Plan.
“Restricted Stock Award” means an
award of Shares pursuant to Section 5 hereof.
“Restricted Stock Unit” or “RSU”
means an award made pursuant to Section 6 hereof.
“Rule 701” means Rule 701 et
seq. promulgated by the Commission under the Securities Act.
“SEC” means the Securities and Exchange
Commission.
“Section 25102(o)” means Section
25102(o) of the California Corporations Code. “Securities Act” means the Securities Act of 1933, as amended.
“Shares”
means shares of the Company’s Common Stock, $0.00001 par value per share, reserved for issuance under this Plan, as adjusted pursuant
to Sections 2.2 and 11 hereof, and any successor security.
“Stock Appreciation Right” or “SAR”
means an award granted pursuant to Section 7 hereof.
“Subsidiary”
means any entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than
the last entity in the unbroken chain owns stock or other equity securities representing fifty percent (50%) or more of the total combined
voting power of all classes of stock or other equity securities in one of the other entities in such chain.
“Termination”
or “Terminated” means, for purposes of this Plan with respect to a Participant, that the Participant has for
any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the
Company. A Participant will not be deemed to have ceased to provide services while the Participant is on a bona fide leave of absence,
if such leave was approved by the Company in writing. In the case of an approved leave of absence, the Committee may make such provisions
respecting crediting of service, including suspension of vesting of the Award (including pursuant to a formal policy adopted from time
to time by the Company) it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term
set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide
services and the effective date on which the Participant ceased to provide services (the “Termination Date”).
“Unvested Shares” means “Unvested
Shares” as defined in the Award Agreement for an Award.
“Vested Shares” means “Vested
Shares” as defined in the Award Agreement.
* * * * * * * * * * *
Exhibit 10.4
zSPACE, INC.
2024 EQUITY INCENTIVE PLAN
Article I
PURPOSE
The Plan’s purpose is to enhance the Company’s
ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing
these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities. Capitalized terms used in the Plan
are defined in Article XI.
Article II
ELIGIBILITY
Service Providers are eligible to be granted Awards
under the Plan, subject to the limitations described herein.
Article III
ADMINISTRATION AND DELEGATION
3.1 Administration.
The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant
Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority
to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal
Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply
omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards.
The Administrator may delegate its authority to one or more officers of the Company with respect to Awards that do not involve “insiders”
within the meaning of Section 16 of the Exchange Act. The acts of such delegates shall be treated as acts of the Administrator, and
such delegates shall report regularly to the Administrator regarding the delegated duties and responsibilities and any Awards granted.
The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having
or claiming any interest in the Plan or any Award.
3.2 Appointment
of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more
Committees. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.
Article IV
STOCK AVAILABLE FOR AWARDS
4.1 Number
of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, the maximum number of shares of Common
Stock in respect of which Awards may be granted or paid out under the Plan shall not initially exceed 12% of the company’s outstanding
common stock on a fully diluted basis on the Effective Date (the “Initial Overall Share Limit”), all of which
may be issued pursuant to the exercise of Incentive Stock Options. In the event of a change in the Common Stock of the Company that is
limited to a change in the designation thereof to “Capital Stock” or other similar designation, or to a change in the par
value thereof, or from par value to no par value, without increase or decrease in the number of issued shares, the shares resulting from
any such change shall be deemed to be the Common Stock for purposes of the Plan. Common Stock which may be issued under the Plan may be
either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open-market or in private transactions)
and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan.
4.2 Share Recycling. If all
or any part of an Award expires, lapses or is terminated, surrendered, repurchased, canceled without having been fully exercised or forfeited,
or exchanged for or settled in cash, in any case, in a manner that results in the Company not issuing any Shares covered by the Award
or acquiring Shares at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for
such Shares, the unused or reacquired Shares covered by the Award will, as applicable, become or again be available for Award grants
under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable
exercise or purchase price of an Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the
Company from the Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available
for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count
against the Overall Share Limit.
4.3 Substitute
Awards. In connection with an entity’s merger or consolidation with the Company or the Company’s acquisition of an entity’s
property or stock, the Administrator may grant Awards in substitution for any options, stock or stock-based awards granted before such
merger or consolidation by such entity or its affiliate in accordance with Applicable Laws. Substitute Awards may be granted on such terms
as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the
Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided
above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares
that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired
by the Company or any Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan
approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant under such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula
used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to
such acquisition or combination) may be used for new Awards under the Plan and shall not reduce or affect the Overall Share Limit; provided
that such new Awards shall not be made after the date grants could have been made under the pre-existing plan, absent the acquisition
or combination, and shall only be made to individuals who were not Service Providers prior to such acquisition or combination.
4.4 Non-Employee
Director Compensation. The Board may make Awards to non-employee Directors from time to time, subject to the limitations in the Plan.
The Board will determine the terms, conditions and amounts of all such non-employee Director Awards in its discretion and pursuant to
the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from
time to time. Notwithstanding the foregoing, the sum of any cash compensation, other compensation, and the value (determined as of the
grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto)
of Awards granted to a non-employee Director as compensation for services as a non-employee Director may not exceed $250,000 in any calendar
year. The Board may, in its discretion, make exceptions to this limit in extraordinary circumstances; provided that the non-employee Director
receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation
decisions involving non-employee Directors.
Article V
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 General.
(a) The Administrator
may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations
in the Plan that apply to Incentive Stock Options. All Options shall be separately designated as Incentive Stock Options or Non-Qualified
Stock Options at the time of grant. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation
Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of
each Option and Stock Appreciation Right.
(b) A
Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from
the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if
any, of the Fair Market Value of one Share on the date of exercise over the exercise price of the Stock Appreciation Right by the number
of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator
may impose. A Stock Appreciation Right may be payable in cash, Shares valued at Fair Market Value or a combination of the two, as the
Administrator may determine or provide in the Award Agreement.
5.2 Exercise
Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise
price in the Award Agreement. Unless otherwise determined by the Administrator, the exercise price will not be less than 100% of the Fair
Market Value of one Share on the grant date of the Option or Stock Appreciation Right.
5.3 Duration.
Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that, unless
otherwise determined by the Administrator in accordance with Applicable Laws, the term of an Option or Stock Appreciation Right will not
exceed ten years. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right,
violates the non-competition, non-solicitation, confidentiality or other similar restrictive covenant provisions of any employment contract,
confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the
right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant
shall terminate immediately upon such violation and cease to be exercisable, unless the Administrator otherwise determines.
5.4 Vesting
of Options and Stock Appreciation Rights. Each Option or Stock Appreciation Right may, but need not, vest and therefore become exercisable
in periodic installments that may, but need not, be equal. The Option or Stock Appreciation Right may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based on a performance goal, which may be based on the Performance
Criteria, or other criteria) as the Administrator may deem appropriate. The vesting provisions of individual Options and Stock Appreciation
Rights may vary.
5.5 Exercise.
(a) Options
and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator
approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with,
as applicable, payment in full (i) as specified in Section 5.6 of the exercise price for the number of Shares for which the
Award is exercised and (ii) as specified in Section 9.8 for any applicable taxes. Unless the Administrator otherwise determines,
an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
(b) If
an Option is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the
Option will not be first exercisable for any Shares until at least six (6) months following the date of grant of the Option (although
the Option may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt
Employee dies or suffers a Disability, (ii) upon a Change in Control in which such Option is not assumed, continued, or substituted,
or (iii) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement, in another
agreement between the Participant and the Company or a Subsidiary, or, if no such definition, in accordance with the then current employment
policies and guidelines of the Company or employing Subsidiary), the vested portion of any Option may be exercised earlier than six (6) months
following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection
with the exercise or vesting of an Option will be exempt from the Participant’s regular rate of pay. To the extent permitted and/or
required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection
with the exercise, vesting, or issuance of any Shares under any other Award will be exempt from the employee’s regular rate of pay,
the provisions of this Section 5.5(b) will apply to all Awards and are hereby incorporated by reference into such Award Agreements.
5.6 Payment
Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws,
the exercise price of an Option must be paid by:
(a) cash,
wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Company may limit the
use of one of the foregoing payment forms if one or more of the payment forms below is permitted;
(b) if
there is a public market for Shares at the time of exercise, unless the Administrator otherwise determines, (i) delivery (including
electronically or telephonically to the extent permitted by the Administrator) of an irrevocable and unconditional undertaking by a broker
acceptable to the Administrator to deliver promptly to the Company sufficient funds to pay the exercise price, or (ii) the Participant’s
delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Administrator to deliver
promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such
time as may be required by the Administrator;
(c) to
the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued
at their Fair Market Value which meet the conditions established by the Administrator to avoid adverse accounting consequences to the
Company (as determined by the Administrator);
(d) to
the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market
Value on the exercise date; or
(e) to
the extent permitted by the Administrator, any combination of the above payment forms.
5.7 Termination
of Service.
(a) General.
Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have been approved by the Administrator,
or as otherwise determined by the Administrator, following a Participant’s Termination of Service (other than upon the Participant’s
death or Disability), a Participant may exercise an Option or Stock Appreciation Right (to the extent that the Participant was entitled
to exercise such Option or Stock Appreciation Right as of the date of such Termination of Service) but only within such period of time
ending on the earlier of (i) the date three (3) months following the Participant’s Termination of Service or (ii) the
expiration of the term of the Option or Stock Appreciation Right as set forth in the Award Agreement. If, after Termination of Service,
the Participant does not exercise the Option or Stock Appreciation Right within the time specified in the Award Agreement, the Option
or Stock Appreciation Right shall terminate and cease to be exercisable. Notwithstanding the foregoing, if the Termination of Service
is by the Company or any Subsidiary for Cause, all outstanding Options and Stock Appreciation Rights (whether or not vested) shall immediately
terminate and cease to be exercisable.
(b) Extension
of Termination Date. The Administrator may provide in a Participant’s Award Agreement that if the exercise of the Option or
Stock Appreciation Right following the Participant’s Termination of Service would be prohibited because the issuance of Shares
would violate the registration requirements under the Securities Act or any other federal or state securities law or the rules of
any securities exchange or interdealer quotation system, then the Option or Stock Appreciation Right shall terminate on the earlier of
(i) the expiration of the term of the Option or Stock Appreciation Right or (ii) the date three (3) months following the
end of the period during which the exercise of the Option or Stock Appreciation Right would be in violation of such registration or other
securities law requirements.
(c) Disability
of Participant. Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have been approved
by the Administrator, or as otherwise determined by the Administrator, following a Participant’s Termination of Service as a result
of the Participant’s Disability, a Participant may exercise an Option or Stock Appreciation Right (to the extent that the Participant
was entitled to exercise such Option or Stock Appreciation Right as of the date of such Termination of Service) but only within such period
of time ending on the earlier of (i) the date twelve (12) months following the Participant’s Termination of Service or (ii) the
expiration of the term of the Option or Stock Appreciation Right as set forth in the Award Agreement. If, after Termination of Service,
the Participant does not exercise the Option or Stock Appreciation Right within the time specified in the Award Agreement, the Option
or Stock Appreciation Right shall terminate and cease to be exercisable.
(d) Death
of Participant. Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have been approved
by the Administrator, or as otherwise determined by the Administrator, following a Participant’s Termination of Service as a result
of the Participant’s death, the Option or Stock Appreciation Right may be exercised (to the extent the Participant was entitled
to exercise such Option or Stock Appreciation Right as of the date of death) by the Participant’s estate, by a person who acquired
the right to exercise the Option or Stock Appreciation Right by bequest or inheritance or by a person designated to exercise the Option
or Stock Appreciation Right upon the Participant’s death, but only within such period of time ending on the earlier of (i) the
date twelve (12) months following the date of death or (ii) the expiration of the term of the Option or Stock Appreciation Right
as set forth in the Award Agreement. If, after the Participant’s death, the Option or Stock Appreciation Right is not exercised
within the time specified in the Award Agreement, the Option or Stock Appreciation Right shall terminate and cease to be exercisable.
5.8 Additional
Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its
present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any
other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is
granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value of one Share on the
Option’s grant date, and the term of the Option will not exceed five (5) years. All Incentive Stock Options will be subject
to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give
prompt notice to the Company of dispositions or other transfers of Shares acquired under the Option made within (a) two (2) years
from the grant date of the Option or (ii) one (1) year after the transfer of such Shares to the Participant, with such notice
specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption
of indebtedness or other consideration, in such disposition or other transfer. Neither the Company, nor any Subsidiary, nor the Administrator,
nor any of their Affiliates will be liable to a Participant, or any other party, if an Option fails or ceases to qualify as an “incentive
stock option” under Section 422 of the Code. Any Option or portion thereof that fails to qualify as an “incentive stock
option” under Section 422 of the Code for any reason will be a Non-Qualified Stock Option.
Article VI
RESTRICTED STOCK; RESTRICTED STOCK UNITS
6.1 General.
(a) The
Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Company’s
right to repurchase from the Participant all or part of such Shares at their issue price or other stated or formula price (or to require
forfeiture of such Shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable
restriction period(s) that the Administrator establishes for such Award.
(b) The
Administrator may grant Restricted Stock Units to any Service Provider, which Awards may be subject to vesting and forfeiture conditions,
as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for
each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
6.2 Restricted
Stock.
(a) Stockholder
Rights. Subject to any restrictions set forth in the Award Agreement, Participants holding Restricted Stock generally shall have the
rights and privileges of a stockholder with respect to such Shares, including the right to vote such Shares, and the right to dividends
as provided in Section 6.2(b).
(b) Dividends.
Participants holding Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator
provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions
are paid in Shares, or consist of property other than an ordinary cash dividend, the Shares or other property will be subject to the same
restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid.
(c) Stock
Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates
issued in respect of Restricted Stock, together with a stock power endorsed in blank.
(d) Section 83(b) Election.
If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the
grant date, rather than as of the date(s) upon which such Participant would otherwise be taxable under Section 83(a) of
the Code, such Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with
the Internal Revenue Service (along with proof of the timely filing thereof).
6.3 Restricted
Stock Units.
(a) Settlement.
The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the
Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended
to comply with Section 409A.
(b) Stockholder
Rights. A Participant will not have any rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless
and until the Shares are delivered in settlement of the Restricted Stock Unit.
(c) Dividend
Equivalents. Prior to settlement or forfeiture, Restricted Stock Units awarded under the Plan may, at the Administrator’s discretion,
provide for a right to Dividend Equivalents. Such right entitles the holder to be credited with an amount equal to all dividends paid
on one Share while the Restricted Stock Unit is outstanding. Dividend Equivalents may be converted into additional Restricted Stock Units.
Settlement of Dividend Equivalents may be made in the form of cash, Shares, other securities, other property, or in a combination of the
foregoing. Prior to distribution, any Dividend Equivalents shall be subject to the same conditions and restrictions as the Restricted
Stock Units to which they attach.
Article VII
OTHER STOCK OR CASH BASED AWARDS
7.1 The
Administrator may grant Other Stock or Cash Based Awards to any Service Provider, including Awards to receive Shares in the future or
Awards to receive annual or other periodic or long-term cash bonus awards. The Administrator will determine and set forth in the Award
Agreement the terms and conditions for each Other Stock or Cash Based Award, including any purchase price, performance goal (which may
be based on the Performance Criteria), transfer restrictions, and vesting conditions.
7.2 Other
Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment
in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or
other property, as the Administrator determines.
Article VIII
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
8.1 Equity
Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the
Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include
adjusting the number and type of securities subject to each outstanding Award, the Award’s exercise price (if applicable), granting
additional Awards to Participants, and making cash payments to Participants. The adjustments provided under this Section 8.1 will
be nondiscretionary, final, and binding on all persons, including the affected Participant and the Company; provided that the Administrator
will determine whether an adjustment is equitable.
8.2 Corporate
Transactions. In the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other
property); reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, or dissolution;
sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company or sale or exchange of Shares or
other securities of the Company; Change in Control; issuance of warrants or other rights to purchase Shares or other securities of the
Company; other similar corporate transaction or event; other unusual or nonrecurring transaction or event affecting the Company or its
financial statements; or any change in any Applicable Laws or accounting principles, the Administrator, is authorized to take action as
it deems appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Administrator
to be made available under the Plan or with respect to any Award, (y) facilitate such transaction or event or (z) give effect
to such changes in Applicable Laws or accounting principles. The Administrator may take such action either in the Award Agreement or by
action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Laws or
accounting principles may be made within a reasonable period of time after such change). The Administrator’s action(s) may
include, but shall not be limited to, any one or more of the following actions:
(a) To provide
for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that
could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s
rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise
or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less
than zero, then the Award may be terminated without payment;
(b) To
provide that such Award shall vest and, to the extent applicable, be exercisable as to all Shares covered thereby, notwithstanding anything
to the contrary in the Plan or the provisions of such Award;
(c) To
provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or be substituted for
by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments
as to the number and types of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d) To
make adjustments in the number and type of shares (or other securities or property) subject to such Award and/or with respect to which
new Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof on the
maximum number and type of shares which may be issued) and/or in the terms and conditions of (including the exercise or purchase price
or applicable performance goals), and the criteria included in, outstanding Awards;
(e) To
replace such Award with other rights or property selected by the Administrator; and/or
(f) To
provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3 Administrative
Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or
other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change
affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar
transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty (60) days
before or after such transaction.
8.4 General.
(a) Except as
expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision
or consolidation of Shares; dividend payment; increase or decrease in the number of shares of any class; or dissolution, liquidation,
merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under
Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of shares of any class, or securities
convertible into shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award
or the Award’s exercise or purchase price.
(b) The
existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s
right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital
structure or its business, (ii) any merger, consolidation, dissolution or liquidation of the Company or sale of Company assets or
(iii) any sale or issuance of securities, including securities with rights superior to those of the Shares.
(c) The
Administrator may treat Participants and Awards (or portions thereof) differently from other Participants or other Awards under this Article VIII,
and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
Article IX
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 Transferability.
Except as the Administrator may determine or provide in an Award Agreement, Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to
the Administrator’s consent for Awards other than Incentive Stock Options, pursuant to a domestic relations order, and, during the
life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context,
will include references to a Participant’s authorized transferee that the Administrator specifically approves.
9.2 Documentation.
Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
9.3 Discretion.
Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each
Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4 Default
Vesting. Unless otherwise set forth in an individual Award Agreement, each Award shall vest over a three (3) year period, with
one-third (1/3rd) of the Award vesting on the first annual anniversary of the date of grant, with the remainder of the Award vesting monthly
thereafter.
9.5 Leaves
of Absence.
(a) Unless
the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any Employee’s unpaid leave of
absence and will resume on the date the Employee returns to work on a regular schedule as determined by the Administrator; provided,
however, that no vesting credit will be awarded for the time vesting has been suspended during such leave of absence. A Service
Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or the employing Subsidiary,
although any leave of absence not provided for in the applicable employee manual of the Company or employing Subsidiary needs to be approved
by the Administrator, or (ii) transfers between locations of the Company or between the Company, its parent, or any Subsidiary.
(b) For purposes
of Incentive Stock Options, no leave of absence may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or employing Subsidiary is not
so guaranteed, then three (3) months following the 91st day of such leave any Incentive Stock Option held by the Participant will
cease to be treated as an Incentive Stock Option and will be treated for federal tax purposes as a Non-qualified Stock Option.
9.6 Other
Change in Status. Subject to compliance with Applicable Laws, including Section 409A of the Code, in the event a Service Provider’s
regular level of time commitment in the performance of services for the Company, its parent, or any Subsidiary is reduced (for example,
and without limitation, if the Service Provider is an Employee of the Company and the Employee has a change in status from a full-time
Employee to a part-time Employee) after the date of grant of any Award to the Service Provider, the Administrator has the right in its
sole discretion to (a) make a corresponding reduction in the number of Shares subject to any portion of such Award that is scheduled
to vest or become payable after the date of such change in time commitment, and (b) in lieu of or in combination with such a reduction,
extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Service Provider will have no
right with respect to any portion of the Award that is so reduced or extended.
9.7 Effect
of Termination of Service; Change in Status. The Administrator will determine, in its sole discretion, the effect of all matters and
questions relating to any Termination of Service, including, without limitation, (a) whether a Termination of Service has occurred,
(b) whether a Termination of Service resulted from a discharge for Cause, (c) whether a particular leave of absence constitutes
a Termination of Service, (d) whether a change in a Participant’s Service Provider status affects an Award, and (e) the
extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or
Designated Beneficiary may exercise rights under an Award, if applicable.
9.8 Withholding.
(a) Each
Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by Applicable
Laws to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability. The Company
may deduct an amount sufficient to satisfy such tax obligations based on the applicable statutory withholding rates (or such other rate
as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due
to a Participant.
(b) Subject
to Section 10.8 and any Company insider trading policy (including blackout periods), a Participant may satisfy such tax obligations
(i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, provided that the
Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the
extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the
tax obligation, valued at their Fair Market Value (provided such delivery does not create adverse accounting consequences to the Company,
as determined by the Administrator), (iii) if there is a public market for Shares at the time the tax obligations are satisfied,
unless the Administrator otherwise determines, (A) delivery (including electronically or telephonically to the extent permitted by
the Administrator) of an irrevocable and unconditional undertaking by a broker acceptable to the Administrator to deliver promptly to
the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Administrator of a copy of
irrevocable and unconditional instructions to a broker acceptable to the Administrator to deliver promptly to the Company cash or a check
sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator,
or (iv) to the extent permitted by the Administrator, any combination of the foregoing payment forms. If any tax withholding obligation
will be satisfied under clause (ii) of the immediately preceding sentence by the Administrator’s retention of Shares from the
Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Administrator
may elect to instruct any broker determined acceptable to the Administrator for such purpose to sell on the applicable Participant’s
behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee. Each Participant’s
acceptance of an Award under the Plan will constitute the Participant’s authorization to the Administrator and instruction and authorization
to such broker to complete the transactions described in the preceding sentence.
9.9 Amendment
of Award; Repricing.
(a) The
Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different
type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participant’s
consent to such action will be required unless (i) the action does not materially and adversely affect the Participant’s rights
under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6.
(b) The
Administrator may, subject to approval by the stockholders of the Company if required by Applicable Laws, (i) reduce the exercise
price of outstanding Options or Stock Appreciation Rights, (ii) cancel outstanding Options or Stock Appreciation Rights in exchange
for cash, other Awards or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original
Options or Stock Appreciation Rights, or (iii) take such other action that is considered a “repricing” for purposes of
Applicable Laws.
9.10 Conditions
on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously
delivered under the Plan until (a) all Award conditions have been met or removed to the Administrator’s satisfaction, (b) as
determined by the Administrator, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including
any applicable securities laws and stock exchange or stock market rules and regulations, and (c) the Participant has executed
and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable
Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines
is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell
such Shares.
9.11 Acceleration.
The Administrator may at any time provide that an Award will become immediately vested and fully or partially exercisable, free of some
or all restrictions or conditions, or otherwise fully or partially realizable.
Article X
MISCELLANEOUS
10.1 No Right
to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not
be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly
reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim
under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2 No
Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights
as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding
any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required
to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded
in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock
certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3 Effective
Date and Term of Plan. The Plan will become effective on the Effective Date and, unless earlier terminated by the Board, will remain
in effect until the earlier of (a) the earliest date as of which all Awards granted under the Plan have been satisfied in full or
terminated and no Shares approved for issuance under the Plan remain available to be granted under new Awards or (b) the tenth (10th)
anniversary of the earlier of the date the Plan is approved by the Board or the date the Plan is approved by the Company’s stockholders.
If the Plan is not approved by the Company’s stockholders, the Plan will not become effective and no Awards will be granted under
the Plan.
10.4 Amendment
of Plan. The Board and the Administrator may each amend, suspend or terminate the Plan at any time; provided that no amendment, other
than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without
the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after Plan termination
or expiration of the Plan’s term. Awards outstanding at the time of any Plan suspension or termination will continue to be governed
by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of
any Plan amendment to the extent necessary to comply with Applicable Laws.
10.5 Provisions
for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside
the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of
such foreign jurisdictions with respect to tax, securities, currency, employment, employee benefits or other matters.
10.6 Section 409A.
(a) General.
The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences,
interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the
Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other
actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended
tax treatment of Awards, including any such actions intended to (i) exempt this Plan or any Award from Section 409A, or (ii) comply
with Section 409A. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A
or otherwise. The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest
under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation
or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to
taxes, penalties or interest under Section 409A.
(b) Separation
from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement
of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes
under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A),
whether such “separation from service” occurs upon or after the Termination of Service of a Participant. For purposes of
this Plan or any Award Agreement relating to an Award that constitutes “nonqualified deferred compensation” under Section 409A,
references to a “termination,” “termination of employment,” Termination of Service or like terms means a “separation
from service” (within the meaning of Section 409A).
(c) Payments
to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment of “nonqualified
deferred compensation” to a “specified employee” (as defined under Section 409A and as the Administrator determines)
due to such Participant’s “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of
the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until
the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following
such delay period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred
compensation” payable more than six months following the Participant’s “separation from service” will be paid
at the time or times the payments are otherwise scheduled to be made. Furthermore, notwithstanding any contrary provision of the Plan
or any Award Agreement, any payment of “nonqualified deferred compensation” under the Plan that may be made in installments
shall be treated as a right to receive a series of separate and distinct payments.
10.7 Limitations
on Liability. Notwithstanding any other provision of the Plan or any Award Agreement, no individual acting as a director, officer,
other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or
any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will
not be personally liable with respect to the Plan or any Award because of any contract or other instrument executed in his or her capacity
as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold
harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated
any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’
fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission
concerning this Plan or any Award unless arising from such person’s own fraud or bad faith.
10.8 Lock-Up
Period. The Company may, at the request of any underwriter representative, in connection with registering the offering of any Company
securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares
or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement
filed under the Securities Act, or such longer period as determined by the underwriter.
10.9 Data
Privacy.
(a) As
a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic
or other form, of personal data as described in this section by and among the Company and its Subsidiaries and Affiliates exclusively
for implementing, administering and managing the Participant’s participation in the Plan. The Company and its Subsidiaries and Affiliates
may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate;
social security, insurance number or other identification number; salary; nationality; job title(s); any shares or securities held by
the Participant in the Company or its Subsidiaries and Affiliates; and any Award details, to implement, manage and administer the Plan
and Awards (the “Data”).
(b) The Company
and its Subsidiaries and Affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s
participation in the Plan, and the Company and its Subsidiaries and Affiliates may transfer the Data to third parties assisting the Company
with Plan implementation, administration and management. These recipients may be located in the jurisdiction where the Participant is
located or elsewhere, and the jurisdiction where the Participant is located may have different data privacy laws and protections than
the jurisdiction where the recipient is located. By accepting an Award, each Participant authorizes such recipients to receive, possess,
use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation
in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect
to deposit any Shares.
(c) The
Company may cancel a Participant’s ability to participate in the Plan and, in the Administrator’s discretion, forfeit any
outstanding Awards if the Participant withdraws the consents in this Section 10.9. For more information on the consequences of withdrawing
consent, Participants may contact their local human resources representative.
10.10 Severability.
If any portion of the Plan, or any action taken under it, is held illegal or invalid for any reason, the illegality or invalidity will
not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been
excluded, and the illegal or invalid action will be null and void.
10.11 Governing
Documents. If any conflict occurs between the Plan and any Award Agreement or other written agreement between a Participant and the
Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award
Agreement or other written document that a specific provision of the Plan will not apply.
10.12 Governing
Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding
any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
10.13 Forfeiture
Events; Claw-back Provisions.
(a) The
Administrator may specify in an Award Agreement that the Participant’s rights, payments and benefits with respect to an Award shall
be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain events, in addition to applicable vesting
conditions of an Award. Such events may include, without limitation, breach of non-competition, non-solicitation, confidentiality, or
other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant, a Participant’s
Termination of Service for Cause, or other conduct by the Participant that is detrimental to the business or reputation of the Company
and/or its Subsidiaries and Affiliates.
(b) All
Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives related to an Award
or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back, recovery, or recoupment policy
as in effect from time to time, including any policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform
and Consumer Protection Act and any rules or regulations promulgated thereunder). In addition, the Administrator may include such
other claw-back, recovery, or recoupment provisions in an Award Agreement as it determines is necessary or appropriate.
10.14 Titles
and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text,
rather than such titles or headings, will control.
10.15 Conformity
to Securities Laws. As a condition for receiving any Award, each Participant acknowledges that the Plan and each Award is intended
to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will
be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will
be deemed amended as necessary to conform to Applicable Laws.
10.16 Relationship
to Other Benefits. The benefits and rights provided under the Plan are wholly discretionary and, although provided by the Company,
do not constitute regular or periodic payments. No payment under the Plan will be considered part of a Participant’s salary or compensation
or taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare, severance,
resignation, redundancy or other end of service payments, or other benefit plan of the Company or any Subsidiary except as expressly provided
in writing in such other plan or an agreement thereunder.
10.17 Broker-Assisted
Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with
respect to the Plan or any Award, including amounts to be paid under Section 9.5(b)(iii): (a) any Shares to be sold through
the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares
may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the
applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant
agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any sale; (d) to the extent
the Company or its designee receives sale proceeds that exceed the amount owed, the Company will pay such excess in cash to the applicable
Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for a sale at
any particular price; and (f) in the event the proceeds of a sale are insufficient to satisfy the Participant’s obligation,
the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy
any remaining portion of the Participant’s obligation.
10.18 Unfunded
Plan. The Plan shall be unfunded. Neither the Company, the Board nor the Administrator shall be required to establish any special
or separate fund or to segregate any assets to assure the performance of its obligations under the Plan.
10.19 Fractional
Shares. No fractional Shares shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, additional
Awards or other securities or property shall be issued or paid in lieu of fractional Shares or whether any fractional Shares should be
rounded, forfeited or otherwise eliminated.
10.20 Section 16.
It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3
so that Participants will be entitled to the benefit of Rule 16b-3 (or any other rule promulgated under Section 16 of the
Exchange Act) and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation
of any provision of the Plan would conflict with the intent expressed in this Section 10.20, such provision to the extent possible
shall be interpreted and/or deemed amended so as to avoid such conflict.
Article XI
DEFINITIONS
As used in the Plan, the following words and phrases will have the
following meanings:
11.1 “Administrator”
means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.
11.2 “Affiliate”
means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common
control with, the Company.
11.3 “Applicable
Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities,
tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which
the Shares are listed or quoted and the applicable laws and rules of any country or other jurisdiction where Awards are granted.
11.4 “Award”
means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Dividend Equivalents or Other Stock or Cash Based Awards.
11.5 “Award
Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions
as the Administrator determines, consistent with and subject to the Plan.
11.6 “Board”
means the Board of Directors of the Company.
11.7 “Cause”
means Termination because of (a) Participant’s unauthorized misuse of the Company or a Parent or Subsidiary of the Company’s
trade secrets or proprietary information, (b) Participant’s conviction of or plea of nolo contendere to a felony or a crime
involving moral turpitude, (c) Participant’s committing an act of fraud against the Company or a Parent or Subsidiary of the
Company or (d) Participant’s gross negligence or willful misconduct in the performance of his or her duties that has had or
will have a material adverse effect on the Company or Parent or Subsidiary of the Company’s reputation or business.
11.8 “Change
in Control” means and includes each of the following:
(a) A
transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed
with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and
(ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such
terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee
benefit plan maintained by the Company or any of its Subsidiaries, or a “person” that, prior to such transaction, directly
or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3) of securities of the Company possessing more than fifty percent (50%) of the total combined voting
power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any
twelve (12) month period, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other
than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in
subsections (a) or (c)) whose election to the Board or nomination for election by the Company’s stockholders was approved
by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the twelve (12)
month period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;
or
(c) The
consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries)
of (i) a merger, consolidation, reorganization, or business combination; (ii) a sale or other disposition of all or substantially
all of the Company’s assets in any single transaction or series of related transactions or (iii) the acquisition of assets
or stock of another entity, in each case other than a transaction:
(A) which
results in the Company’s voting securities outstanding immediately before the transaction continuing to represent, directly or indirectly,
at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction,
where “Successor Entity” means the Company or the person that owns or controls all or substantially all
of the Company’s assets as a result of the transaction or otherwise succeeds to the business of the Company, and
(B) after
which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of
the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (B) as beneficially
owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in
the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control
constitutes a payment event with respect to any Award (or portion of any Award) that constitutes “nonqualified deferred compensation”
under Section 409A, to the extent necessary to avoid taxes under Section 409A, the transaction or event described in subsection
(a), (b) or (c) must also constitute a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred, the date of the occurrence
of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination
of whether a Change in Control constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5),
shall be consistent with such regulation.
11.9 “Code”
means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.10 “Committee”
means one or more committees or subcommittees of the Board or otherwise consisting of one or more Directors (or executive officers, to
the extent Applicable Laws permit). To the extent required to comply with the provisions of Rule 16b-3, it is intended that each
member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3,
a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as
a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award that is otherwise validly granted
under the Plan.
11.11 “Common
Stock” means the common stock, $0.0001 par value per share, of the Company, or such other securities of the Company as
may be designated by the Administrator from time to time in substitution thereof.
11.12 “Company”
means zSpace, Inc., a Delaware corporation, or any successor.
11.13 “Consultant”
means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant
or adviser: (a) renders bona fide services to the Company (or its parent or Subsidiary); (b) renders services not in connection
with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market
for the Company’s securities; and (c) is a natural person.
11.14 “Designated
Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines,
to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a Participant’s
effective designation, “Designated Beneficiary” will mean the Participant’s estate.
11.15 “Director”
means a Board member.
11.16 “Disability”
means, unless the applicable Award Agreement says otherwise, that the Participant is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term
of an Incentive Stock Option pursuant to Section 5.7(c) hereof, the term “Disability” shall have the meaning ascribed
to it within the meaning of Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall
be determined under procedures established by the Administrator. Except in situations where the Administrator is determining Disability
for purposes of the term of an Incentive Stock Option, the Administrator may rely on any determination that a Participant is disabled
for purposes of benefits under any long-term disability plan maintained by the Company or any of its Subsidiaries or Affiliates in which
the Participant participates.
11.17 “Dividend
Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of
cash dividends paid on Shares.
11.18 “Effective
Date” means the date as of which this Plan is adopted by the Board, subject to the approval of the Plan by the Company’s
stockholders in accordance with Section 422 of the Code and the regulations promulgated thereunder. If such approval is not obtained,
this Plan and any Awards granted under the Plan shall be null and void and of no force and effect.
11.19 “Employee”
means any employee of the Company or any of its Subsidiaries.
11.20 “Equity
Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock
split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares or the share
price of Common Stock and causes a change in the per share value of the Common Stock underlying outstanding Awards.
11.21 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
11.22 “Fair
Market Value” means, as of any date, the value of Common Stock determined as follows: (a) if the Common Stock is readily
tradable on an established securities market, its Fair Market Value will be the closing sales price for such Common Stock as quoted on
such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported
in The Wall Street Journal or another source the Administrator deems reliable; (b) if the Common Stock is not readily tradable on
an established securities market but is quoted on a national market or other quotation system, its Fair Market Value will be the closing
sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred,
as reported in The Wall Street Journal or another source the Administrator deems reliable; or (c) if the Common Stock is not readily
tradable on an established securities market, its Fair Market Value will be determined in good faith by the Administrator; provided, in
any case the Administrator may determine the Fair Market Value in its discretion to the extent such determination does not constitute
a “material revision” to the Plan under applicable stock exchange or stock market rules and regulations (or otherwise
require stockholder approval).
Notwithstanding the preceding, for federal, state,
and local income tax reporting purposes and for such other purposes as the Administrator deems appropriate, Fair Market Value shall be
determined by the Administrator in accordance with uniform and nondiscriminatory standards adopted by it from time to time. In addition,
the determination of Fair Market Value in all cases shall be in accordance with the requirements set forth under Section 409A to
the extent necessary for an Award to comply with, or be exempt from, Section 409A. The Administrator’s determination of Fair
Market Value shall be conclusive and binding on all persons.
11.23 “Greater
Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined
in Section 424(e) and (f) of the Code, respectively.
11.24 “Incentive
Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422
of the Code.
11.25 “Initial
Overall Share Limit” has the meaning set forth in Section 4.1.
11.26 “Non-Qualified
Stock Option” means an Option not intended or not qualifying as an Incentive Stock Option.
11.27 “Option”
means an option to purchase Shares.
11.28 “Other
Stock or Cash Based Awards” means Awards of cash, Shares, or other property that are valued wholly or partially by referring
to, or are otherwise based on, Shares.
11.29 “Participant”
means a Service Provider who has been granted an Award.
11.30 “Performance
Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals
for a performance period, which may include the following: net earnings or losses (either before or after one or more of interest, taxes,
depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales; revenue; sales or revenue growth; net
income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit
growth, net operation profit or economic profit); profit return ratios or operating margin; budget or operating earnings (either before
or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow, free cash flow
or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders’
equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings
or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such
price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research,
development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models;
division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance
of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions;
financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related
goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; marketing initiatives;
and other measures of performance selected by the Board or Administrator whether or not listed herein, any of which may be measured in
absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to
the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary,
or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative
to performance of other companies. The Administrator may provide for exclusion of the impact of an event or occurrence which the Administrator
determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other
unusual, infrequently occurring or non-recurring charges or events, (b) asset write-downs, (c) litigation or claim judgments
or settlements, (d) acquisitions or divestitures, (e) reorganization or change in the corporate structure or capital structure
of the Company, (f) an event either not directly related to the operations of the Company, Subsidiary, division, business segment
or business unit or not within the reasonable control of management, (g) foreign exchange gains and losses, (h) a change in
the fiscal year of the Company, (i) the refinancing or repurchase of bank loans or debt securities, (j) unbudgeted capital expenditures,
(k) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (l) conversion of
some or all of convertible securities to Common Stock, (m) any business interruption event, (n) the cumulative effects of tax
or accounting changes in accordance with U.S. generally accepted accounting principles, or (o) the effect of changes in other laws
or regulatory rules affecting reported results.
11.31 “Plan”
means this zSpace, Inc. 2024 Equity Incentive Plan, as may be amended from time to time.
11.32 “Restricted
Stock” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.33 “Restricted
Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one or more Shares or an amount
in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting
conditions and other restrictions.
11.34 “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act.
11.35 “Section 409A”
means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.36 “Securities
Act” means the Securities Act of 1933, as amended.
11.37 “Service
Provider” means an Employee, Consultant or Director.
11.38 “Shares”
means shares of Common Stock.
11.39 “Stock
Appreciation Right” means a stock appreciation right granted under Article V.
11.40 “Subsidiary”
means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if
each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities
or interests representing at least fifty percent (50%) of the total combined voting power of all classes of securities or interests in
one of the other entities in such chain.
11.41 “Substitute
Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for,
awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any
Subsidiary or with which the Company or any Subsidiary combines.
11.42 “Termination
of Service” means the date the Participant ceases to be a Service Provider.
***
Exhibit 10.5
EMPLOYMENT AGREEMENT
This employment agreement
(the “Agreement”) when duly executed is made and entered into by and between zSpace, Inc. (the “Company”) and
Paul Kellenberger (“you”) (the “Company” and “you” are referred to herein in the collective
as the “Parties”).
1. Title/Duties. You shall be employed as a Chief Executive Officer (CEO), and you will provide services to and
take direction from the Company. You will be responsible for the duties and obligations consistent with your position, which will be subject
to the control of the Board of Directors and may change from time to time in the sole discretion of the Board of Directors (the “Services”).
You will devote your full time and best efforts to the performance of your duties for the Company. While employed by the Company, except
as may otherwise be approved by the Board, you shall not perform work on behalf of, or provide services to, third parties, whether as
an employee, director, consultant, advisor, or otherwise, and you shall not engage in any other activities that conflict with your obligations
to the Company.
2. Base
Salary. As full and complete consideration for the Services provided herein by you, and on the condition that you fully and
faithfully perform the Services, duties and obligations required to be performed hereunder, and that you are not in breach of this
Agreement, the Company shall pay you a base salary at the annual rate of Four hundred thousand Dollars ($400,000) gross, per
annum (prorated for partial years), payable in accordance with the Company’s payroll practices and subject to customary
tax withholdings and deductions.
3.
Discretionary Bonus. The Company may, in its sole discretion, award to you a discretionary bonus (the “Bonus”)
each financial year based on the Company’s overall performance and subject to customary tax withholdings and deductions. Payment
of the Bonus, if any, and the amount, is in the Company’s sole discretion. The Company shall pay you such Bonus (if earned) following
the end of the financial year for which it is earned; provided that you must be actively employed by the Company and in good standing
on the date such Bonus is to be paid to you in order to receive it.
4. Equity.
Subject to the approval
of the Board of Directors of the Company, the Company will grant to you, as of the earliest date upon which future grants are made to
other employees of the Company (the “Grant Date”), an option to purchase shares of the Company’s common stock in an
amount to be determined by the Board commensurate with your role (the “Option”) in accordance with the Company’s 2017
Equity Incentive Plan as it may be amended or restated or replaced (the “Plan”); provided that you must be an employee in
good standing with the Company on the Grant Date in order to receive the Option. The per share strike price of the Option will be the
fair market value per share of the Company’s common stock on the Grant Date, as determined by the Board of Directors. The Options
have a 3 year vesting period and shall vest monthly upon grant.
2050 Gateway Pl Suite 100-302 San Jose, CA
95110 Confidential
Tel: (408) 498-4050 Web: www.zspace.com
In the event of: (i)
your death; or (ii) your experiencing a Disability (as defined in the Plan); in each case, prior to your death or your experiencing a
Disability, the employee was required to be in good standing with the company, the Option shall become fully vested and exercisable immediately
prior to such event.
5.
Employee Benefits. If you are eligible, you may participate in the Company’s non-equity employee benefit plans
or programs, subject to the terms of such plan or program and Company policy. However, nothing herein requires the Company to keep such
plan or arrangement in place, or continue any such plan or arrangement, and the Company may modify, amend, or terminate such plan or program
at any time in its sole discretion.
6. Business Expenses. The Company will reimburse you for reasonable, pre-approved business expenses in accordance with
Company policy. Such expenses shall be paid for by the Company if they are incurred by you in the course of performing the Services, consistent
with the Company’s policies regarding business expenses, and supported by documentation submitted by you in a timely manner.
7. Paid Time Off.
(a)
Vacation. You shall be entitled to vacation time in accordance with Company policy, which shall not contravene any
rights provided by applicable law.
(b)
Sick Days. You shall be entitled to five (5) days, or forty (40) hours, of paid sick time a year upon completion
of a ninety (90) day employment period in accordance with Company policy. Unused sick days will not be paid out upon termination of your
employment. Nothing contained herein shall be read to contravene any rights provided by applicable law, which shall govern and supersede
in the event of a conflict between its terms and the policy stated herein.
8. Confidentiality.
You acknowledge that during your employment with the Company you will have access to the Company’s confidential information,
including, but not limited to, the Company’s proprietary information, intellectual property, research, customer lists,
supplier lists, product pricing methods, price lists and know-how. You agree not to disclose any of the Company’s confidential
information without the Company’s written consent. You further agree that the Company’s confidential information is
valuable to the Company and that the unauthorized release of the Company’s confidential information would cause serious damage
to the Company. As a condition of your employment with the Company, you agree to be subject to the covenants and other provisions of
the Confidentiality and Assignment Agreement (the “NDA”), annexed hereto as Exhibit A. You agree that your employment
with the Company is contingent upon your adherence to the NDA and to the Company’s policies and procedures. In the event that
your employment with the Company terminates for any reason or no reason, you agree that you will continue to be bound by the
provisions of the NDA which by its terms continue in full force and effect after the termination of your employment with the
Company. You shall indemnify the Company for all damages incurred by your violation of the NDA, and reimburse the Company for any
attorneys’ fees and expenses incurred in the Company’s efforts to enforce the NDA. Nothing contained in this Paragraph
or otherwise in this Agreement shall be read to restrict or impinge on your right to engage in protected activity or communications
under the National Labor Relations Act.
9. Term.
Although your employment with the company started prior to this agreement, this agreement shall commence on June 1, 2024 (the
“Start Date”), and is terminable “at will,” which means you or the Company may terminate your employment
with or without Cause, notice, or Good Reason at any time, subject to Paragraph 10 below; provided, however, that you agree to
provide the Company with at least thirty (30) days advance written notice of your intent to terminate employment. The Company
reserves the right, in its sole discretion, to waive all or part of this 30-day notice period (the “Notice Period”) and
terminate your employment prior to the conclusion of the Notice Period, and will not be required to pay your salary following such
termination. To the extent the Company does not waive the Notice Period, then you shall remain employed and continue to be bound by
the terms of this letter agreement through the Notice Period, and shall receive only your base salary (in the amount as of the date
such notice is given), but the Company may, in its sole discretion, direct you to cease performing some or all of your duties,
transition your duties to other individuals, perform other or different duties as the Company deems appropriate, and/or refrain from
entering the Company’s premises through the Notice Period. For the avoidance of doubt you may not perform services for a third
party during such Notice Period. The terms in this agreement replace any prior agreements.
10. Termination.
(a)
In the event that the Company terminates your employment for Cause, or you resign without Good Reason, you will be entitled to
receive: (i) your Base Salary through the date of termination to the extent not yet paid to you; (ii) any unreimbursed business expenses
payable to you in accordance with Company policy; and (iii) such employee benefits, if any, to which you may be entitled under the Company’s
employee benefit plans and programs as of your termination date (items (i) through (iii) being the “Accrued Amounts”). The
Company shall pay you the items in (i) and (ii) within ten (10) days following the date of termination (or sooner if required by applicable
law) and the amounts under (iii) in accordance with the terms of such employee benefit plans or programs. For the avoidance of doubt,
you shall not be entitled to severance or any other payments (except for the Accrued Amounts and as otherwise required by law).
| (b) | If the Company terminates your employment without Cause, or you terminate your employment for Good Reason,
in addition to the Accrued Amounts, the Company will pay you severance in the form of: |
| (i) | salary continuation (the “Salary Continuation”) at your then base salary rate, payable in
accordance with the Company’s normal payroll practices, from the termination date through the twelve (12) month anniversary of the
termination date (the “Severance Period”); plus |
| (ii) | a pro-rated bonus for the year of termination as determined by the Board of Directors equal to: (1) the
Bonus you would have received pursuant to Paragraph 3 for the year of termination,
had you remained employed through such Bonus’ payment date, multiplied by (2) a fraction, the numerator of which is the number of
days you were employed by the Company in the year of termination and the denominator being 365; payable in the year following the year
in which such Bonus is earned, as provided in Paragraph 3 (the “Severance Bonus”). |
| (iii) | Additionally, to the extent applicable, if you elect to continue to receive group health insurance coverage
under the Company’s group health plan pursuant to COBRA, the Company will reimburse you for such monthly COBRA premiums twelve (12)
months (such monthly payments being the “COBRA Amount”), provided
you provide the Company with adequate documentation of your payment of such monthly COBRA premiums. The COBRA Amount shall maintain the
coverage you and your dependents (if applicable) had immediately prior to the termination of your employment with the Company. In the
event you do not elect COBRA coverage, you subsequently become ineligible for continued COBRA coverage, or you fail to provide the Company
with adequate documentation of your payment of such COBRA premiums, the Company shall no longer be obligated to pay you the COBRA Amount. |
Notwithstanding the
above, you shall be required to execute a general release of claims in favor of the Company and its affiliates, officers, directors, and
employees in a form acceptable to the Company by the date specified in such release and such release must become irrevocable by its terms
in order for you to receive the Salary Continuation, and the Severance Bonus (the “Release Condition”). For the avoidance
of doubt, if you do not satisfy the Release Condition, the Company shall have no obligation to pay you the Salary Continuation and the
Severance Bonus.
| (c) | “Cause” means: (i) your indictment of, being charged with, or entry of a plea of guilty or
nolo contendere to (A) any felony; or (B) a misdemeanor involving moral turpitude; (ii) your willful malfeasance or willful misconduct
in connection with your employment; (iii) your material breach of this Agreement, any breach of the NDA, or any violation of a material
Company policy; (iv) engagement by you in immoral conduct that has or could reasonably have a material adverse effect on the business
or goodwill of the Company or any of its affiliates, materially adversely reflects on the reputation of Company or any of its affiliates,
or materially interferes with the performance of your services to Company or any of its affiliates; or (v) your failure or refusal to
perform, or gross negligence in performing, your duties to the Company or any of its affiliates or your failure or refusal to abide by
a lawful directive of the Company; provided, however, that in each case (other than (i), (ii), and (iv)), the Company shall have provided
you with written notice describing such event(s) or circumstance(s), you have been afforded at least ten (10) days to cure (if curable),
and you have failed to cure such event(s) or circumstances within such cure period. |
| (d) | “Good Reason” means
that, without your express prior written permission, the Company: (i) materially reduces your base salary (other than pursuant to an
across- the-board reduction applicable to all similarly situated executives) ; (ii) materially reduces your title, authority and/or
duties (otherwise than due to occurrence of Cause); (iii) materially breaches this Agreement or any other written agreement with
you, or (iv) requires you to relocate more than 50 miles from your current principal place of employment; provided that no breach or
condition shall constitute Good Reason hereunder unless: (i) you give the Company written notice of such breach or condition within
ninety (90) days of its first occurrence; (ii) the Company fails to cure such breach or condition within thirty (30) days of its
receipt of such written notice; and (iii) you terminate your employment within fifteen (15) days of the expiration of such cure
period.
|
| (e) | Notwithstanding anything contained in this Agreement, upon the
cessation of your employment with the Company as the Chief Executive Officer: (i) you shall vacate all offices of a director of the Company
held by you at the relevant time; and (ii) on and from the date of such cessation, whether or not your resignation is effective at such
time, you shall cease to hold yourself out as a director of the Company in any manner whatsoever. The above shall not apply if the Board
requests you to continue as a director of the Company and such is accepted by you. You undertake to take all such actions, including
but not limited to signing all such letters and documents and filing all such forms as may be required to give effect to your resignation
from the office of a director of the Company in accordance with the above. |
11.
Tax Matters. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable
withholding and payroll taxes and other deductions required by law.
12.
Section 409A. This Agreement is intended to comply with the requirements of Section 409A of the Code (“Section
409A”), and the Parties hereby agree to amend this Agreement as and when necessary or desirable to conform to or otherwise properly
reflect any guidance issued under Section 409A after the date hereof without violating Section 409A. In case any one or more provisions
of this Agreement fails to comply with the provisions of Section 409A, the remaining provisions of this Agreement shall remain in effect,
and this Agreement shall be administered and applied as if the non-complying provisions were not part of this Agreement. The Parties
in that event shall endeavor to agree upon a reasonable substitute for the non-complying provisions, to the extent that a substituted
provision would not cause this Agreement to fail to comply with Section 409A, and, upon so agreeing, shall incorporate such substituted
provisions into this Agreement. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may
be imposed on you by Section 409A or damages for failing to comply with Section 409A. A termination of your employment hereunder shall
not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amount or benefit constituting
“deferred compensation” under Section 409A upon or following a termination of employment unless such termination is also
a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement,
references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”
In the event that any payment or benefit made hereunder or under any compensation plan, program or arrangement of the Company would constitute
payments or benefits pursuant to a non-qualified deferred compensation plan within the meaning of Section 409A and, at the time of your
“separation from service” you are a “specified employee” within the meaning of Section 409A, then any such payments
or benefits shall be delayed until the six-month anniversary of the date of your “separation from service.” Each payment
made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A. All reimbursements
and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the
extent that such reimbursements or in-kind benefits are subject to Section 409A. All reimbursements for expenses paid pursuant hereto
that constitute taxable income to you shall in no event be paid later than the end of the calendar year next following the calendar year
in which you incur such expense or pays such related tax. Unless otherwise permitted by Section 409A, the right to reimbursement or in-kind
benefits under this Agreement shall not be subject to liquidation or exchange for another benefit and the amount of expenses eligible
for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, respectively, in any other taxable year.
13.
No Other Restrictions. You have represented to the Company that you are under no restrictions that would prevent
you from being employed by the Company or performing the Services contemplated by this Agreement.
14. Governing
Law and Arbitration. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the
State of California. Other than a claimed violation by you of Paragraph 8 of this Agreement or the NDA (the “Injunctive Relief
Exception”), any dispute or controversy arising out of or relating to this Agreement and/or related to your employment with
the Company that could otherwise be resolved by a court shall be resolved through arbitration administered by the American
Arbitration Association before a single neutral arbitrator in accordance with the Employment Arbitration Rules and Mediation
Procedures, except as modified by this Agreement. Neither class nor collective proceedings will be permitted. The arbitrator shall
have the power to award any remedies available under applicable law, and shall issue a written decision that contains the essential
findings and conclusions on which the decision is based. Judgment upon the award may be entered in any court having jurisdiction
thereover. The Company will be responsible for paying all fees unique to the arbitration, including the fees and costs of the
arbitrator; provided, however, that if you are the Party initiating the arbitration, you will contribute an amount equal to the
filing fee you would have had to pay in order to pursue the claim(s) in the applicable court of general jurisdiction. Except for the
Injunctive Relief Exception, you and the Company give up and waive any right to resolve a controversy through any other means, and the
right to sue in court in connection with claims related to this Agreement and/or your employment with the Company. This
waiver of the right to sue in court includes, for example, claims based on federal statutes such as the Fair Labor Standards Act,
claims based on state law or common law causes of action, and claims concerning compensation. This waiver does not apply to claims
of sexual harassment or sexual assault (whether individual or brought on behalf of a class) unless such waiver is in compliance with
applicable law. If there is more than one dispute between you and the Company, all such disputes may be heard in a single
proceeding. Disputes pertaining to different employees of the Company will be heard in separate proceedings. Any arbitration or
litigation shall be held in Santa Clara, California, or in such other place as the Parties hereto may agree, unless applicable law
requires otherwise. This arbitration provision is governed by and will be construed in accordance with the Federal Arbitration Act,
9 U.S.C. 1, et seq. If, for any reason, any term of this arbitration provision is held to be invalid or unenforceable, all other valid terms and conditions of this arbitration provision shall
be severable in nature, and remain fully enforceable.
15.
Survival and Assignment. You agree that notwithstanding anything in this Agreement to the contrary, your obligations
under this Agreement, specifically, but without limitation, Paragraph 8 of this Agreement, shall survive any termination of this Agreement
and/or the relationship between you and the Company to the extent necessary to give effect to the subject provisions according to their
terms. This Agreement shall be binding upon and inure to the benefit of your heirs and representatives and the assigns and successors
of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable by you. The Company shall have
the right to assign this Agreement to any of its affiliates, successors, or related companies, whether now in existence or later formed.
16. To
the extent permissible by local laws: Litigation and Regulatory Cooperation. During and after your employment, you shall cooperate
fully with the Company in (i) the defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while you were employed
by the Company, and (ii) the investigation, whether internal or external, of any matters about which the Company reasonably believes
you may have knowledge or information, provided you are not waiving any legal rights he may have. Your full cooperation in connection
with such claims, actions or investigations shall include, but not be limited to, being available to meet with counsel to answer questions
or to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after
your employment, you also shall cooperate fully with the Company in connection with any investigation or review of any federal, state
or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while you were employed
by the Company. The Company shall reimburse you for any reasonable out-of-pocket expenses incurred in connection with your performance
of obligations pursuant to this Paragraph 16 and, except as may be required by law or by court order, should you then be employed by
an entity other than the Company, such cooperation will not materially interfere with your then current employment or your efforts to
obtain new employment. In addition, for all time that you reasonably expend at the request of the Company in cooperating with the Company
pursuant to this Paragraph 16 when you are no longer employed by the Company, the Company shall compensate you at a per diem rate equal
to your base salary, divided by 365; provided that your right to such compensation shall not apply to time spent in activities that could
have been compelled pursuant to a subpoena, including testimony and related attendance at depositions, hearings or trials.
17.
No Prior Conflicts and Duty of Loyalty. You confirm that you are not subject to any consent decree, court or arbitral
order or agreement with any former employer or third party that prohibits you from working for the Company and that you are able to carry
out your duties without breaching any legal restrictions imposed by a current or former employer or other third party to whom you have
contractual obligations.
18. Mitigation.
You shall not be required to mitigate any payment provided for under the Agreement by seeking other employment or otherwise after
the termination of your employment with the Company, and any amounts earned by you, whether from self-employment, as a common-law employee or otherwise, shall not reduce any
severance amounts otherwise payable to you hereunder pursuant to Paragraph 10.
19. Section
280G.
| (a) | If the Company is publicly traded at the time of a change in control of the Company (including an Acquisition
of the Company as defined in the Plan) and any of the payments or benefits received or to be received by you (including, without limitation,
any payment or benefits received in connection with such change in control or the termination of your employment, whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement, or otherwise) (all such payments collectively referred to herein
as the “280G Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue
Code (“Section 280G”) and would, but for this Paragraph 19, be subject to the excise tax (the “Excise Tax”) imposed
under Section 4999 of the Internal Revenue Code (“Section 4999”), then prior to making the 280G Payments, a calculation shall
be made comparing (i) the Net Benefit (as defined below) to you of the 280G Payments after payment of the Excise Tax to (ii) the Net Benefit
to you if the 280G Payments are limited to the extent necessary to avoid being subject to the Excise Tax. Only if the amount calculated
under (i) above is less than the amount under (ii) above will the 280G Payments be reduced to the minimum extent necessary to ensure that
no portion of the 280G Payments is subject to the Excise Tax. “Net Benefit” shall mean the present value of the 280G Payments
net of all federal, state, local, foreign income, employment, and excise taxes. Any reduction made pursuant to this Paragraph 19 shall
be made in a manner determined by the Company that is consistent with the requirements of Section 409A. |
| (b) | If the Company is privately held at the time of a change in control of the Company
(including an Acquisition of the Company), then prior to making the 280G Payments, the Company shall use commercially reasonable
efforts to submit the 280G Payments for approval to the Company’s
shareholders who are entitled to vote to the extent and in the manner required under Section 280G(b)(5)(B) and to recommend to the shareholders
that they approve such 280G Payments. |
| (c) | All calculations and determinations under this Paragraph 19 shall be made by an independent accounting
firm or independent tax counsel appointed by the Company (the “Tax Counsel”) whose
determinations shall be conclusive and binding on the Company and you for all purposes. For
purposes of making the calculations and determinations required by this Paragraph 19, the Tax Counsel may rely on reasonable, good faith
assumptions and approximations concerning the application of Sections 280G and 4999. The Company and you shall furnish the Tax Counsel
with such information and documents as the Tax Counsel may reasonably request in order to make its determinations under this Paragraph
19. The Company shall bear all costs the Tax Counsel may reasonably incur in connection with its services. |
20.
Severability, Amendment and Modification. Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall fail to be in effect only to the extent
of such prohibition or invalidity without invalidating the remainder of this Agreement or any such provision. No provision of this Agreement
may be modified, amended, waived, or terminated except by a writing signed by both you and the President of the Company. No course of
dealing between you and the Company will modify, amend, waive, or terminate any provision of this Agreement or any rights or obligations
of any Party under or by reason of this Agreement.
21.
Entire Agreement. This Agreement constitutes the entire Agreement between the Parties hereto relating to the subject
matter hereof. All prior or contemporaneous agreements or understandings between the Parties relating to the subject matter hereof, whether
oral or written, are superseded by this Agreement and hereby null and void. You acknowledge that no other promises were made to you other
than are or may be contained in this Agreement and that no other inducement caused you to sign this letter.
22.
Counterparts and Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which
shall be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall
be as valid and binding as an original.
23.
Acknowledgment. You acknowledge that you have had the opportunity to consult legal counsel regarding this Agreement,
have read and understand this Agreement, are fully aware of its legal effect, and have entered into it freely and voluntarily and not
on the basis of any representations or promises other than those contained in this Agreement.
[Signature page follows]
| zSpace, Inc. |
|
Accepted and agreed: |
| |
|
|
|
| By: |
/s/ Erick DeOliveira |
|
/s/ Paul
Kellenberger |
| Name: |
Erick DeOliveira |
|
Paul Kellenberger |
| Date: |
May 30, 2024 |
|
Date: |
May 30, 2024 |
EXHIBIT A
CONFIDENTIALITY AND ASSIGNMENT AGREEMENT
(the “NDA”)
This NDA is entered into by and between
zSpace, Inc. (the “Company”) Paul Kellenberger (“Employee”).
WHEREAS, the Company is interested in
employing or continuing to employ Employee and Employee is interested in being employed or continuing to be employed by the Company subject
to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration
of the foregoing promises and the mutual covenants and agreements of the parties contained herein, the parties hereby agree as follows:
| 1. | Confidentiality. Except as authorized or directed by the Company in
writing, Employee shall not, at any time
during or subsequent to Employee’s employment, directly or indirectly publish or disclose any Confidential Information (as
defined below) of the Company that has come into Employee’s possession in the course of Employee’s employment with the
Company. Employee also shall not use any such Confidential Information for Employee’s own personal use or advantage or the use
or advantage of any person or entity other than the Company, or make it available to others for use. Confidential Information
includes, without limitation, the Company’s proprietary information, intellectual property, know-how, or other information
regarding the Company’s products or services and markets therefor, data, product plans, software, research, developments,
inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, business
information, trade secrets, customer lists (both existing and prospective), marketing, financial data, sales strategies, pricing
strategies, methods of operation, investments, potential investments, related companies, contractual relationships, business and
financing terms, investors, partners, investigations, and personnel matters. Employee agrees that said Confidential Information is
valuable to the Company, and that the unauthorized release of Confidential Information would cause serious damage to the Company.
Employee recognizes that the Company has received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use
it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out
Employee’s work for the Company consistent with the Company’s agreement with such third party. Nothing herein shall be
construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the
valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed
the extent of disclosure required by such law, regulation, or order. Employee shall promptly provide written notice of any such
order to the Company. Nothing contained in this Paragraph or otherwise in this NDA shall be read to restrict or impinge on
Employee’s right to engage in protected activity or communications under the National Labor Relations Act (the
“NLRA”), or to limit or restrict in any way Employee’s immunity from liability for disclosing the Company’s
trade secrets as specifically permitted by 18 U.S. Code Section 1833, the pertinent provisions of which are attached hereto as
Exhibit E. |
| (a) | Inventions Retained and Licensed. Employee has attached hereto, as Exhibit B, a list describing
all inventions, designs original works of authorship, developments, improvements, and trade secrets which were made by Employee prior
to Employee’s employment with the
Company (collectively referred to as “Prior Inventions”), which belong to Employee, which relate to the Company’s business,
products or product development, and which are not assigned to the Company hereunder. If there is no such list attached hereto, Employee
represents that there are no Prior Inventions. If in the course of providing services to the Company, Employee incorporates into a Company
product, process or design or a Prior Invention owned by Employee or in which Employee has an interest, the Company is hereby granted
and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior
Invention as part of or in connection with such product, process or design. |
| (b) | Assignment of Inventions. Employee acknowledges that during Employee’s employment
with the Company and/or during such time as Employee is providing services to the Company as an employee, a consultant, a contractor,
or in any capacity (both Employee’s employment and/or Employee’s provision of services are referred to collectively herein
as “employment” or being “employed”), Employee will be expected to
undertake creative work, either alone or jointly with others, which may lead to inventions, original works of authorship,
developments, concepts, improvements, trade secrets or other intellectual property rights, whether or not patentable or registrable
under copyright or similar laws (“Inventions”). Employee hereby agrees that Employee will provide the Company with full
written details regarding all Inventions created by Employee while Employee is employed by the Company at the Company’s
request (whether or not on the Company’s premises or using the Company’s equipment and materials or during regular
business hours) and that all such Inventions shall be a work-for-hire and shall be the sole and exclusive property of the Company,
and Employee hereby assigns to the Company all of Employee’s right, title and interest in and to any and all such Inventions.
In addition, any Inventions created within three years after the termination of Employee’s employment with the Company which
are based upon or derived from Confidential Information shall be the sole and exclusive property of the Company, and Employee hereby
assigns to the Company all of Employee’s right, title, and interest in and to any and all such Inventions. Nothing in the
preceding sentence shall be construed to limit Employee’s obligations under Paragraph 1 of this NDA. |
| (c) | Patent and Copyright Registrations. Employee agrees to assist the Company, or its designee,
at the Company’s expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents,
mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company
of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and
all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey
to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights relating thereto. Employee further agrees that
Employee’s obligation to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument
or papers shall continue after the termination of this NDA. If the Company is unable because of Employee’s mental or physical
incapacity or for any other reason to secure Employee’s signature to apply for or to pursue any application for any United
States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as
above, then Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as
Employee’s agent and attorney in fact, to act for and on Employee’s behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by Employee. |
| (d) | Application. Employee agrees that the provisions of this Paragraph shall apply with respect
to any and all Inventions, whether created during Employee’s employment with the Company or any predecessor entity. Employee acknowledges
that the Company and its future investors, if any, shall rely on this representation. |
| (e) | Acknowledgment. Employee acknowledges that Employee has been advised by the Company pursuant
to Section 2872 of the California Labor Code that, notwithstanding the foregoing, provisions of this NDA requiring the assignment of inventions
do not apply to any invention that qualifies fully under Section 2870 of the California Labor Code, which provides the following: |
Any provision in an employment agreement which provides
that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities,
or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of
the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or (2)
result from any work performed by the employee for the employer.
3.
Social Media. Except as permitted by applicable law, including the NLRA, Employee is prohibited from posting any
confidential, financial, sensitive, or proprietary information, or job-related content about the Company or any of the Company’s
current, former, or potential employees, partners, suppliers, vendors, licensors, or business relations on social media. This prohibition
applies to all forms of social media including, but not limited to: blogs, Meta (f/k/a Facebook), X (f/k/a Twitter), LinkedIn, YouTube,
Tumblr, and Instagram. Content regarding the Company that is truthful, accurate and respectful may be posted if it is approved in advance,
in writing, by the Company in each and every instance. Employee is representing Employee, not the Company, when participating in social
networking. Employee should not represent that Employee is in any way speaking on behalf of the Company unless Employee is authorized
to do so in writing.
4. Non-Disparagement.
Employee shall not disparage or make any statement which might adversely affect the reputation of the Company whether during the
term of employment or following termination. For the purpose of this Paragraph, the term “disparage” shall include,
without limitation, any statement accusing the aforesaid individuals or entities of acting in violation of any law or governmental
regulation or of condoning any such action, or otherwise acting in an unprofessional, dishonest, disreputable, improper, incompetent
or negligent manner. Nothing contained in this Paragraph shall be read to restrict or impinge on Employee’s right to engage in
protected activity or communications under the NLRA.
5.
Return of Company Materials. Employee agrees that at the time Employee ceases performing services for the Company,
or at any time the Company so requests, (a) Employee shall immediately deliver to the Company (and will not keep in Employee’s possession,
recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by or in
connection with Employee’s employment or engagement with the Company or otherwise belonging to the Company, its successors or assigns,
and (b) Employee shall not use Confidential Information in any way for any purpose. In the event of the termination of Employee’s
employment, Employee agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit C.
6. Notification
of New Employer. In the event that Employee’s employment with the Company terminates, Employee hereby grants consent
to notification by the Company to Employee’s new employer about Employee’s rights and obligations under this NDA.
7.
Conflict of Interest Guidelines. Employee agrees to diligently adhere to the Conflict of Interest Guidelines attached
as Exhibit D hereto.
8. Specific Performance and Equitable Relief. Employee acknowledges and agrees that the Company would suffer irreparable
harm if the Confidential Information was disclosed to third parties without the Company’s consent or if Employee breached Employee’s
other obligations contained herein. Employee further agrees that if in the opinion of any court of competent jurisdiction such restraints
are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provisions as to the
court shall appear not reasonable and to enforce the remainder of the NDA as so amended. Accordingly, Employee hereby consents to and
agrees that, in the event of a breach or threatened breach of this NDA by Employee, the Company shall have the right to exercise any and
all rights by appropriate action either by law or in equity, including specific performance of Employee’s obligations arising pursuant
to this NDA, and that the Company shall be entitled to equitable relief, including injunctive relief, in connection with any breach or
threatened breach by Employee of Employee’s obligations arising pursuant to this NDA, and specifically, without limitation, the
confidentiality and non-disparagement provisions above. Employee further agrees that the Company may, in addition to pursuing any remedies
it may have in law or in equity, cease making any payments otherwise required by any agreement between the Company and Employee as permitted
by law, and that Employee shall not request that the Company post, nor shall the Company be obligated to post, a bond in connection with
any equitable relief authorized pursuant to this Paragraph and in fact requested by the Company. To the extent the Company expends attorneys’
fees in enforcing the terms of this NDA against Employee, Employee shall be
responsible for indemnifying the Company for said fees.
9.
Warranty by Employee. Employee represents and warrants that: (i) Employee will execute any proper oath or verify
any proper document required to carry out the terms of this NDA; (ii) consulting with or being employed by the Company does not constitute
a breach of any agreement or other legal obligation with or to a third party; (iii) Employee is not bound by or subject to any agreement
or other legal obligation with a third party that would adversely affect Employee’s consulting with or being employed by the Company
including, but not limited to, a prior employment agreement, confidentiality agreement, or covenant not to compete, not to solicit or
other restriction against competition; (iv) Employee will not use in connection with Employee’s employment with the Company any
confidential or proprietary information belonging to any third party, including Employee’s former employers, without first obtaining
a written release from that third party; (v) Employee will not enter into any oral or written agreement in conflict herewith; and (vi)
in performing services for the Company, Employee shall comply with all policies and procedures of the Company (as applicable) and all
applicable laws. Employee shall indemnify, defend, and hold harmless the Company and the present, former and future officers, directors,
managers, shareholders, members, employees, contractors and agents of the Company from any and all losses, claims, damages, judgments,
awards, costs and expenses (including, without limitation, reasonable attorneys’ fees and costs, and direct, indirect, and consequential
damages) incurred as a result of any breach of this Paragraph or any other provision of this NDA.
10.
Survival, Assignability. This NDA shall commence and be effective when executed by the parties, and Employee’s
obligations under this NDA shall survive the termination of the NDA and any services Employee provides to the Company pursuant to the
terms of this NDA. This NDA shall be binding upon and inure to the benefit of Employee’s heirs, executors, administrators, and representatives
and will be for the benefit of the Company, its successors, and its assigns. Neither this NDA nor any rights or obligations hereunder
shall be assignable by Employee. The Company shall have the right to assign this NDA to any of its affiliates, successors, or related
companies, whether now in existence or later formed, without Employee’s consent.
11.
Severability. Any provision of this NDA which is determined to be illegal, prohibited, or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating
the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.
Amendments. No breach of any provision of this NDA may be waived unless in writing. This NDA may be amended only
by a written agreement executed by Employee and the President of the Company.
13.
Counterparts and Facsimile Signatures. This NDA may be executed in two or more counterparts, each of which shall
be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall be as
valid and binding as an original.
14.
Choice of Forum. Each of the parties hereby consents to the jurisdiction of any state or federal court located within
Santa Clara, California, and irrevocably agrees that all actions or proceedings relating to this NDA must be litigated in such courts,
and each of the parties waives any objections which it may have based on improper venue or forum non conveniens to the conduct
of any proceeding in such court.
15.
Governing Law. This NDA shall be governed by, and construed and enforced in accordance with, the laws of the State
of California (excluding the choice of law rules thereof) and, to the extent applicable, the laws and regulations of the United States
of America governing intellectual property matters. EMPLOYEE ACKNOWLEDGES AND AGREES THAT, PRIOR TO EXECUTING THIS NDA, EMPLOYEE WAS AFFORDED
AN OPPORTUNITY TO OBTAIN THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTANDS ALL OF THIS NDA. ACCORDINGLY, THIS NDA
SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS NDA.
[Signature page follows]
| ACCEPTED AND
AGREED: |
|
| |
|
| /s/ Paul Kellenberger |
|
| Paul Kellenberger |
|
| |
|
| Date: |
May 30, 2024 |
|
Signature Page – zSpace, Inc. – Paul
Kellenberger NDA 05/28/2024
Exhibit 10.6
EMPLOYMENT AGREEMENT
This employment agreement (the “Agreement”)
when duly executed is made and entered into by and between zSpace, Inc. (the “Company”) and Erick DeOliveira (“you”)
(the “Company” and “you” are referred to herein in the collective as the “Parties”).
1.
Title/Duties. You shall be employed as Chief Financial Officer (CFO), and you will provide services to and take direction
from the Company. You will be responsible for the duties and obligations consistent with your position, which will be subject to the control
of the Company and may change from time to time at the sole discretion of the CEO (the “Services”). You will devote your full
time and best efforts to the performance of your duties for the Company. While employed by the Company, except as may otherwise be approved
by the Board of Directors you shall not perform work on behalf of, or provide services to, third parties, whether as an employee, director,
consultant, advisor, or otherwise, and you shall not engage in any other activities that conflict with your obligations to the Company.
2. Base
Salary. As full and complete consideration for the Services provided herein by you, and on the condition that you fully and
faithfully perform the Services, duties and obligations required to be performed hereunder, and that you are not in breach of this
Agreement, the Company shall pay you a base salary at the annual rate of Three hundred thousand Dollars ($300,000) gross, per
annum (prorated for partial years), payable in accordance with the Company’s payroll practices and subject to customary
tax withholdings and deductions.
3.
Discretionary Bonus. The Company may, in its sole discretion, award to you a discretionary bonus (the “Bonus”)
each financial year based on the Company’s overall performance and subject to customary tax withholdings and deductions. Payment
of the Bonus, if any, and the amount, is in the Company’s sole discretion. The Company shall pay you such Bonus (if earned) following
the end of the financial year for which it is earned; provided that you must be actively employed by the Company and in good standing
on the date such Bonus is to be paid to you in order to receive it.
Subject to the approval
of the Board of Directors of the Company, the Company will grant to you, as of the earliest date upon which future grants are made to
other employees of the Company (the “Grant Date”), an option to purchase shares of the Company’s common stock in an
amount to be determined by the Board commensurate with your role (the “Option”) in accordance with the Company’s [2017
Equity Incentive Plan] as it may be amended or restated or replaced (the “Plan”); provided that you must be an employee in
good standing with the Company on the Grant Date in order to receive the Option. The per share strike price of the Option will be the
fair market value per share of the Company’s common stock on the Grant Date, as determined by the Board of Directors. The Options
have a 3 year vesting period and shall vest monthly upon grant.
2050 Gateway Pl Suite 100-302 San Jose, CA
95110 Confidential
Tel: (408) 498-4050
Web: www.zspace.com
In the event of: (i)
your death; or (ii) your experiencing a Disability (as defined in the Plan); in each case, prior to your death or your experiencing a
Disability, the employee was required to be in good standing with the company, the Option shall become fully vested and exercisable immediately
prior to such event.
5.
Employee Benefits. If you are eligible, you may participate in the Company’s non-equity employee benefit plans
or programs, subject to the terms of such plan or program and Company policy. However, nothing herein requires the Company to keep such
plan or arrangement in place, or continue any such plan or arrangement, and the Company may modify, amend, or terminate such plan or program
at any time in its sole discretion.
6.
Business Expenses. The Company will reimburse you for reasonable, pre-approved business expenses in accordance with
Company policy. Such expenses shall be paid for by the Company if they are incurred by you in the course of performing the Services, consistent
with the Company’s policies regarding business expenses, and supported by documentation submitted by you in a timely manner.
(a)
Vacation. You shall be entitled to vacation time in accordance with Company policy, which shall not contravene any
rights provided by applicable law.
(b)
Sick Days. You shall be entitled to five (5) days, or forty (40) hours, of paid sick time a year upon completion
of a ninety (90) day employment period in accordance with Company policy. Unused sick days will not be paid out upon termination of your
employment. Nothing contained herein shall be read to contravene any rights provided by applicable law, which shall govern and supersede
in the event of a conflict between its terms and the policy stated herein.
8.
Confidentiality. You acknowledge that
during your employment with the Company you will have access to the Company’s confidential information, including, but not limited
to, the Company’s proprietary information, intellectual property, research, customer lists, supplier lists, product pricing methods,
price lists and know-how. You agree not to disclose any of the Company’s confidential information without the Company’s written
consent. You further agree that the Company’s confidential information is valuable to the Company and that the unauthorized release
of the Company’s confidential information would cause serious damage to the Company. As a condition of your employment with the
Company, you agree to be subject to the covenants and other provisions of the Confidentiality and Assignment Agreement (the “NDA”),
annexed hereto as Exhibit A. You agree that your employment with the Company is contingent upon your adherence to the NDA and to the
Company’s policies and procedures. In the event that your employment with the Company terminates for any reason or no reason, you
agree that you will continue to be bound by the provisions of the NDA which by its terms continue in full force and effect after the
termination of your employment with the Company. You shall indemnify the Company for all damages incurred by your violation of the NDA,
and reimburse the Company for any attorneys’ fees and expenses incurred in the Company’s efforts to enforce the NDA. Nothing
contained in this Paragraph or otherwise in this Agreement shall be read to restrict or impinge on your right to engage in protected
activity or communications under the National Labor Relations Act.
9.
Term. Although your employment with the company started prior to this agreement, this agreement shall commence on
June 1, 2024 (the “Start Date”), and is terminable “at will,” which means you or the Company may terminate
your employment with or without Cause, notice, or Good Reason at any time, subject to Paragraph 10 below; provided, however, that you
agree to provide the Company with at least thirty (30) days advance written notice of your intent to terminate employment. The Company
reserves the right, in its sole discretion, to waive all or part of this 30-day notice period (the “Notice Period”) and terminate
your employment prior to the conclusion of the Notice Period, and will not be required to pay your salary following such termination.
To the extent the Company does not waive the Notice Period, then you shall remain employed and continue to be bound by the terms of this
letter agreement through the Notice Period, and shall receive only your base salary (in the amount as of the date such notice is given),
but the Company may, in its sole discretion, direct you to cease performing some or all of your duties, transition your duties to other
individuals, perform other or different duties as the Company deems appropriate, and/or refrain from entering the Company’s premises
through the Notice Period. For the avoidance of doubt you may not perform services for a third party during such Notice Period. The terms
in this agreement replace any prior agreements.
10. Termination.
(a)
In the event that the Company terminates your employment for Cause, or you resign without Good Reason, you will be entitled to
receive: (i) your Base Salary through the date of termination to the extent not yet paid to you; (ii) any unreimbursed business expenses
payable to you in accordance with Company policy; and (iii) such employee benefits, if any, to which you may be entitled under the Company’s
employee benefit plans and programs as of your termination date (items (i) through (iii) being the “Accrued Amounts”). The
Company shall pay you the items in (i) and (ii) within ten (10) days following the date of termination (or sooner if required by applicable
law) and the amounts under (iii) in accordance with the terms of such employee benefit plans or programs. For the avoidance of doubt,
you shall not be entitled to severance or any other payments (except for the Accrued Amounts and as otherwise required by law).
(b)
If the Company terminates your employment without Cause, or you terminate your employment for Good Reason, in addition to the Accrued
Amounts, the Company will pay you severance in the form of:
| (i) | salary continuation (the “Salary Continuation”) at your then base salary rate, payable in
accordance with the Company’s normal payroll practices, from the termination date through the twelve (12) month anniversary of the
termination date (the “Severance Period”); plus |
| (ii) | a pro-rated bonus for the year of termination as determined by the Board of Directors equal to: (1) the
Bonus you would have received pursuant to Paragraph 3 for the year of termination, had you remained employed through such Bonus’
payment date, multiplied by (2) a fraction, the numerator of which is the number of days you were employed by the Company in the year
of termination and the denominator being 365; payable in the year following the year in which such Bonus is earned,
as provided in Paragraph 3 (the “Severance Bonus”). |
| (iii) | Additionally, to the extent applicable, if you elect to continue to receive group health insurance coverage
under the Company’s group health plan pursuant to COBRA, the Company will reimburse you for such monthly COBRA premiums twelve (12)
months (such monthly payments being the “COBRA Amount”), provided
you provide the Company with adequate documentation of your payment of such monthly COBRA premiums. The COBRA Amount shall maintain the
coverage you and your dependents (if applicable) had immediately prior to the termination of your employment with the Company. In the
event you do not elect COBRA coverage, you subsequently become ineligible for continued COBRA coverage, or you fail to provide the Company
with adequate documentation of your payment of such COBRA premiums, the Company shall no longer be obligated to pay you the COBRA Amount. |
Notwithstanding the
above, you shall be required to execute a general release of claims in favor of the Company and its affiliates, officers, directors, and
employees in a form acceptable to the Company by the date specified in such release and such release must become irrevocable by its terms
in order for you to receive the Salary Continuation, and the Severance Bonus (the “Release Condition”). For the avoidance
of doubt, if you do not satisfy the Release Condition, the Company shall have no obligation to pay you the Salary Continuation and the
Severance Bonus.
(c)
“Cause” means: (i) your indictment of, being charged with, or entry of a plea of guilty or nolo contendere to (A) any
felony; or (B) a misdemeanor involving moral turpitude; (ii) your willful malfeasance or willful misconduct in connection with your employment;
(iii) your material breach of this Agreement, any breach of the NDA, or any violation of a material Company policy; (iv) engagement by
you in immoral conduct that has or could reasonably have a material adverse effect on the business or goodwill of the Company or any of
its affiliates, materially adversely reflects on the reputation of Company or any of its affiliates, or materially interferes with the
performance of your services to Company or any of its affiliates; or (v) your failure or refusal to perform, or gross negligence in performing,
your duties to the Company or any of its affiliates or your failure or refusal to abide by a lawful directive of the Company; provided,
however, that in each case (other than (i), (ii), and (iv)), the Company shall have provided you with written notice describing such event(s)
or circumstance(s), you have been afforded at least ten (10) days to cure (if curable), and you have failed to cure such event(s) or circumstances
within such cure period.
(d)
“Good Reason” means that, without your express prior written permission, the Company: (i) materially reduces your base
salary ((other than pursuant to an across-the-board reduction applicable to all similarly situated executives) ; (ii) materially reduces
your title, authority and/or duties (otherwise than due to occurrence of Cause); (iii) materially breaches this Agreement or any other
written agreement with you, or (iv) requires you to relocate more than 50 miles from your current principal place of employment; provided
that no breach or condition shall constitute Good Reason hereunder unless: (i) you give the Company written notice of such breach or condition
within ninety (90) days of its first occurrence; (ii) the Company fails to cure such breach or condition within thirty (30) days of its receipt
of such written notice; and (iii) you terminate your employment within fifteen (15) days of the expiration of such cure period.
11.
Tax Matters. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable
withholding and payroll taxes and other deductions required by law.
12.
Section 409A. This Agreement is intended to comply
with the requirements of Section 409A of the Code (“Section 409A”), and the Parties hereby agree to amend this Agreement
as and when necessary or desirable to conform to or otherwise properly reflect any guidance issued under Section 409A after the date
hereof without violating Section 409A. In case any one or more provisions of this Agreement fails to comply with the provisions of Section
409A, the remaining provisions of this Agreement shall remain in effect, and this Agreement shall be administered and applied as if the
non-complying provisions were not part of this Agreement. The Parties in that event shall endeavor to agree upon a reasonable substitute
for the non-complying provisions, to the extent that a substituted provision would not cause this Agreement to fail to comply with Section
409A, and, upon so agreeing, shall incorporate such substituted provisions into this Agreement. In no event whatsoever shall the Company
be liable for any additional tax, interest or penalty that may be imposed on you by Section 409A or damages for failing to comply with
Section 409A. A termination of your employment hereunder shall not be deemed to have occurred for purposes of any provision of this Agreement
providing for the payment of any amount or benefit constituting “deferred compensation” under Section 409A upon or following
a termination of employment unless such termination is also a “separation from service” within the meaning of Section
409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of
employment” or like terms shall mean “separation from service.” In the event that any payment or benefit made
hereunder or under any compensation plan, program or arrangement of the Company would constitute payments or benefits pursuant to a non-qualified
deferred compensation plan within the meaning of Section 409A and, at the time of your “separation from service” you are a
“specified employee” within the meaning of Section 409A, then any such payments or benefits shall be delayed until the six-month
anniversary of the date of your “separation from service.” Each payment made under this Agreement shall be designated as
a “separate payment” within the meaning of Section 409A. All reimbursements and in-kind benefits provided under this Agreement
shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits
are subject to Section 409A. All reimbursements for expenses paid pursuant hereto that constitute taxable income to you shall in no event
be paid later than the end of the calendar year next following the calendar year in which you incur such expense or pays such related
tax. Unless otherwise permitted by Section 409A, the right to reimbursement or in-kind benefits under this Agreement shall not be subject
to liquidation or exchange for another benefit and the amount of expenses eligible for reimbursement, or in-kind benefits, provided during
any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, respectively, in any other
taxable year.
13.
No Other Restrictions. You have represented to the Company that you are under no restrictions that would prevent
you from being employed by the Company or performing the Services contemplated by this Agreement.
14.
Governing Law and Arbitration. This Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of California. Other than a claimed violation by you of Paragraph 8 of this Agreement or the NDA (the “Injunctive
Relief Exception”), any dispute or controversy arising out of or relating to this Agreement and/or related to your employment with
the Company that could otherwise be resolved by a court shall be resolved through arbitration administered by the American Arbitration
Association before a single neutral arbitrator in accordance with the Employment Arbitration Rules and Mediation Procedures, except as
modified by this Agreement. Neither class nor collective proceedings will be permitted. The arbitrator shall have the power to award any
remedies available under applicable law, and shall issue a written decision that contains the essential findings and conclusions on which
the decision is based. Judgment upon the award may be entered in any court having jurisdiction thereover. The Company will be responsible
for paying all fees unique to the arbitration, including the fees and costs of the arbitrator; provided, however, that if you are the
Party initiating the arbitration, you will contribute an amount equal to the filing fee you would have had to pay in order to pursue the
claim(s) in the applicable court of general jurisdiction. Except for the Injunctive Relief Exception, you and the Company give up and
waive any right to resolve a controversy through any other means, and the right to sue in court in connection with claims related
to this Agreement and/or your employment with the Company. This waiver of the right to sue in court includes, for example, claims
based on federal statutes such as the Fair Labor Standards Act, claims based on state law or common law causes of action, and claims concerning
compensation. This waiver does not apply to claims of sexual harassment or sexual assault (whether individual or brought on behalf of
a class) unless such waiver is in compliance with applicable law. If there is more than one dispute between you and the Company, all such
disputes may be heard in a single proceeding. Disputes pertaining to different employees of the Company will be heard in separate proceedings.
Any arbitration or litigation shall be held in Santa Clara, California, or in such other place as the Parties hereto may agree, unless
applicable law requires otherwise. This arbitration provision is governed by and will be construed in accordance with the Federal Arbitration
Act, 9 U.S.C. 1, et seq. If, for any reason, any term of this arbitration provision is held to be invalid or unenforceable, all other
valid terms and conditions of this arbitration provision shall be severable in nature, and remain fully enforceable
15.
Survival and Assignment. You agree that notwithstanding anything in this Agreement to the contrary, your obligations
under this Agreement, specifically, but without limitation, Paragraph 8 of this Agreement, shall survive any termination of this Agreement
and/or the relationship between you and the Company to the extent necessary to give effect to the subject provisions according to their
terms. This Agreement shall be binding upon and inure to the benefit of your heirs and representatives and the assigns and successors
of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable by you. The Company shall have
the right to assign this Agreement to any of its affiliates, successors, or related companies, whether now in existence or later formed.
16. To
the extent permissible by local laws: Litigation and Regulatory Cooperation. During and after your employment, you shall cooperate
fully with the Company in (i) the defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while you were employed
by the Company, and (ii) the investigation, whether internal or external, of any matters about which the Company reasonably believes
you may have knowledge or information, provided you are not waiving any legal rights he may have. Your full cooperation in connection
with such claims, actions or investigations shall include, but not be limited to, being available to meet with counsel to answer questions
or to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after
your employment, you also shall cooperate fully with the Company in connection with any investigation or review of any federal, state
or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while you were employed
by the Company. The Company shall reimburse you for any reasonable out-of-pocket expenses incurred in connection with your performance
of obligations pursuant to this Paragraph 16 and, except as may be required by law or by court order, should you then be employed by
an entity other than the Company, such cooperation will not materially interfere with your then current employment or your efforts to
obtain new employment. In addition, for all time that you reasonably expend at the request of the Company in cooperating with the Company
pursuant to this Paragraph 16 when you are no longer employed by the Company, the Company shall compensate you at a per diem rate equal
to your base salary, divided by 365; provided that your right to such compensation shall not apply to time spent in activities that could
have been compelled pursuant to a subpoena, including testimony and related attendance at depositions, hearings or trials.
17.
No Prior Conflicts and Duty of Loyalty. You confirm that you are not subject to any consent decree, court or arbitral
order or agreement with any former employer or third party that prohibits you from working for the Company and that you are able to carry
out your duties without breaching any legal restrictions imposed by a current or former employer or other third party to whom you have
contractual obligations. –Covered in 1. Above.
18. Mitigation. You shall not be required to mitigate any payment provided for under the Agreement by seeking other employment
or otherwise after the termination of your employment with the Company, and any amounts earned by you, whether from self-employment, as
a common-law employee or otherwise, shall not reduce any severance amounts otherwise payable to you hereunder pursuant to Paragraph 10.
(a)
If the Company is publicly traded at the time of a change in control of the Company (including an Acquisition of the Company as
defined in the Plan) and any of the payments or benefits received or to be received by you (including, without limitation, any payment
or benefits received in connection with such change in control or the termination of your employment, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement, or otherwise) (all such payments collectively referred to herein as the “280G
Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code (“Section
280G”) and would, but for this Paragraph 19, be subject to the excise tax (the “Excise Tax”) imposed under Section
4999 of the Internal Revenue Code (“Section 4999”), then prior to making the 280G Payments, a calculation shall be made comparing
(i) the Net Benefit (as defined below) to you of the 280G Payments after payment of the Excise Tax to (ii) the Net Benefit to you if
the 280G Payments are limited to the extent necessary to avoid being subject to the Excise Tax. Only if the amount calculated under (i)
above is less than the amount under (ii) above will the 280G Payments be reduced to the minimum extent necessary to ensure that no portion
of the 280G Payments is subject to the Excise Tax. “Net Benefit” shall mean the present value of the 280G Payments net of all
federal, state, local, foreign income, employment, and excise taxes. Any reduction made pursuant to this Paragraph 19 shall be made in
a manner determined by the Company that is consistent with the requirements of Section 409A.
(b)
If the Company is privately held at the time of a change in control of the Company (including an Acquisition of the Company), then
prior to making the 280G Payments, the Company shall use commercially reasonable efforts to submit the 280G Payments for approval to the
Company’s shareholders who are entitled to vote to the extent and in the manner required under Section 280G(b)(5)(B) and to recommend
to the shareholders that they approve such 280G Payments.
(c)
All calculations and determinations under this Paragraph 19 shall be made by an independent accounting firm or independent tax
counsel appointed by the Company (the “Tax Counsel”) whose determinations
shall be conclusive and binding on the Company and you for all purposes. For purposes of making the calculations and determinations required
by this Paragraph 19, the Tax Counsel may rely on reasonable, good faith assumptions and approximations concerning the application of
Sections 280G and 4999. The Company and you shall furnish the Tax Counsel with such information and documents as the Tax Counsel may reasonably
request in order to make its determinations under this Paragraph 19. The Company shall bear all costs the Tax Counsel may reasonably incur
in connection with its services.
20.
Severability, Amendment and Modification. Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by
or invalid under applicable law, such provision shall fail to be in effect only to the extent of such prohibition or invalidity without
invalidating the remainder of this Agreement or any such provision. No provision of this Agreement may be modified, amended, waived, or
terminated except by a writing signed by both you and the President of the Company. No course of dealing between you and the Company will
modify, amend, waive, or terminate any provision of this Agreement or any rights or obligations of any Party under or by reason of this
Agreement.
21.
Entire Agreement. This Agreement constitutes the entire Agreement between the Parties hereto relating to the subject
matter hereof. All prior or contemporaneous agreements or understandings between the Parties relating to the subject matter hereof, whether
oral or written, are superseded by this Agreement and hereby null and void. You acknowledge that no other promises were made to you other
than are or may be contained in this Agreement and that no other inducement caused you to sign this letter.
22.
Counterparts and Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which
shall be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall
be as valid and binding as an original.
23.
Acknowledgment. You acknowledge that you have had the opportunity to consult legal counsel regarding this Agreement,
have read and understand this Agreement, are fully aware of its legal effect, and have entered into it freely and voluntarily and not
on the basis of any representations or promises other than those contained in this Agreement.
[Signature page follows]
| zSpace, Inc. | | Accepted and agreed: |
| |
| | |
|
| By: |
/s/ Tara Choy | | |
/s/ Erick DeOliveira |
| Name: |
Tara Choy | | |
Erick DeOliveira |
| Date: |
May
28, 2024 | | Date: |
May
28, 2024 |
EXHIBIT A
CONFIDENTIALITY AND ASSIGNMENT AGREEMENT
(the “NDA”)
This NDA is entered into by and between zSpace, Inc. (the
“Company”) and Erick DeOliveira (“Employee”).
WHEREAS, the Company is interested in
employing or continuing to employ Employee and Employee is interested in being employed or continuing to be employed by the Company subject
to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration
of the foregoing promises and the mutual covenants and agreements of the parties contained herein, the parties hereby agree as follows:
1.
Confidentiality. Except as authorized
or directed by the Company in writing, Employee shall not, at any time during or subsequent to Employee’s employment, directly
or indirectly publish or disclose any Confidential Information (as defined below) of the Company that has come into Employee’s
possession in the course of Employee’s employment with the Company. Employee also shall not use any such Confidential Information
for Employee’s own personal use or advantage or the use or advantage of any person or entity other than the Company, or make it
available to others for use. Confidential Information includes, without limitation, the Company’s proprietary information, intellectual
property, know-how, or other information regarding the Company’s products or services and markets therefor, data, product plans,
software, research, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration
information, business information, trade secrets, customer lists (both existing and prospective), marketing, financial data, sales strategies,
pricing strategies, methods of operation, investments, potential investments, related companies, contractual relationships, business
and financing terms, investors, partners, investigations, and personnel matters. Employee agrees that said Confidential Information is
valuable to the Company, and that the unauthorized release of Confidential Information would cause serious damage to the Company. Employee
recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information
subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited
purposes. Employee agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it
to any person, firm or corporation or to use it except as necessary in carrying out Employee’s work for the Company consistent
with the Company’s agreement with such third party. Nothing herein shall be construed to prevent disclosure of Confidential Information
as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized
government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order.
Employee shall promptly provide written notice of any such order to the Company. Nothing contained in this Paragraph or otherwise in
this NDA shall be read to restrict or impinge on Employee’s right to engage in protected activity or communications under the National
Labor Relations Act (the “NLRA”), or to limit or restrict in any way Employee’s immunity from liability for disclosing
the Company’s trade secrets as specifically permitted by 18 U.S. Code Section 1833, the pertinent provisions of which are attached
hereto as Exhibit E.
(a)
Inventions Retained and Licensed. Employee has attached hereto, as Exhibit B, a list describing all inventions, designs
original works of authorship, developments, improvements, and trade secrets which were made by Employee prior to Employee’s employment
with the Company (collectively referred to as “Prior Inventions”), which belong to Employee, which relate to the Company’s
business, products or product development, and which are not assigned to the Company hereunder. If there is no such list attached hereto,
Employee represents that there are no Prior Inventions. If in the course of providing services to the Company, Employee incorporates into
a Company product, process or design or a Prior Invention owned by Employee or in which Employee has an interest, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell
such Prior Invention as part of or in connection with such product, process or design.
(b)
Assignment of Inventions. Employee acknowledges that during Employee’s
employment with the Company and/or during such time as Employee is providing services to the Company as an employee, a consultant, a
contractor, or in any capacity (both Employee’s employment and/or Employee’s provision of services are referred to
collectively herein as “employment” or being “employed”), Employee will be expected to undertake creative work,
either alone or jointly with others, which may lead to inventions, original works of authorship, developments, concepts, improvements,
trade secrets or other intellectual property rights, whether or not patentable or registrable under copyright or similar laws (“Inventions”). Employee
hereby agrees that Employee will provide the Company with full written details regarding all Inventions created by Employee while Employee
is employed by the Company at the Company’s request (whether or not on the Company’s premises or using the Company’s
equipment and materials or during regular business hours) and that all such Inventions shall be a work-for-hire and shall be the sole
and exclusive property of the Company, and Employee hereby assigns to the Company all of Employee’s right, title and interest in
and to any and all such Inventions. In addition, any Inventions created within three years after the termination of Employee’s
employment with the Company which are based upon or derived from Confidential Information shall be the sole and exclusive property
of the Company, and Employee hereby assigns to the Company all of Employee’s right, title, and interest in and to any and all such
Inventions. Nothing in the preceding sentence shall be construed to limit Employee’s obligations under Paragraph 1 of this
NDA.
(c) Patent
and Copyright Registrations. Employee agrees to assist the Company, or its designee, at the Company’s
expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or
other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments
which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company,
its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights,
patents, mask work rights or other intellectual property rights relating thereto. Employee further agrees that Employee’s obligation
to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after
the termination of this NDA. If the Company is unable because of Employee’s mental or physical incapacity or for any other reason
to secure Employee’s signature to apply for or to pursue any application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship assigned to the Company as above, then Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents as Employee’s agent and attorney in fact, to act
for and on Employee’s behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if
executed by Employee.
(d)
Application. Employee agrees that the provisions of this Paragraph shall apply with respect to any and all Inventions,
whether created during Employee’s employment with the Company or any predecessor entity. Employee acknowledges that the Company
and its future investors, if any, shall rely on this representation.
(e) Acknowledgment. Employee acknowledges that Employee has been advised by the Company pursuant to Section
2872 of the California Labor Code that, notwithstanding the foregoing, provisions of this NDA requiring the assignment of inventions do
not apply to any invention that qualifies fully under Section 2870 of the California Labor Code, which provides the following:
Any provision in an employment agreement which provides
that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities,
or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of
the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or (2)
result from any work performed by the employee for the employer.
3.
Social Media. Except as permitted by applicable law, including the NLRA, Employee is prohibited from posting any
confidential, financial, sensitive, or proprietary information, or job-related content about the Company or any of the Company’s
current, former, or potential employees, partners, suppliers, vendors, licensors, or business relations on social media. This prohibition
applies to all forms of social media including, but not limited to: blogs, Meta (f/k/a Facebook), X (f/k/a Twitter), LinkedIn, YouTube,
Tumblr, and Instagram. Content regarding the Company that is truthful, accurate and respectful may be posted if it is approved in advance,
in writing, by the Company in each and every instance. Employee is representing Employee, not the Company, when participating in social
networking. Employee should not represent that Employee is in any way speaking on behalf of the Company unless Employee is authorized
to do so in writing.
4.
Non-Disparagement. Employee shall not disparage or make any statement which might adversely affect the reputation
of the Company whether during the term of employment or following termination. For the purpose of this Paragraph, the term “disparage”
shall include, without limitation, any statement accusing the aforesaid individuals or entities of acting in violation of any law or governmental
regulation or of condoning any such action, or otherwise acting in an unprofessional, dishonest, disreputable, improper, incompetent or
negligent manner. Nothing contained in this Paragraph shall
be read to restrict or impinge on Employee’s right to engage in protected activity or communications under the NLRA.
5.
Return of Company Materials. Employee agrees that at the time Employee ceases performing services for the Company,
or at any time the Company so requests, (a) Employee shall immediately deliver to the Company (and will not keep in Employee’s possession,
recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by or in
connection with Employee’s employment or engagement
with the Company or otherwise belonging to the Company, its successors or assigns, and (b) Employee shall not use Confidential Information
in any way for any purpose. In the event of the termination of Employee’s employment, Employee agrees to sign and deliver the “Termination
Certification” attached hereto as Exhibit C.
6. Notification of New Employer. In the event that Employee’s employment with the Company terminates, Employee hereby grants consent to notification by the Company to Employee’s new employer about Employee’s
rights and obligations under this NDA.
7.
Conflict of Interest Guidelines. Employee agrees to diligently adhere to the Conflict of Interest Guidelines attached
as Exhibit D hereto.
8.
Specific Performance and Equitable Relief. Employee acknowledges and agrees that the Company would suffer irreparable
harm if the Confidential Information was disclosed to third parties without the Company’s consent or if Employee breached Employee’s
other obligations contained herein. Employee further agrees that if in the opinion of any court of competent jurisdiction such restraints
are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provisions as to the
court shall appear not reasonable and to enforce the remainder of the NDA as so amended. Accordingly, Employee hereby consents to and
agrees that, in the event of a breach or threatened breach of this NDA by Employee, the Company shall have the right to exercise any and
all rights by appropriate action either by law or in equity, including specific performance of Employee’s obligations arising pursuant
to this NDA, and that the Company shall be entitled to equitable relief, including injunctive relief, in connection with any breach or
threatened breach by Employee of Employee’s obligations arising pursuant to this NDA, and specifically, without limitation, the
confidentiality and non-disparagement provisions above. Employee further agrees that the Company may, in addition to pursuing any remedies
it may have in law or in equity, cease making any payments otherwise required by any agreement between the Company and Employee as permitted
by law, and that Employee shall not request that the Company post, nor shall the Company be obligated to post, a bond in connection with
any equitable relief authorized pursuant to this Paragraph and in fact requested by the Company. To the extent the Company expends attorneys’
fees in enforcing the terms of this NDA against Employee, Employee shall be responsible for indemnifying the Company for said fees.
9.
Warranty by Employee. Employee represents and warrants that: (i) Employee will execute any proper oath or verify
any proper document required to carry out the terms of this NDA; (ii) consulting with or being employed by the Company does not constitute
a breach of any agreement or other legal obligation with or to a third party; (iii) Employee is not bound by or subject to any agreement
or other legal obligation with a third party that would adversely affect Employee’s consulting with or being
employed by the Company including, but not limited to, a prior employment agreement, confidentiality agreement, or covenant not to compete,
not to solicit or other restriction against competition;
(iv) Employee will not use in connection with Employee’s employment with the Company any confidential or proprietary information
belonging to any third party, including Employee’s former employers, without first obtaining a written release from that third party;
(v) Employee will not enter into any oral or written agreement in conflict herewith; and (vi) in performing services for the Company,
Employee shall comply with all policies and procedures of the Company (as applicable) and all applicable laws. Employee shall indemnify,
defend, and hold harmless the Company and the present, former and future officers, directors, managers, shareholders, members, employees,
contractors and agents of the Company from any and all losses, claims, damages, judgments, awards, costs and expenses (including, without
limitation, reasonable attorneys’ fees and costs, and direct, indirect, and consequential damages) incurred as a result of any breach
of this Paragraph or any other provision of this NDA.
10.
Survival, Assignability. This NDA shall commence and be effective when executed by the parties, and Employee’s
obligations under this NDA shall survive the termination of the NDA and any services Employee provides to the Company pursuant to the
terms of this NDA. This NDA shall be binding upon and
inure to the benefit of Employee’s heirs, executors, administrators, and representatives and will be for the benefit of the Company,
its successors, and its assigns. Neither this NDA nor any rights or obligations hereunder shall be assignable by Employee. The Company
shall have the right to assign this NDA to any of its affiliates, successors, or related companies, whether now in existence or later
formed, without Employee’s consent.
11.
Severability. Any provision of this NDA which is determined to be illegal, prohibited, or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating
the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.
Amendments. No breach of any provision of this NDA may be waived unless in writing. This NDA may be amended only
by a written agreement executed by Employee and the President of the Company.
13.
Counterparts and Facsimile Signatures. This NDA may be executed in two or more counterparts, each of which shall
be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall be as
valid and binding as an original.
14.
Choice of Forum. Each of the parties hereby consents to the jurisdiction of any state or federal court located within
Santa Clara, California, and irrevocably agrees that all actions or proceedings relating to this NDA must be litigated in such courts,
and each of the parties waives any objections which it may have based on improper venue or forum non conveniens to the conduct
of any proceeding in such court.
15.
Governing Law. This NDA shall be governed by, and construed and enforced in accordance with, the laws of the State
of California (excluding the choice of law rules thereof) and, to the extent applicable, the laws and regulations of the United States
of America governing intellectual property matters. EMPLOYEE ACKNOWLEDGES AND AGREES THAT, PRIOR TO EXECUTING THIS NDA, EMPLOYEE WAS AFFORDED
AN OPPORTUNITY TO OBTAIN THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTANDS ALL OF THIS NDA. ACCORDINGLY, THIS NDA
SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS NDA.
[Signature page follows]
| Accepted and agreed: |
| |
|
|
| |
/s/ Erick DeOliveira |
|
| |
Erick DeOliveira |
|
| |
|
|
| Date: |
May 28, 2024 |
|
Signature Page – zSpace, Inc. – Erick DeOliveira
NDA 05/28/2024
Exhibit 10.7
EMPLOYMENT AGREEMENT
This employment agreement (the “Agreement”)
when duly executed is made and entered into by and between zSpace, Inc. (the “Company”) and Ronald Rheinheimer (“you”)
(the “Company” and “you” are referred to herein in the collective as the “Parties”).
1.
Title/Duties. You shall be employed as Chief Sales Officer (CSO) and you will provide services to and take direction
from the Company. You will be responsible for the duties and obligations consistent with your position, which will be subject to the control
of the Company and may change from time to time at the sole discretion of the CEO (the “Services”). You will devote your full
time and best efforts to the performance of your duties for the Company. While employed by the Company, except as may otherwise be approved
by the Board of Directors you shall not perform work on behalf of, or provide services to, third parties, whether as an employee, director,
consultant, advisor, or otherwise, and you shall not engage in any other activities that conflict with your obligations to the Company.
2. Base
Salary. As full and complete consideration for the Services provided herein by you, and on the condition that you fully and
faithfully perform the Services, duties and obligations required to be performed hereunder, and that you are not in breach of this
Agreement, the Company shall pay you a base salary at the annual rate of Two hundred and fifty thousand Dollars ($250,000) gross, per
annum (prorated for partial years), payable in accordance with the Company’s payroll practices and subject to customary
tax withholdings and deductions.
3.
Executive Incentive Plan. You are eligible for success based commission amounts for the Company’s achievement
of Net Billing targets that are set on an annual basis (which for the current year effective from January 1, 2024 is set out in Exhibit
B. These success based commission amounts will be paid upon successful completion, or partial completion of the targets when the product
has been delivered and invoiced and the customer has paid, completing the revenue recognition process.
4. Equity.
Subject to the approval
of the Board of Directors of the Company, the Company will grant to you, as of the earliest date upon which future grants are made to
other employees of the Company (the “Grant Date”), an option to purchase shares of the Company’s common stock in an
amount to be determined by the Board commensurate with your role (the “Option”) in accordance with the Company’s [2017
Equity Incentive Plan] as it may be amended or restated or replaced (the “Plan”); provided that you must be an employee in
good standing with the Company on the Grant Date in order to receive the Option. The per share strike price of the Option will be the
fair market value per share of the Company’s common stock on the Grant Date, as determined by the Board of Directors. The Options
have a 3 year vesting period and shall vest monthly upon grant.
2050 Gateway Pl Suite 100-302
San Jose,
CA 95110 Confidential
Tel: (408) 498-4050 Web: www.zspace.com
In the event of: (i)
your death; or (ii) your experiencing a Disability (as defined in the Plan); in each case, prior to your death or your experiencing a
Disability, the employee was required to be in good standing with the company, the Option shall become fully vested and exercisable immediately
prior to such event.
5.
Employee Benefits. If you are eligible, you may participate in the Company’s non-equity employee benefit plans
or programs, subject to the terms of such plan or program and Company policy. However, nothing herein requires the Company to keep such
plan or arrangement in place, or continue any such plan or arrangement, and the Company may modify, amend, or terminate such plan or program
at any time in its sole discretion.
6.
Business Expenses. The Company will reimburse you for reasonable, pre-approved business expenses in accordance with
Company policy. Such expenses shall be paid for by the Company if they are incurred by you in the course of performing the Services, consistent
with the Company’s policies regarding business expenses, and supported by documentation submitted by you in a timely manner.
7.
Paid Time Off.
(a)
Vacation. You shall be entitled to vacation time in accordance with Company policy, which shall not contravene any
rights provided by applicable law.
(b)
Sick Days. You shall be entitled to five (5) days, or forty (40) hours, of paid sick time a year upon completion
of a ninety (90) day employment period in accordance with Company policy. Unused sick days will not be paid out upon termination of your
employment. Nothing contained herein shall be read to contravene any rights provided by applicable law, which shall govern and supersede
in the event of a conflict between its terms and the policy stated herein.
8. Confidentiality.
You acknowledge that during your employment with the Company you will have access to the Company’s confidential information,
including, but not limited to, the Company’s proprietary information, intellectual property, research, customer lists,
supplier lists, product pricing methods, price lists and know-how. You agree not to disclose any of the Company’s confidential
information without the Company’s written consent. You further agree that the Company’s confidential information is
valuable to the Company and that the unauthorized release of the Company’s confidential information would cause serious damage
to the Company. As a condition of your employment with the Company, you agree to be subject to the covenants and other provisions of
the Confidentiality and Assignment Agreement (the “NDA”), annexed hereto as Exhibit A. You agree that your employment
with the Company is contingent upon your adherence to the NDA and to the Company’s policies and procedures. In the event that
your employment with the Company terminates for any reason or no reason, you agree that you will continue to be bound by the
provisions of the NDA which by its terms continue in full force and effect after the termination of your employment with the
Company. You shall indemnify the Company for all damages incurred by your violation of the NDA, and reimburse the Company for any
attorneys’ fees and expenses incurred in the Company’s efforts to enforce the NDA. Nothing contained in this Paragraph
or otherwise in this Agreement shall be read to restrict or impinge on your right to engage in protected activity or communications
under the National Labor Relations Act.
9. Term.
Although your employment with the company started prior to this agreement, this agreement shall commence on June 1, 2024 (the
“Start Date”), and is terminable “at will,” which means you or the Company may terminate your employment
with or without Cause, notice, or Good Reason at any time, subject to Paragraph 10 below; provided, however, that you agree to
provide the Company with at least thirty (30) days advance written notice of your intent to terminate employment. The Company
reserves the right, in its sole discretion, to waive all or part of this 30-day notice period (the “Notice Period”) and
terminate your employment prior to the conclusion of the Notice Period, and will not be required to pay your salary following such
termination. To the extent the Company does not waive the Notice Period, then you shall remain employed and continue to be bound by
the terms of this letter agreement through the Notice Period, and shall receive only your base salary (in the amount as of the date
such notice is given), but the Company may, in its sole discretion, direct you to cease performing some or all of your duties,
transition your duties to other individuals, perform other or different duties as the Company deems appropriate, and/or refrain from
entering the Company’s premises through the Notice Period. For the avoidance of doubt you may not perform services for a third
party during such Notice Period. The terms in this agreement replace any prior agreements.
10. Termination.
(a)
In the event that the Company terminates your employment for Cause, or you resign without Good Reason, you will be entitled to
receive: (i) your Base Salary through the date of termination to the extent not yet paid to you; (ii) any unreimbursed business expenses
payable to you in accordance with Company policy; and (iii) such employee benefits, if any, to which you may be entitled under the Company’s
employee benefit plans and programs as of your termination date (items (i) through (iii) being the “Accrued Amounts”). The
Company shall pay you the items in (i) and (ii) within ten (10) days following the date of termination (or sooner if required by applicable
law) and the amounts under (iii) in accordance with the terms of such employee benefit plans or programs. For the avoidance of doubt,
you shall not be entitled to severance or any other payments (except for the Accrued Amounts and as otherwise required by law).
(b)
If the Company terminates your employment without Cause, or you terminate your employment for Good Reason, in addition to the Accrued
Amounts, the Company will pay you severance in the form of:
| (i) | salary continuation (the “Salary Continuation”) at your then base salary rate, payable in
accordance with the Company’s normal payroll practices, from the termination date through the nine (9) month anniversary of the
termination date (the “Severance Period”); plus |
| (ii) | a pro-rated bonus for the year of termination as determined by the Board of Directors equal to: (1) the
Bonus you would have received pursuant to Paragraph 3 for the year of termination, had you remained employed through such Bonus’
payment date, multiplied by (2) a fraction, the numerator of which is the number of days you were employed by the Company in the year
of termination and the denominator being 365; payable in the year following the year in which such Bonus is earned,
as provided in Paragraph 3 (the “Severance Bonus”). |
| (iii) | Additionally, to the extent applicable, if you elect to continue to receive group health insurance coverage
under the Company’s group health plan pursuant to COBRA, the Company will reimburse you for such monthly COBRA premiums nine (9)
months (such monthly payments being the “COBRA Amount”), provided
you provide the Company with adequate documentation of your payment of such monthly COBRA premiums. The COBRA Amount shall maintain the
coverage you and your dependents (if applicable) had immediately prior to the termination of your employment with the Company. In the
event you do not elect COBRA coverage, you subsequently become ineligible for continued COBRA coverage, or you fail to provide the Company
with adequate documentation of your payment of such COBRA premiums, the Company shall no longer be obligated to pay you the COBRA Amount. |
Notwithstanding the
above, you shall be required to execute a general release of claims in favor of the Company and its affiliates, officers, directors, and
employees in a form acceptable to the Company by the date specified in such release and such release must become irrevocable by its terms
in order for you to receive the Salary Continuation, and the Severance Bonus (the “Release Condition”). For the avoidance
of doubt, if you do not satisfy the Release Condition, the Company shall have no obligation to pay you the Salary Continuation and the
Severance Bonus.
(c)
“Cause” means: (i) your indictment of, being charged with, or entry of a plea of guilty or nolo contendere to (A) any
felony; or (B) a misdemeanor involving moral turpitude; (ii) your willful malfeasance or willful misconduct in connection with your employment;
(iii) your material breach of this Agreement, any breach of the NDA, or any violation of a material Company policy; (iv) engagement by
you in immoral conduct that has or could reasonably have a material adverse effect on the business or goodwill of the Company or any of
its affiliates, materially adversely reflects on the reputation of Company or any of its affiliates, or materially interferes with the
performance of your services to Company or any of its affiliates; or (v) your failure or refusal to perform, or gross negligence in performing,
your duties to the Company or any of its affiliates or your failure or refusal to abide by a lawful directive of the Company; provided,
however, that in each case (other than (i), (ii), and (iv)), the Company shall have provided you with written notice describing such event(s)
or circumstance(s), you have been afforded at least ten (10) days to cure (if curable), and you have failed to cure such event(s) or circumstances
within such cure period.
(d) “Good
Reason” means that, without your express prior written permission, the Company: (i) materially reduces your base salary
((other than pursuant to an across-the-board reduction applicable to all similarly situated executives) ; (ii) materially reduces
your title, authority and/or duties (otherwise than due to occurrence of Cause); (iii) materially breaches this Agreement or any
other written agreement with you, or (iv) requires you to relocate more than 50 miles from your current principal place of
employment; provided that no breach or condition shall constitute Good Reason hereunder unless: (i) you give the Company written
notice of such breach or condition within ninety (90) days of its first occurrence; (ii) the Company fails to cure such breach or
condition within thirty (30) days of its receipt of such written notice; and (iii) you terminate your employment within fifteen (15)
days of the expiration of such cure period.
11.
Tax Matters. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable
withholding and payroll taxes and other deductions required by law.
12. Section
409A. This Agreement is intended to comply with the requirements of Section 409A of the Code (“Section 409A”),
and the Parties hereby agree to amend this Agreement as and when necessary or desirable to conform to or otherwise properly reflect
any guidance issued under Section 409A after the date hereof without violating Section 409A. In case any one or more provisions of
this Agreement fails to comply with the provisions of Section 409A, the remaining provisions of this Agreement shall remain in
effect, and this Agreement shall be administered and applied as if the non-complying provisions were not part of this Agreement. The
Parties in that event shall endeavor to agree upon a reasonable substitute for the non-complying provisions, to the extent that a
substituted provision would not cause this Agreement to fail to comply with Section 409A, and, upon so agreeing, shall incorporate
such substituted provisions into this Agreement. In no event whatsoever shall the Company be liable for any additional tax, interest
or penalty that may be imposed on you by Section 409A or damages for failing to comply with Section 409A. A termination of your
employment hereunder shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment
of any amount or benefit constituting “deferred compensation” under Section 409A upon or following a termination of
employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for
purposes of any such provision of this Agreement, references to a “termination,” “termination of employment”
or like terms shall mean “separation from service.” In the event that any payment or benefit made hereunder or under any
compensation plan, program or arrangement of the Company would constitute payments or benefits pursuant to a non-qualified deferred
compensation plan within the meaning of Section 409A and, at the time of your “separation from service” you are a
“specified employee” within the meaning of Section 409A, then any such payments or benefits shall be delayed until the
six-month anniversary of the date of your “separation from service.” Each payment made under this Agreement shall be
designated as a “separate payment” within the meaning of Section 409A. All reimbursements and in-kind benefits provided
under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such
reimbursements or in-kind benefits are subject to Section 409A. All reimbursements for expenses paid pursuant hereto that constitute
taxable income to you shall in no event be paid later than the end of the calendar year next following the calendar year in which
you incur such expense or pays such related tax. Unless otherwise permitted by Section 409A, the right to reimbursement or in-kind
benefits under this Agreement shall not be subject to liquidation or exchange for another benefit and the amount of expenses
eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, respectively, in any other taxable year.
13.
No Other Restrictions. You have represented to the Company that you are under no restrictions that would prevent
you from being employed by the Company or performing the Services contemplated by this Agreement.
14.
Governing Law and Arbitration. This Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of California. Other than a claimed violation by you of Paragraph 8 of this Agreement or the NDA (the “Injunctive
Relief Exception”), any dispute or controversy arising out of or relating to this Agreement and/or related to your employment with
the Company that could otherwise be resolved by a court shall be resolved through arbitration administered by the American Arbitration
Association before a single neutral arbitrator in accordance with the Employment Arbitration Rules and Mediation Procedures, except as
modified by this Agreement. Neither class nor collective proceedings will be permitted. The arbitrator shall have the power to award any
remedies available under applicable law, and shall issue a written decision that contains the essential findings and conclusions on which
the decision is based. Judgment upon the award may be entered in any court having jurisdiction thereover. The Company will be responsible
for paying all fees unique to the arbitration, including the fees and costs of the arbitrator; provided, however, that if you are the
Party initiating the arbitration, you will contribute an amount equal to the filing fee you would have had to pay in order to pursue the
claim(s) in the applicable court of general jurisdiction. Except for the Injunctive Relief Exception, you and the Company give up and
waive any right to resolve a controversy through any other means, and the right to sue in court in connection with claims related
to this Agreement and/or your employment with the Company. This waiver of the right to sue in court includes, for example, claims
based on federal statutes such as the Fair Labor Standards Act, claims based on state law or common law causes of action, and claims concerning
compensation. This waiver does not apply to claims of sexual harassment or sexual assault (whether individual or brought on behalf of
a class) unless such waiver is in compliance with applicable law. If there is more than one dispute between you and the Company, all such
disputes may be heard in a single proceeding. Disputes pertaining to different employees of the Company will be heard in separate proceedings.
Any arbitration or litigation shall be held in Santa Clara, California, or in such other place as the Parties hereto may agree, unless
applicable law requires otherwise. This arbitration provision is governed by and will be construed in accordance with the Federal Arbitration
Act, 9 U.S.C. 1, et seq. If, for any reason, any term of this arbitration provision is held to be invalid or unenforceable, all other
valid terms and conditions of this arbitration provision shall be severable in nature, and remain fully enforceable
15.
Survival and Assignment. You agree that notwithstanding anything in this Agreement to the contrary, your obligations
under this Agreement, specifically, but without limitation, Paragraph 8 of this Agreement, shall survive any termination of this Agreement
and/or the relationship between you and the Company to the extent necessary to give effect to the subject provisions according to their
terms. This Agreement shall be binding upon and inure to the benefit of your heirs and representatives and the assigns and successors
of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable by you. The Company shall have
the right to assign this Agreement to any of its affiliates, successors, or related companies, whether now in existence or later formed.
16.
To the extent permissible by local laws: Litigation and Regulatory Cooperation. During and after your employment,
you shall cooperate fully with the Company in (i) the defense or prosecution of any claims or actions now in existence
or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while
you were employed by the Company, and (ii) the investigation, whether internal or external, of any matters about which the Company reasonably
believes you may have knowledge or information, provided you are not waiving any legal rights he may have. Your full cooperation in connection
with such claims, actions or investigations shall include, but not be limited to, being available to meet with counsel to answer questions
or to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after
your employment, you also shall cooperate fully with the Company in connection with any investigation or review of any federal, state
or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while you were employed
by the Company. The Company shall reimburse you for any reasonable out-of-pocket expenses incurred in connection with your performance
of obligations pursuant to this Paragraph 16 and, except as may be required by law or by court order, should you then be employed by
an entity other than the Company, such cooperation will not materially interfere with your then current employment or your efforts to
obtain new employment. In addition, for all time that you reasonably expend at the request of the Company in cooperating with the Company
pursuant to this Paragraph 16 when you are no longer employed by the Company, the Company shall compensate you at a per diem rate equal
to your base salary, divided by 365; provided that your right to such compensation shall not apply to time spent in activities that could
have been compelled pursuant to a subpoena, including testimony and related attendance at depositions, hearings or trials.
17.
No Prior Conflicts and Duty of Loyalty. You confirm that you are not subject to any consent decree, court or arbitral
order or agreement with any former employer or third party that prohibits you from working for the Company and that you are able to carry
out your duties without breaching any legal restrictions imposed by a current or former employer or other third party to whom you have
contractual obligations. –Covered in 1. Above.
18.
Mitigation. You shall not be required to mitigate any payment provided for under the Agreement by seeking other employment
or otherwise after the termination of your employment with the Company, and any amounts earned by you, whether from self-employment, as
a common-law employee or otherwise, shall not reduce any severance amounts otherwise payable to you hereunder pursuant to Paragraph 10.
19.
Section 280G.
(a) If
the Company is publicly traded at the time of a change in control of the Company (including an Acquisition of the Company as defined
in the Plan) and any of the payments or benefits received or to be received by you (including, without limitation, any payment or
benefits received in connection with such change in control or the termination of your employment, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement, or otherwise) (all such payments collectively referred to herein as the
“280G Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue
Code (“Section 280G”) and would, but for this Paragraph 19, be subject to the excise tax (the “Excise Tax”)
imposed under Section 4999 of the Internal Revenue Code (“Section 4999”), then prior to making the 280G Payments, a
calculation shall be made comparing (i) the Net Benefit (as defined below) to you of the 280G Payments after payment of the Excise
Tax to (ii) the Net Benefit to you if the 280G Payments are limited to the extent necessary to avoid being subject to the Excise
Tax. Only if the amount calculated under (i) above is less than the amount under (ii) above will the 280G Payments be reduced to the
minimum extent necessary to ensure that no portion of the 280G Payments is subject to the Excise Tax. “Net Benefit”
shall mean the present value of the 280G Payments net of all federal, state, local, foreign income, employment, and excise taxes.
Any reduction made pursuant to this Paragraph 19 shall be made in a manner determined by the Company that is consistent with the
requirements of Section 409A.
(b)
If the Company is privately held at the time of a change in control of the Company (including an Acquisition of the Company), then
prior to making the 280G Payments, the Company shall use commercially reasonable efforts to submit the 280G Payments for approval to the
Company’s shareholders who are entitled to vote to the extent and in the manner required under Section 280G(b)(5)(B) and to recommend
to the shareholders that they approve such 280G Payments.
(c) All
calculations and determinations under this Paragraph 19 shall be made by an independent accounting firm or independent tax counsel
appointed by the Company (the “Tax Counsel”) whose determinations shall be conclusive and binding on the Company and you
for all purposes. For purposes of making the calculations and determinations required by this Paragraph 19, the Tax Counsel may rely
on reasonable, good faith assumptions and approximations concerning the application of Sections 280G and 4999. The Company and you
shall furnish the Tax Counsel with such information and documents as the Tax Counsel may reasonably request in order to make its
determinations under this Paragraph 19. The Company shall bear all costs the Tax Counsel may reasonably incur in connection with its
services.
20.
Severability, Amendment and Modification. Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by
or invalid under applicable law, such provision shall fail to be in effect only to the extent of such prohibition or invalidity without
invalidating the remainder of this Agreement or any such provision. No provision of this Agreement may be modified, amended, waived, or
terminated except by a writing signed by both you and the President of the Company. No course of dealing between you and the Company will
modify, amend, waive, or terminate any provision of this Agreement or any rights or obligations of any Party under or by reason of this
Agreement.
21.
Entire Agreement. This Agreement constitutes the entire Agreement between the Parties hereto relating to the subject
matter hereof. All prior or contemporaneous agreements or understandings between the Parties relating to the subject matter hereof, whether
oral or written, are superseded by this Agreement and hereby null and void. You acknowledge that no other promises were made to you other
than are or may be contained in this Agreement and that no other inducement caused you to sign this letter.
22.
Counterparts and Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which
shall be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall
be as valid and binding as an original.
23.
Acknowledgment. You acknowledge that you have had the opportunity to consult legal counsel regarding this Agreement,
have read and understand this Agreement, are fully aware of its legal effect, and have entered into it freely and voluntarily and not
on the basis of any representations or promises other than those contained in this Agreement.
[Signature page follows]
| zSpace, Inc. |
|
Accepted and agreed: |
| |
|
|
| By: |
/s/ Tara Choy |
|
/s/ Ronald Rheinheimer |
| Name: Tara Choy |
|
Ronald Rheinheimer |
| Date: June 6, 2024 |
|
Date: June 6, 2024 |
EXHIBIT A
CONFIDENTIALITY AND ASSIGNMENT AGREEMENT
(the “NDA”)
This NDA is entered into by and between zSpace, Inc. (the
“Company”) and Ronald Rheinheimer (“Employee”).
WHEREAS, the Company is interested in
employing or continuing to employ Employee and Employee is interested in being employed or continuing to be employed by the Company subject
to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration
of the foregoing promises and the mutual covenants and agreements of the parties contained herein, the parties hereby agree as follows:
1.
Confidentiality. Except as authorized or directed by the Company in writing, Employee shall not, at any time during
or subsequent to Employee’s employment, directly or indirectly publish or disclose any Confidential Information (as defined below)
of the Company that has come into Employee’s possession in the course of Employee’s employment with the Company. Employee
also shall not use any such Confidential Information for Employee’s own personal use or advantage or the use or advantage of any
person or entity other than the Company, or make it available to others for use. Confidential Information includes, without limitation,
the Company’s proprietary information, intellectual property, know-how, or other information regarding the Company’s products
or services and markets therefor, data, product plans, software, research, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, business information, trade secrets, customer lists (both existing
and prospective), marketing, financial data, sales strategies, pricing strategies, methods of operation, investments, potential investments,
related companies, contractual relationships, business and financing terms, investors, partners, investigations, and personnel matters.
Employee agrees that said Confidential Information is valuable to the Company, and that the unauthorized release of Confidential Information
would cause serious damage to the Company. Employee recognizes that the Company has received and in the future will receive from third
parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of
such information and to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information
in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out
Employee’s work for the Company consistent with the Company’s agreement with such third party. Nothing herein shall be construed
to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of
a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure
required by such law, regulation, or order. Employee shall promptly provide written notice of any such order to the Company. Nothing contained
in this Paragraph or otherwise in this NDA shall be read to restrict or impinge on Employee’s right to engage in protected activity
or communications under the National Labor Relations Act (the “NLRA”), or to limit or restrict in any way Employee’s
immunity from liability for disclosing the Company’s trade secrets as specifically permitted by 18 U.S. Code Section 1833, the pertinent
provisions of which are attached hereto as Exhibit E.
(a)
Inventions Retained and Licensed. Employee has attached hereto, as Exhibit B, a list describing all inventions, designs
original works of authorship, developments, improvements, and trade secrets which were made by Employee prior to Employee’s employment
with the Company (collectively referred to as “Prior Inventions”), which belong to Employee, which relate to the Company’s
business, products or product development, and which are not assigned to the Company hereunder. If there is no such list attached hereto,
Employee represents that there are no Prior Inventions. If in the course of providing services to the Company, Employee incorporates into
a Company product, process or design or a Prior Invention owned by Employee or in which Employee has an interest, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell
such Prior Invention as part of or in connection with such product, process or design.
(b) Assignment
of Inventions. Employee acknowledges that during Employee’s employment with the Company and/or during such time as
Employee is providing services to the Company as an employee, a consultant, a contractor, or in any capacity (both Employee’s
employment and/or Employee’s provision of services are referred to collectively herein as “employment” or being
“employed”), Employee will be expected to undertake creative work, either alone or jointly with others, which may lead
to inventions, original works of authorship, developments, concepts, improvements, trade secrets or other intellectual property
rights, whether or not patentable or registrable under copyright or similar laws (“Inventions”). Employee hereby agrees
that Employee will provide the Company with full written details regarding all Inventions created by Employee while Employee is
employed by the Company at the Company’s request (whether or not on the Company’s premises or using the Company’s
equipment and materials or during regular business hours) and that all such Inventions shall be a work-for-hire and shall be the
sole and exclusive property of the Company, and Employee hereby assigns to the Company all of Employee’s right, title and
interest in and to any and all such Inventions. In addition, any Inventions created within three years after the termination of
Employee’s employment with the Company which are based upon or derived from Confidential Information shall be the sole and
exclusive property of the Company, and Employee hereby assigns to the Company all of Employee’s right, title, and interest in
and to any and all such Inventions. Nothing in the preceding sentence shall be construed to limit Employee’s obligations
under
Paragraph 1 of this NDA.
(c) Patent
and Copyright Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, in
every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to
the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and
any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Employee further agrees that
Employee’s obligation to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument
or papers shall continue after the termination of this NDA. If the Company is unable because of Employee’s mental or physical
incapacity or for any other reason to secure Employee’s signature to apply for or to pursue any application for any United
States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as
above, then Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as
Employee’s agent and attorney in fact, to act for and on Employee’s behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by Employee.
(d)
Application. Employee agrees that the provisions of this Paragraph shall apply with respect to any and all Inventions,
whether created during Employee’s employment with the Company or any predecessor entity. Employee acknowledges that the Company
and its future investors, if any, shall rely on this representation.
(e) Acknowledgment.
Employee acknowledges that Employee has been advised by the Company pursuant to Section 2872 of the California Labor Code that,
notwithstanding the foregoing, provisions of this NDA requiring the assignment of inventions do not apply to any invention that
qualifies fully under Section 2870 of the California Labor Code, which provides the following:
Any provision in an employment agreement which provides
that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities,
or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of
the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or (2)
result from any work performed by the employee for the employer.
3.
Social Media. Except as permitted by applicable law, including the NLRA, Employee is prohibited from posting any
confidential, financial, sensitive, or proprietary information, or job-related content about the Company or any of the Company’s
current, former, or potential employees, partners, suppliers, vendors, licensors, or business relations on social media. This prohibition
applies to all forms of social media including, but not limited to: blogs, Meta (f/k/a Facebook), X (f/k/a Twitter), LinkedIn, YouTube,
Tumblr, and Instagram. Content regarding the Company that is truthful, accurate and respectful may be posted if it is approved in advance,
in writing, by the Company in each and every instance. Employee is representing Employee, not the Company, when participating in social
networking. Employee should not represent that Employee is in any way speaking on behalf of the Company unless Employee is authorized
to do so in writing.
4.
Non-Disparagement. Employee shall not disparage or make any statement which might adversely affect the reputation
of the Company whether during the term of employment or following termination. For the purpose of this Paragraph, the term “disparage”
shall include, without limitation, any statement accusing the aforesaid individuals or entities of acting in violation of any law or
governmental regulation or of condoning any such action, or otherwise acting in an unprofessional, dishonest, disreputable, improper,
incompetent or negligent manner. Nothing contained in this Paragraph shall be read to restrict or impinge on Employee’s right to
engage in protected activity or communications under the NLRA.
5.
Return of Company Materials. Employee agrees that at the time Employee ceases performing services for the Company,
or at any time the Company so requests, (a) Employee shall immediately deliver to the Company (and will not keep in Employee’s
possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed
by or in connection with Employee’s employment or engagement with the Company or otherwise belonging to the Company, its successors
or assigns, and (b) Employee shall not use Confidential Information in any way for any purpose. In the event of the termination of Employee’s
employment, Employee agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit C.
6. Notification
of New Employer. In the event that Employee’s employment with the Company terminates, Employee hereby grants consent
to notification by the Company to Employee’s new employer about Employee’s rights and obligations under this NDA.
7.
Conflict of Interest Guidelines. Employee agrees to diligently adhere to the Conflict of Interest Guidelines attached
as Exhibit D hereto.
8.
Specific Performance and Equitable Relief. Employee acknowledges and agrees that the Company would suffer irreparable
harm if the Confidential Information was disclosed to third parties without the Company’s consent or if Employee breached Employee’s
other obligations contained herein. Employee further agrees that if in the opinion of any court of competent jurisdiction such restraints
are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provisions as to the
court shall appear not reasonable and to enforce the remainder of the NDA as so amended. Accordingly, Employee hereby consents to and
agrees that, in the event of a breach or threatened breach of this NDA by Employee, the Company shall have the right to exercise any and
all rights by appropriate action either by law or in equity, including specific performance of Employee’s obligations arising pursuant
to this NDA, and that the Company shall be entitled to equitable relief, including injunctive relief, in connection with any breach or
threatened breach by Employee of Employee’s obligations arising pursuant to this NDA, and specifically, without limitation, the
confidentiality and non-disparagement provisions above. Employee further agrees that the Company may, in addition to pursuing any remedies
it may have in law or in equity, cease making any payments otherwise required by any agreement between the Company and Employee as permitted
by law, and that Employee shall not request that the Company post, nor shall the Company be obligated to post, a bond in connection with
any equitable relief authorized pursuant to this Paragraph and in fact requested by the Company. To the extent the Company expends attorneys’
fees in enforcing the terms of this NDA against Employee, Employee shall be responsible for indemnifying the Company for said fees.
9. Warranty
by Employee. Employee represents and warrants that: (i) Employee will execute any proper oath or verify any proper document
required to carry out the terms of this NDA; (ii) consulting with or being employed by the Company does not constitute a breach of
any agreement or other legal obligation with or to a third party; (iii) Employee is not bound by or subject to any agreement or
other legal obligation with a third party that would adversely affect Employee’s consulting with or being employed by the
Company including, but not limited to, a prior employment agreement, confidentiality agreement, or covenant not to compete, not to
solicit or other restriction against competition; (iv) Employee will not use in connection with Employee’s employment with the
Company any confidential or proprietary information belonging to any third party, including Employee’s former employers,
without first obtaining a written release from that third party; (v) Employee will not enter into any oral or written agreement in
conflict herewith; and (vi) in performing services for the Company, Employee shall comply with all policies and procedures of the
Company (as applicable) and all applicable laws. Employee shall indemnify, defend, and hold harmless the Company and the present,
former and future officers, directors, managers, shareholders, members, employees, contractors and agents of the Company from any
and all losses, claims, damages, judgments, awards, costs and expenses (including, without limitation, reasonable attorneys’
fees and costs, and direct, indirect, and consequential damages) incurred as a result of any breach of this Paragraph or any other
provision of this NDA.
10.
Survival, Assignability. This NDA shall commence and be effective when executed by the parties, and Employee’s
obligations under this NDA shall survive the termination of the NDA and any services Employee provides to the Company pursuant to the
terms of this NDA. This NDA shall be binding upon and inure to the benefit of Employee’s heirs, executors, administrators, and representatives
and will be for the benefit of the Company, its successors, and its assigns. Neither this NDA nor any rights or obligations hereunder
shall be assignable by Employee. The Company shall have the right to assign this NDA to any of its affiliates, successors, or related
companies, whether now in existence or later formed, without Employee’s consent.
11.
Severability. Any provision of this NDA which is determined to be illegal, prohibited, or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating
the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.
Amendments. No breach of any provision of this NDA may be waived unless in writing. This NDA may be amended only
by a written agreement executed by Employee and the President of the Company.
13.
Counterparts and Facsimile Signatures. This NDA may be executed in two or more counterparts, each of which shall
be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall be as
valid and binding as an original.
14.
Choice of Forum. Each of the parties hereby consents to the jurisdiction of any state or federal court located within
Santa Clara, California, and irrevocably agrees that all actions or proceedings relating to this NDA must be litigated in such courts,
and each of the parties waives any objections which it may have based on improper venue or forum non conveniens to the conduct
of any proceeding in such court.
15.
Governing Law. This NDA shall be governed by, and construed and enforced in accordance with, the laws of the State
of California (excluding the choice of law rules thereof) and, to the extent applicable, the laws and regulations of the United States
of America governing intellectual property matters. EMPLOYEE ACKNOWLEDGES AND AGREES THAT, PRIOR TO EXECUTING THIS NDA, EMPLOYEE WAS
AFFORDED AN OPPORTUNITY TO OBTAIN THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTANDS ALL OF THIS NDA. ACCORDINGLY,
THIS NDA SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS NDA.
[Signature page follows]
| ACCEPTED AND AGREED: |
|
| |
|
| /s/ Ronald
Rheinheimer |
|
| Ronald Rheinheimer |
|
Signature Page – zSpace, Inc. – Ronald
Rheinheimer NDA 06/05/2024
Exhibit B – Executive
Incentive Compensation Plan Individual Target Sheet
Effective January 1, 2024
For Participant: Ron Rheinheimer, EVP, Global Sales and
Solutions
Reporting Directly to CEO: Paul Kellenberger
Territory Assignment: Americas and APAC/EMEA
January 1-December 31, 2024 Annual
Quota Target: $32,400,000 (hardware), $21,600,000 (software and services), total target $54,000,000
Sales Measurement Metrics: Achieved Net Billings
Company Sales:
The SIP Participant named above is eligible for success based
commission amounts for the Company’s achievement of the following Net Billing targets, including 3rd party hardware and
software products. Commission amounts upon successful completion, or partial completion, of the targets will be paid when the product
has been delivered and invoiced and the customer has paid completing the revenue recognition process as described in the Note, below.
zSpace Sales Target:
| Market / Customer Description |
Period |
Achieved Net Billings Target |
| Americas and APAC/EMEA |
January 1 – December 31, 2024 |
$54,000,000 measured on a year-to-date |
| (All markets including K-12, Higher |
|
basis |
| |
|
| Education, Medical Training, |
|
|
| Corporate Training and Others. |
|
|
| |
|
|
Base Commission on Achieved Net Billings:
| % of Net Billings Target |
Commission % of Achieved Net Billings |
| Achieved |
|
| Hardware Target |
$100,000 OTE$ target for delivering $32,400,000 in hardware bookings |
| <100% of Target |
.31% on all Achieved Net Revenue up to 100% of Target |
| >100% of Target |
.31% on incremental Achieved Net Revenue over 100% of Target |
| Software and Services Target |
$150,000 OTE$ target for delivering $21,600,000 in software and services bookings |
| <100% of Target |
.69% on all Achieved Net Revenue up to 100% of Target |
| >100% of Target |
2.78% on incremental Achieved Net Revenue over 100% of Target |
NOTE: The commission for these criteria shall be
calculated on Net Billings as achieved on a quarterly basis and paid out upon customer payment for the amounts invoiced for all hardware
and software products delivered by the end of the month following the quarter. According to the Sales/BD Incentive Plan terms, Commissions
on sales transactions credited to the SIP Participant are earned only when the revenue process is complete and zSpace has received full
payment for the sale.
Company Sales Variable Compensation at Target: $ 250,000
Sales Incentive Compensation Plan Terms and Conditions
and this Executive Incentive Compensation Plan Individual Target Sheet are accepted effective as of January 1, 2024 by:
| zSpace, Inc.: |
|
Participant: |
| |
| By: |
/s/
Paul Kellenberger |
|
By: |
|
| Name: |
Paul Kellenberger |
|
Name: |
Ron Rheinheimer |
| Title: |
CEO |
|
Title: |
EVP, Global Sales and Solutions |
Exhibit
10.8
EMPLOYMENT
AGREEMENT
This
employment agreement (the “Agreement”) when duly executed is made and entered into by and between zSpace, Inc. (the “Company”)
and Michael Harper (“you”) (the “Company” and “you” are referred to herein in the collective
as the “Parties”).
1.
Title/Duties. You shall be employed as Head of Product, Engineering and Marketing, and you will provide services to and
take direction from the Company. You will be responsible for the duties and obligations consistent with your position, which will be
subject to the control of the Company and may change from time to time at the sole discretion of the CEO (the “Services”).
You will devote your full time and best efforts to the performance of your duties for the Company. While employed by the Company, except
as may otherwise be approved by the Board of Directors you shall not perform work on behalf of, or provide services to, third parties,
whether as an employee, director, consultant, advisor, or otherwise, and you shall not engage in any other activities that conflict with
your obligations to the Company.
2.
Base Salary. As full and complete consideration for the Services provided herein by you, and on the condition that you
fully and faithfully perform the Services, duties and obligations required to be performed hereunder, and that you are not in breach
of this Agreement, the Company shall pay you a base salary at the annual rate of Three hundred and twenty-five thousand Dollars ($325,000)
gross, per annum (prorated for partial years), payable in accordance with the Company’s payroll practices and subject
to customary tax withholdings and deductions.
3.
Discretionary Bonus. The Company may, in its sole discretion, award to you a discretionary bonus (the “Bonus”) each
financial year based on the Company’s overall performance and subject to customary tax withholdings and deductions. Payment of
the Bonus, if any, and the amount, is in the Company’s sole discretion. The Company shall pay you such Bonus (if earned) following
the end of the financial year for which it is earned; provided that you must be actively employed by the Company and in good standing
on the date such Bonus is to be paid to you in order to receive it.
4.
Equity.
Subject
to the approval of the Board of Directors of the Company, the Company will grant to you, as of the earliest date upon which future grants
are made to other employees of the Company (the “Grant Date”), an option to purchase shares of the Company’s common
stock in an amount to be determined by the Board commensurate with your role (the “Option”) in accordance with the Company’s
[2017 Equity Incentive Plan] as it may be amended or restated or replaced (the “Plan”); provided that you must be an employee
in good standing with the Company on the Grant Date in order to receive the Option. The per share strike price of the Option will be
the fair market value per share of the Company’s common stock on the Grant Date, as determined by the Board of Directors. The Options
have a 3 year vesting period and shall vest monthly upon grant.
2050
Gateway Pl Suite 100-302 San Jose, CA
95110
Confidential
Tel:
(408) 498-4050 Web: www.zspace.com
In
the event of: (i) your death; or (ii) your experiencing a Disability (as defined in the Plan); in each case, prior to your death or your
experiencing a Disability, the employee was required to be in good standing with the company, the Option shall become fully vested and
exercisable immediately prior to such event.
5.
Employee Benefits. If you are eligible, you may participate in the Company’s non-equity employee benefit plans or
programs, subject to the terms of such plan or program and Company policy. However, nothing herein requires the Company to keep such
plan or arrangement in place, or continue any such plan or arrangement, and the Company may modify, amend, or terminate such plan or
program at any time in its sole discretion.
6.
Business Expenses. The Company will reimburse you for reasonable, pre-approved business expenses in accordance with Company
policy. Such expenses shall be paid for by the Company if they are incurred by you in the course of performing the Services, consistent
with the Company’s policies regarding business expenses, and supported by documentation submitted by you in a timely manner.
7.
Paid Time Off.
(a)
Vacation. You shall be entitled to vacation time in accordance with Company policy, which shall not contravene any rights
provided by applicable law.
(b)
Sick Days. You shall be entitled to five (5) days, or forty (40) hours, of paid sick time a year upon completion of a ninety
(90) day employment period in accordance with Company policy. Unused sick days will not be paid out upon termination of your employment.
Nothing contained herein shall be read to contravene any rights provided by applicable law, which shall govern and supersede in the event
of a conflict between its terms and the policy stated herein.
8. Confidentiality.
You acknowledge that during your employment with the Company you will have access to the Company’s confidential information, including,
but not limited to, the Company’s proprietary information, intellectual property, research, customer lists, supplier lists, product
pricing methods, price lists and know-how. You agree not to disclose any of the Company’s confidential information without the
Company’s written consent. You further agree that the Company’s confidential information is valuable to the Company and that
the unauthorized release of the Company’s confidential information would cause serious damage to the Company. As a condition of
your employment with the Company, you agree to be subject to the covenants and other provisions of the Confidentiality and Assignment
Agreement (the “NDA”), annexed hereto as Exhibit A. You agree that your employment with the Company is contingent upon your
adherence to the NDA and to the Company’s policies and procedures. In the event that your employment with the Company terminates
for any reason or no reason, you agree that you will continue to be bound by the provisions of the NDA which by its terms continue in
full force and effect after the termination of your employment with the Company. You shall indemnify the Company for all damages incurred
by your violation of the NDA, and reimburse the Company for any attorneys’ fees and expenses incurred in the Company’s efforts
to enforce the NDA. Nothing contained in this Paragraph or otherwise in this Agreement shall be read to restrict or impinge on your right
to engage in protected activity or communications under the National Labor Relations Act.
9.
Term. Although your employment with the company started prior to this agreement, this agreement shall commence on June
1, 2024 (the “Start Date”), and is terminable “at will,” which means you or the Company may terminate your
employment with or without Cause, notice, or Good Reason at any time, subject to Paragraph 10 below; provided, however, that you agree
to provide the Company with at least thirty (30) days advance written notice of your intent to terminate employment. The Company reserves
the right, in its sole discretion, to waive all or part of this 30-day notice period (the “Notice Period”) and terminate
your employment prior to the conclusion of the Notice Period, and will not be required to pay your salary following such termination.
To the extent the Company does not waive the Notice Period, then you shall remain employed and continue to be bound by the terms of this
letter agreement through the Notice Period, and shall receive only your base salary (in the amount as of the date such notice is given),
but the Company may, in its sole discretion, direct you to cease performing some or all of your duties, transition your duties to other
individuals, perform other or different duties as the Company deems appropriate, and/or refrain from entering the Company’s premises
through the Notice Period. For the avoidance of doubt you may not perform services for a third party during such Notice Period. The terms
in this agreement replace any prior agreements.
10. Termination.
(a)
In the event that the Company terminates your employment for Cause, or you resign without Good Reason, you will be entitled to receive:
(i) your Base Salary through the date of termination to the extent not yet paid to you; (ii) any unreimbursed business expenses payable
to you in accordance with Company policy; and (iii) such employee benefits, if any, to which you may be entitled under the Company’s
employee benefit plans and programs as of your termination date (items (i) through (iii) being the “Accrued Amounts”). The
Company shall pay you the items in (i) and (ii) within ten (10) days following the date of termination (or sooner if required by applicable
law) and the amounts under (iii) in accordance with the terms of such employee benefit plans or programs. For the avoidance of doubt,
you shall not be entitled to severance or any other payments (except for the Accrued Amounts and as otherwise required by law).
(b)
If the Company terminates your employment without Cause, or you terminate
your employment for Good Reason, in addition to the Accrued Amounts, the Company will pay you severance in the form of:
| (i) | salary
continuation (the “Salary Continuation”) at your then base salary rate, payable
in accordance with the Company’s normal payroll practices, from the termination date
through the twelve (12) month anniversary of the termination date (the “Severance Period”);
plus |
| (ii) | a
pro-rated bonus for the year of termination as determined by the Board of Directors equal
to: (1) the Bonus you would have received pursuant to Paragraph 3 for the year of termination,
had you remained employed through such Bonus’ payment date, multiplied by (2) a fraction,
the numerator of which is the number of days you were employed by the Company in the year
of termination and the denominator being 365; payable in the year following the year in which
such Bonus is earned, as provided in Paragraph 3 (the “Severance Bonus”). |
| (iii) | Additionally,
to the extent applicable, if you elect to continue to receive group health insurance coverage
under the Company’s group health plan pursuant to COBRA, the Company will reimburse
you for such monthly COBRA premiums twelve (12) months (such monthly payments being the “COBRA
Amount”), provided you provide the Company with adequate documentation of your payment
of such monthly COBRA premiums. The COBRA Amount shall maintain the coverage you and your
dependents (if applicable) had immediately prior to the termination of your employment with
the Company. In the event you do not elect COBRA coverage, you subsequently become ineligible
for continued COBRA coverage, or you fail to provide the Company with adequate documentation
of your payment of such COBRA premiums, the Company shall no longer be obligated to pay you
the COBRA Amount. |
Notwithstanding
the above, you shall be required to execute a general release of claims in favor of the Company and its affiliates, officers, directors,
and employees in a form acceptable to the Company by the date specified in such release and such release must become irrevocable by its
terms in order for you to receive the Salary Continuation, and the Severance Bonus (the “Release Condition”). For the avoidance
of doubt, if you do not satisfy the Release Condition, the Company shall have no obligation to pay you the Salary Continuation and the
Severance Bonus.
(c)
“Cause” means: (i) your indictment of, being charged with,
or entry of a plea of guilty or nolo contendere to (A) any felony; or (B) a misdemeanor involving moral turpitude; (ii) your willful
malfeasance or willful misconduct in connection with your employment; (iii) your material breach of this Agreement, any breach of the
NDA, or any violation of a material Company policy; (iv) engagement by you in immoral conduct that has or could reasonably have a material
adverse effect on the business or goodwill of the Company or any of its affiliates, materially adversely reflects on the reputation of
Company or any of its affiliates, or materially interferes with the performance of your services to Company or any of its affiliates;
or (v) your failure or refusal to perform, or gross negligence in performing, your duties to the Company or any of its affiliates or
your failure or refusal to abide by a lawful directive of the Company; provided, however, that in each case (other than (i), (ii), and
(iv)), the Company shall have provided you with written notice describing such event(s) or circumstance(s), you have been afforded at
least ten (10) days to cure (if curable), and you have failed to cure such event(s) or circumstances within such cure period.
(d)
“Good Reason” means that, without your express prior written
permission, the Company: (i) materially reduces your base salary ((other than pursuant to an across-the-board reduction applicable to
all similarly situated executives) ; (ii) materially reduces your title, authority and/or duties (otherwise than due to occurrence of
Cause); (iii) materially breaches this Agreement or any other written agreement with you, or (iv) requires you to relocate more than
50 miles from your current principal place of employment; provided that no breach or condition shall constitute Good Reason hereunder
unless: (i) you give the Company written notice of such breach or condition within ninety (90) days of its first occurrence; (ii) the
Company fails to cure such breach or condition within thirty (30) days of its receipt of such written notice; and (iii) you terminate
your employment within fifteen (15) days of the expiration of such cure period.
11.
Tax Matters. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable withholding
and payroll taxes and other deductions required by law.
12.
Section 409A. This Agreement is intended to comply with the requirements of Section 409A of the Code (“Section 409A”),
and the Parties hereby agree to amend this Agreement as and when necessary or desirable to conform to or otherwise properly reflect any
guidance issued under Section 409A after the date hereof without violating Section 409A. In case any one or more provisions of this Agreement
fails to comply with the provisions of Section 409A, the remaining provisions of this Agreement shall remain in effect, and this Agreement
shall be administered and applied as if the non-complying provisions were not part of this Agreement. The Parties in that event shall
endeavor to agree upon a reasonable substitute for the non-complying provisions, to the extent that a substituted provision would not
cause this Agreement to fail to comply with Section 409A, and, upon so agreeing, shall incorporate such substituted provisions into this
Agreement. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on you
by Section 409A or damages for failing to comply with Section 409A. A termination of your employment hereunder shall not be deemed to
have occurred for purposes of any provision of this Agreement providing for the payment of any amount or benefit constituting “deferred
compensation” under Section 409A upon or following a termination of employment unless such termination is also a “separation
from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,”
“termination of employment” or like terms shall mean “separation from service.” In the event that any payment
or benefit made hereunder or under any compensation plan, program or arrangement of the Company would constitute payments or benefits
pursuant to a non-qualified deferred compensation plan within the meaning of Section 409A and, at the time of your “separation
from service” you are a “specified employee” within the meaning of Section 409A, then any such payments or benefits
shall be delayed until the six-month anniversary of the date of your “separation from service.” Each payment made under this
Agreement shall be designated as a “separate payment” within the meaning of Section 409A. All reimbursements and in-kind
benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that
such reimbursements or in-kind benefits are subject to Section 409A. All reimbursements for expenses paid pursuant hereto that constitute
taxable income to you shall in no event be paid later than the end of the calendar year next following the calendar year in which you
incur such expense or pays such related tax. Unless otherwise permitted by Section 409A, the right to reimbursement or in-kind benefits
under this Agreement shall not be subject to liquidation or exchange for another benefit and the amount of expenses eligible for reimbursement,
or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to
be provided, respectively, in any other taxable year.
13.
No Other Restrictions. You have represented to the Company that you are under no restrictions that would prevent you from
being employed by the Company or performing the Services contemplated by this Agreement.
14.
Governing Law and Arbitration. This Agreement shall be governed by, and construed and enforced in accordance with, the
laws of the State of California. Other than a claimed violation by you of Paragraph 8 of this Agreement or the NDA (the “Injunctive
Relief Exception”), any dispute or controversy arising out of or relating to this Agreement and/or related to your employment with
the Company that could otherwise be resolved by a court shall be resolved through arbitration administered by the American Arbitration
Association before a single neutral arbitrator in accordance with the Employment Arbitration Rules and Mediation Procedures, except as
modified by this Agreement. Neither class nor collective proceedings will be permitted. The arbitrator shall have the power to award
any remedies available under applicable law, and shall issue a written decision that contains the essential findings and conclusions
on which the decision is based. Judgment upon the award may be entered in any court having jurisdiction thereover. The Company will be
responsible for paying all fees unique to the arbitration, including the fees and costs of the arbitrator; provided, however, that if
you are the Party initiating the arbitration, you will contribute an amount equal to the filing fee you would have had to pay in order
to pursue the claim(s) in the applicable court of general jurisdiction. Except for the Injunctive Relief Exception, you and the Company
give up and waive any right to resolve a controversy through any other means, and the right to sue in court in connection with
claims related to this Agreement and/or your employment with the Company. This waiver of the right to sue in court includes,
for example, claims based on federal statutes such as the Fair Labor Standards Act, claims based on state law or common law causes of
action, and claims concerning compensation. This waiver does not apply to claims of sexual harassment or sexual assault (whether individual
or brought on behalf of a class) unless such waiver is in compliance with applicable law. If there is more than one dispute between you
and the Company, all such disputes may be heard in a single proceeding. Disputes pertaining to different employees of the Company will
be heard in separate proceedings. Any arbitration or litigation shall be held in Santa Clara, California, or in such other place as the
Parties hereto may agree, unless applicable law requires otherwise. This arbitration provision is governed by and will be construed in
accordance with the Federal Arbitration Act, 9 U.S.C. 1, et seq. If, for any reason, any term of this arbitration provision is held to
be invalid or unenforceable, all other valid terms and conditions of this arbitration provision shall be severable in nature, and remain
fully enforceable
15.
Survival and Assignment. You agree that notwithstanding anything in this Agreement to the contrary, your obligations under
this Agreement, specifically, but without limitation, Paragraph 8 of this Agreement, shall survive any termination of this Agreement
and/or the relationship between you and the Company to the extent necessary to give effect to the subject provisions according to their
terms. This Agreement shall be binding upon and inure to the benefit of your heirs and representatives and the assigns and successors
of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable by you. The Company shall have
the right to assign this Agreement to any of its affiliates, successors, or related companies, whether now in existence or later formed.
16.
To the extent permissible by local laws: Litigation and Regulatory Cooperation. During and after your employment, you shall
cooperate fully with the Company in (i) the defense or prosecution of any claims or actions now in existence or which may
be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while you were employed
by the Company, and (ii) the investigation, whether internal or external, of any matters about which the Company reasonably believes
you may have knowledge or information, provided you are not waiving any legal rights he may have. Your full cooperation in connection
with such claims, actions or investigations shall include, but not be limited to, being available to meet with counsel to answer questions
or to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after
your employment, you also shall cooperate fully with the Company in connection with any investigation or review of any federal, state
or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while you were employed
by the Company. The Company shall reimburse you for any reasonable out-of-pocket expenses incurred in connection with your performance
of obligations pursuant to this Paragraph 16 and, except as may be required by law or by court order, should you then be employed by
an entity other than the Company, such cooperation will not materially interfere with your then current employment or your efforts to
obtain new employment. In addition, for all time that you reasonably expend at the request of the Company in cooperating with the Company
pursuant to this Paragraph 16 when you are no longer employed by the Company, the Company shall compensate you at a per diem rate equal
to your base salary, divided by 365; provided that your right to such compensation shall not apply to time spent in activities that could
have been compelled pursuant to a subpoena, including testimony and related attendance at depositions, hearings or trials.
17.
No Prior Conflicts and Duty of Loyalty. You confirm that you are not subject to any consent decree, court or arbitral order
or agreement with any former employer or third party that prohibits you from working for the Company and that you are able to carry out
your duties without breaching any legal restrictions imposed by a current or former employer or other third party to whom you have contractual
obligations. –Covered in 1. Above.
18.
Mitigation. You shall not be required to mitigate any payment provided for under the Agreement by seeking other employment
or otherwise after the termination of your employment with the Company, and any amounts earned by you, whether from self-employment,
as a common-law employee or otherwise, shall not reduce any severance amounts otherwise payable to you hereunder pursuant to Paragraph
10.
19.
Section 280G.
(a)
If the Company is publicly traded at the time of a change in control of the Company (including an Acquisition of the Company as defined
in the Plan) and any of the payments or benefits received or to be received by you (including, without limitation, any payment or benefits
received in connection with such change in control or the termination of your employment, whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement, or otherwise) (all such payments collectively referred to herein as the “280G Payments”)
constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code (“Section 280G”)
and would, but for this Paragraph 19, be subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal
Revenue Code (“Section 4999”), then prior to making the 280G Payments, a calculation shall be made comparing (i) the Net
Benefit (as defined below) to you of the 280G Payments after payment of the Excise Tax to (ii) the Net Benefit to you if the 280G Payments
are limited to the extent necessary to avoid being subject to the Excise Tax. Only if the amount calculated under (i) above is less than
the amount under (ii) above will the 280G Payments be reduced to the minimum extent necessary to ensure that no portion of the 280G Payments
is subject to the Excise Tax. “Net Benefit” shall mean the present value of the 280G Payments net of all federal, state,
local, foreign income, employment, and excise taxes. Any reduction made pursuant to this Paragraph 19 shall be made in a manner determined
by the Company that is consistent with the requirements of Section 409A.
(b)
If the Company is privately held at the time of a change in control of the Company (including an Acquisition of the Company), then prior
to making the 280G Payments, the Company shall use commercially reasonable efforts to submit the 280G Payments for approval to the Company’s
shareholders who are entitled to vote to the extent and in the manner required under Section 280G(b)(5)(B) and to recommend to the shareholders
that they approve such 280G Payments.
(c)
All calculations and determinations under this Paragraph 19 shall be made by an
independent accounting firm or independent tax counsel appointed by the Company (the “Tax Counsel”) whose determinations
shall be conclusive and binding on the Company and you for all purposes. For purposes of making the calculations and determinations required
by this Paragraph 19, the Tax Counsel may rely on reasonable, good faith assumptions and approximations concerning the application of
Sections 280G and 4999. The Company and you shall furnish the Tax Counsel with such information and documents as the Tax Counsel may
reasonably request in order to make its determinations under this Paragraph 19. The Company shall bear all costs the Tax Counsel may
reasonably incur in connection with its services.
20.
Severability, Amendment and Modification. Whenever possible, each provision of this Agreement shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall fail to be in effect only to the extent of such prohibition or invalidity without invalidating
the remainder of this Agreement or any such provision. No provision of this Agreement may be modified, amended, waived, or terminated
except by a writing signed by both you and the President of the Company. No course of dealing between you and the Company will modify,
amend, waive, or terminate any provision of this Agreement or any rights or obligations of any Party under or by reason of this Agreement.
21.
Entire Agreement. This Agreement constitutes the entire Agreement between the Parties hereto relating to the subject matter
hereof. All prior or contemporaneous agreements or understandings between the Parties relating to the subject matter hereof, whether
oral or written, are superseded by this Agreement and hereby null and void. You acknowledge that no other promises were made to you other
than are or may be contained in this Agreement and that no other inducement caused you to sign this letter.
22.
Counterparts and Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which shall
be an original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall be as
valid and binding as an original.
23.
Acknowledgment. You acknowledge that you have had the opportunity to consult legal counsel regarding this Agreement, have
read and understand this Agreement, are fully aware of its legal effect, and have entered into it freely and voluntarily and not on the
basis of any representations or promises other than those contained in this Agreement.
[Signature
page follows]
| zSpace,
Inc. |
|
Accepted
and agreed: |
| |
|
|
| By: |
/s/ Tara
Choy |
|
/s/ Michael
Harper |
| Name:
|
Tara
Choy |
|
Michael
Harper |
| Date:
|
May
28, 2024 |
|
Date: May
28, 2024 |
EXHIBIT
A
CONFIDENTIALITY
AND ASSIGNMENT AGREEMENT
(the
“NDA”)
This
NDA is entered into by and between zSpace, Inc. (the “Company”) and Michael Harper (“Employee”).
WHEREAS,
the Company is interested in employing or continuing to employ Employee and Employee is interested in being employed or continuing to
be employed by the Company subject to the terms and conditions set forth herein.
NOW,
THEREFORE, in consideration of the foregoing promises and the mutual covenants and agreements of the parties contained herein, the parties
hereby agree as follows:
1.
Confidentiality. Except as authorized or directed by the Company in writing, Employee shall not, at any time during or subsequent
to Employee’s employment, directly or indirectly publish or disclose any Confidential Information (as defined below) of the Company
that has come into Employee’s possession in the course of Employee’s employment with the Company. Employee also shall not
use any such Confidential Information for Employee’s own personal use or advantage or the use or advantage of any person or entity
other than the Company, or make it available to others for use. Confidential Information includes, without limitation, the Company’s
proprietary information, intellectual property, know-how, or other information regarding the Company’s products or services and
markets therefor, data, product plans, software, research, developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, business information, trade secrets, customer lists (both existing and prospective),
marketing, financial data, sales strategies, pricing strategies, methods of operation, investments, potential investments, related companies,
contractual relationships, business and financing terms, investors, partners, investigations, and personnel matters. Employee agrees
that said Confidential Information is valuable to the Company, and that the unauthorized release of Confidential Information would cause
serious damage to the Company. Employee recognizes that the Company has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information
and to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Employee’s
work for the Company consistent with the Company’s agreement with such third party. Nothing herein shall be construed to prevent
disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court
of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required
by such law, regulation, or order. Employee shall promptly provide written notice of any such order to the Company. Nothing contained
in this Paragraph or otherwise in this NDA shall be read to restrict or impinge on Employee’s right to engage in protected activity
or communications under the National Labor Relations Act (the “NLRA”), or to limit or restrict in any way Employee’s
immunity from liability for disclosing the Company’s trade secrets as specifically permitted by 18 U.S. Code Section 1833, the
pertinent provisions of which are attached hereto as Exhibit E.
2.
Inventions.
(a)
Inventions Retained and Licensed. Employee has attached hereto, as Exhibit B, a list describing all inventions, designs
original works of authorship, developments, improvements, and trade secrets which were made by Employee prior to Employee’s employment
with the Company (collectively referred to as “Prior Inventions”), which belong to Employee, which relate to the Company’s
business, products or product development, and which are not assigned to the Company hereunder. If there is no such list attached hereto,
Employee represents that there are no Prior Inventions. If in the course of providing services to the Company, Employee incorporates
into a Company product, process or design or a Prior Invention owned by Employee or in which Employee has an interest, the Company is
hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use
and sell such Prior Invention as part of or in connection with such product, process or design.
(b) Assignment
of Inventions. Employee acknowledges that during Employee’s employment with the Company and/or during such time as Employee
is providing services to the Company as an employee, a consultant, a contractor, or in any capacity (both Employee’s employment
and/or Employee’s provision of services are referred to collectively herein as “employment” or being “employed”),
Employee will be expected to undertake creative work, either alone or jointly with others, which may lead to inventions, original works
of authorship, developments, concepts, improvements, trade secrets or other intellectual property rights, whether or not patentable or
registrable under copyright or similar laws (“Inventions”). Employee hereby agrees that Employee will provide the Company
with full written details regarding all Inventions created by Employee while Employee is employed by the Company at the Company’s
request (whether or not on the Company’s premises or using the Company’s equipment and materials or during regular business
hours) and that all such Inventions shall be a work-for-hire and shall be the sole and exclusive property of the Company, and Employee
hereby assigns to the Company all of Employee’s right, title and interest in and to any and all such Inventions. In addition, any
Inventions created within three years after the termination of Employee’s employment with the Company which are based upon or derived
from Confidential Information shall be the sole and exclusive property of the Company, and Employee hereby assigns to the Company all
of Employee’s right, title, and interest in and to any and all such Inventions. Nothing in the preceding sentence shall be construed
to limit Employee’s obligations under Paragraph 1 of this NDA.
(c) Patent
and Copyright Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, in every
proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data
with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns
and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights
or other intellectual property rights relating thereto. Employee further agrees that Employee’s obligation to execute or cause
to be executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after the termination of
this NDA. If the Company is unable because of Employee’s mental or physical incapacity or for any other reason to secure Employee’s
signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions
or original works of authorship assigned to the Company as above, then Employee hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents as Employee’s agent and attorney in fact, to act for and on Employee’s behalf
and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance
of letters patent or copyright registrations thereon with the same legal force and effect as if executed by Employee.
(d)
Application. Employee agrees that the provisions of this Paragraph shall apply with respect to any and all Inventions,
whether created during Employee’s employment with the Company or any predecessor entity. Employee acknowledges that the Company
and its future investors, if any, shall rely on this representation.
(e)
Acknowledgment. Employee acknowledges that Employee has been advised by the Company pursuant to Section 2872 of the California
Labor Code that, notwithstanding the foregoing, provisions of this NDA requiring the assignment of inventions do not apply to any invention
that qualifies fully under Section 2870 of the California Labor Code, which provides the following:
Any
provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without
using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (1)
relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably
anticipated research or development of the employer; or (2) result from any work performed by the employee for the employer.
3.
Social Media. Except as permitted by applicable law, including the NLRA, Employee is prohibited from posting any confidential,
financial, sensitive, or proprietary information, or job-related content about the Company or any of the Company’s current, former,
or potential employees, partners, suppliers, vendors, licensors, or business relations on social media. This prohibition applies to all
forms of social media including, but not limited to: blogs, Meta (f/k/a Facebook), X (f/k/a Twitter), LinkedIn, YouTube, Tumblr, and
Instagram. Content regarding the Company that is truthful, accurate and respectful may be posted if it is approved in advance, in writing,
by the Company in each and every instance. Employee is representing Employee, not the Company, when participating in social networking.
Employee should not represent that Employee is in any way speaking on behalf of the Company unless Employee is authorized to do so in
writing.
4.
Non-Disparagement. Employee shall not disparage or make any statement which might adversely affect the reputation of the
Company whether during the term of employment or following termination. For the purpose of this Paragraph, the term “disparage”
shall include, without limitation, any statement accusing the aforesaid individuals or entities of acting in violation of any law or
governmental regulation or of condoning any such action, or otherwise acting in an unprofessional, dishonest, disreputable, improper,
incompetent or negligent manner. Nothing contained in this Paragraph shall be read to restrict or impinge on Employee’s right to
engage in protected activity or communications under the NLRA.
5.
Return of Company Materials. Employee agrees that at the time Employee ceases performing services for the Company, or at
any time the Company so requests, (a) Employee shall immediately deliver to the Company (and will not keep in Employee’s possession,
recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by or in
connection with Employee’s employment or engagement with the Company or otherwise belonging to the Company, its successors or assigns,
and (b) Employee shall not use Confidential Information in any way for any purpose. In the event of the termination of Employee’s
employment, Employee agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit C.
6.
Notification of New Employer. In the event that Employee’s
employment with the Company terminates, Employee hereby grants consent to notification by the Company to Employee’s new employer
about Employee’s rights and obligations under this NDA.
7.
Conflict of Interest Guidelines. Employee agrees to diligently adhere to the Conflict of Interest Guidelines attached as
Exhibit D hereto.
8.
Specific Performance and Equitable Relief. Employee acknowledges and agrees that the Company would suffer irreparable harm
if the Confidential Information was disclosed to third parties without the Company’s consent or if Employee breached Employee’s
other obligations contained herein. Employee further agrees that if in the opinion of any court of competent jurisdiction such restraints
are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provisions as to the
court shall appear not reasonable and to enforce the remainder of the NDA as so amended. Accordingly, Employee hereby consents to and
agrees that, in the event of a breach or threatened breach of this NDA by Employee, the Company shall have the right to exercise any
and all rights by appropriate action either by law or in equity, including specific performance of Employee’s obligations arising
pursuant to this NDA, and that the Company shall be entitled to equitable relief, including injunctive relief, in connection with any
breach or threatened breach by Employee of Employee’s obligations arising pursuant to this NDA, and specifically, without limitation,
the confidentiality and non-disparagement provisions above. Employee further agrees that the Company may, in addition to pursuing any
remedies it may have in law or in equity, cease making any payments otherwise required by any agreement between the Company and Employee
as permitted by law, and that Employee shall not request that the Company post, nor shall the Company be obligated to post, a bond in
connection with any equitable relief authorized pursuant to this Paragraph and in fact requested by the Company. To the extent the Company
expends attorneys’ fees in enforcing the terms of this NDA against Employee, Employee shall be responsible for indemnifying the
Company for said fees.
9.
Warranty by Employee. Employee represents and warrants that: (i) Employee will execute any proper oath or verify any proper
document required to carry out the terms of this NDA; (ii) consulting with or being employed by the Company does not constitute a breach
of any agreement or other legal obligation with or to a third party; (iii) Employee is not bound by or subject to any agreement or other
legal obligation with a third party that would adversely affect Employee’s consulting with or being employed by the Company including,
but not limited to, a prior employment agreement, confidentiality agreement, or covenant not to compete, not to solicit or other restriction
against competition; (iv) Employee will not use in connection with Employee’s employment with the Company any confidential or proprietary
information belonging to any third party, including Employee’s former employers, without first obtaining a written release from
that third party; (v) Employee will not enter into any oral or written agreement in conflict herewith; and (vi) in performing services
for the Company, Employee shall comply with all policies and procedures of the Company (as applicable) and all applicable laws. Employee
shall indemnify, defend, and hold harmless the Company and the present, former and future officers, directors, managers, shareholders,
members, employees, contractors and agents of the Company from any and all losses, claims, damages, judgments, awards, costs and expenses
(including, without limitation, reasonable attorneys’ fees and costs, and direct, indirect, and consequential damages) incurred
as a result of any breach of this Paragraph or any other provision of this NDA.
10.
Survival, Assignability. This NDA shall commence and be effective when executed by the parties, and Employee’s obligations
under this NDA shall survive the termination of the NDA and any services Employee provides to the Company pursuant to the terms of this
NDA. This NDA shall be binding upon and inure to the benefit of Employee’s heirs, executors, administrators, and representatives
and will be for the benefit of the Company, its successors, and its assigns. Neither this NDA nor any rights or obligations hereunder
shall be assignable by Employee. The Company shall have the right to assign this NDA to any of its affiliates, successors, or related
companies, whether now in existence or later formed, without Employee’s consent.
11.
Severability. Any provision of this NDA which is determined to be illegal, prohibited, or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating
the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.
Amendments. No breach of any provision of this NDA may be waived unless in writing. This NDA may be amended only by a written
agreement executed by Employee and the President of the Company.
13.
Counterparts and Facsimile Signatures. This NDA may be executed in two or more counterparts, each of which shall be an
original but all of which shall constitute one and the same instrument. A facsimile or PDF scanned copy of signature shall be as valid
and binding as an original.
14.
Choice of Forum. Each of the parties hereby consents to the jurisdiction of any state or federal court located within Santa
Clara, California, and irrevocably agrees that all actions or proceedings relating to this NDA must be litigated in such courts, and
each of the parties waives any objections which it may have based on improper venue or forum non conveniens to the conduct of
any proceeding in such court.
15.
Governing Law. This NDA shall be governed by, and construed and enforced in accordance with, the laws of the State of California
(excluding the choice of law rules thereof) and, to the extent applicable, the laws and regulations of the United States of America governing
intellectual property matters. EMPLOYEE ACKNOWLEDGES AND AGREES THAT, PRIOR TO EXECUTING THIS NDA, EMPLOYEE WAS AFFORDED AN OPPORTUNITY
TO OBTAIN THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTANDS ALL OF THIS NDA. ACCORDINGLY, THIS NDA SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS NDA.
[Signature
page follows]
| ACCEPTED AND AGREED: |
|
| |
|
| /s/ Michael
Harper |
|
| Michael Harper |
|
| Date: |
May 28, 2024 |
|
Signature
Page – zSpace, Inc. – Michael Harper NDA 05/28/2024
Exhibit 10.9
October
3_, 2023
Via Email
Joseph Powers
josephpowers1@comcast.net
| Re: | Terms
of Transition and Separation |
Dear Joseph:
This letter
confirms the agreement (“Agreement”) between you and zSpace, Inc. (the “Company”)
concerning the terms of your transition and retirement from the Company and offers you certain benefits to which you would not otherwise
be entitled, conditioned upon your provision of a general release of claims and covenant not to sue now and upon the Actual Separation
Date (defined below) as provided herein. If you agree to the terms outlined herein, please sign and return this Agreement to me in the
timeframe outlined below.
1.
Retirement: Your employment relationship with the Company is ending in connection with your retirement. The Company has discussed
with you the terms under which it is willing to continue your employment through the Transition Period, as described further below.
2.
Continued Employment; Other Release Consideration: In exchange for your agreement to the general release and waiver of claims
and covenant not to sue set forth below and your other promises herein, the Company agrees to continue your employment on the following
terms:
a.
Separation Date; Transition Period and Services: Your last day of employment with the Company will be March 31, 2024 (the “Anticipated
Separation Date”), subject to the at-will nature of your employment as described in Section 2(d), below. Between now and
the Anticipated Separation Date (the “Transition Period”), you agree to carry out the duties and responsibilities
of your position, including those related to the consummation of the Company’s transaction with FICV, and to provide other transition
services as may reasonably be requested by the Company, including transition of the responsibilities, duties, and knowledge relative
to your position (the “Transition Services”). During the Transition Period, you will maintain a full-time schedule.
b.
Compensation and Benefits: During the Transition Period, the Company will continue to pay you your current base salary and you
will continue to be eligible to participate in benefits customarily afforded to other full-time employees, including participation in
the Company-sponsored health benefits plan, the 2023 executive bonus plan (if approved and at the discretion of the CEO/Board), and continued
vesting of options, to the fullest extent allowed by the governing plans, agreements, or policies.
Joseph Powers
Page 2
c.
Separation Compensation: In exchange for your agreement to the general release and waiver of claims and covenant not to sue set
forth in Exhibit A (the “Second Release”), to be signed no earlier than the day on which your employment
with the Company ends (the “Actual Separation Date”), and your other promises herein, the Company agrees
as follows:
(i)
Severance: The Company agrees to pay you, within ten (10) business days following the effectiveness of the Second Release (as
provided therein), a lump sum payment in the gross amount of $100,000, less applicable state and federal payroll deductions.
(ii)
COBRA: Upon your timely election to continue your existing health benefits under COBRA, and consistent with the terms of COBRA
and the Company’s health insurance plan, the Company will pay the insurance premiums to continue your existing health benefits
following the Actual Separation Date, through December 31, 2024.
(iii)
Stock Option Exercise Extension : Subject to the approval of the Company’s Board of Directors (the “Board”),
at your election, your vested Options (as defined below) will be eligible for the Exercise Extension, as defined and described more fully
in Section 7.
(iv)
New Stock Option: The Company agrees to grant you a new stock option (or RSU if consistent with Company’s then-effective
granting practices) to purchase additional shares of the Company’s Common Stock, exercisable at the fair market value of the Company’s
Common Stock as determined by the Board on the date the Board approves such grant. The number of shares subject to the new stock option
and the vesting schedule thereof will be mutually agreed between you and the Company no later than November 13, 2023. This new stock
option will be exercisable for the same period of time as the options to which the Exercise Extension applies. The grant of this new
stock option is subject to your continued service through the date that the Board actually approves such grant.
d.
At-Will Employment: During the Transition Period, your employment with the Company will remain at-will, meaning either you or
the Company may terminate your employment at any time with or without notice or reason. However, provided that you diligently and cooperatively
provide the Transition Services (as determined by the Company in good faith and in its sole discretion), in the event the Company terminates
your employment other than for Cause prior to the Anticipated Separation Date, the Company will offer you the benefits described in Section
2(c), above, plus the amount of your current base salary for the period from your termination date until the Anticipated Separation Date.
In the event that you resign from employment for any reason prior to the Anticipated Separation Date, the Company will only be obligated
to offer you the benefits described in Section 2(c). In the event that the Company terminates your employment prior to the Anticipated
Separation Date for Cause the Company will not be obligated to offer to you, the benefits described in Section 2(c), above. “Cause”
for purposes herein, means (i) termination of your employment by reason of the willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to the Company; or (ii) by reason of your willful material breach of this Agreement which has resulted in
injury to the Company.
Joseph Powers
Page 3
By signing
below, you acknowledge that you are receiving the release consideration outlined in this section in consideration for waiving your rights
to claims referred to in this Agreement (and the Second Release, if applicable) and that you would not otherwise be entitled to the release
consideration.
3.
Final Pay: On your final day of employment, the Company will pay you for all wages, salary, bonuses, reimbursable expenses, provided
such expenses are submitted by you within thirty (30) days of the Separation Date, accrued vacation (if applicable) and any similar payments
due you from the Company as of your separation from employment. By signing below, you acknowledge that the Company does not owe you any
other amounts, except as otherwise may become payable under this Agreement or the Second Release.
4.
2022 Bonus Payment: For the avoidance of doubt, you will receive payment of your 2022 bonus, less applicable state and federal
payroll deductions, with such amount to be determined by the Company’s Board of Directors (the “Board”)
in its sole discretion based on the Company’s performance for the 2022 plan year (the “Bonus”). The Bonus
will be paid to you on the earlier of the date it is paid out to all other Company executives or your final day of employment.
5.
Return of Company Property: You hereby warrant to the Company that, no later than your final day of employment, you will return
to the Company all property or data of the Company of any type whatsoever that has been in your possession or control.
6.
Post-Employment Obligations: You hereby acknowledge that: (a) you continue to be bound by the attached At Will Employment, Confidential
Information, Invention Assignment, and Arbitration Agreement (Exhibit B hereto); (b) as a result of your employment with the Company,
you have had access to the Company’s proprietary and/or confidential information, and you will continue to hold all such information
in strictest confidence and not make use of it on behalf of anyone; and (c) you must, and by your signature below confirm that you shall,
deliver to the Company, no later than the Actual Separation Date (or sooner if requested by the Company), all documents and data of any
nature containing or pertaining to such information, and not take with you, or otherwise retain in any respect, any such documents or
data or any reproduction thereof.
7.
Existing Stock Options: You were granted one or more options to purchase shares of the Company’s Common Stock, which stock
option(s) are vested and/or unvested, and exercised and/or unexercised, as set forth on Carta (https://www.carta.com/) (collectively,
the “Existing Options”). During the Transition Period, the Existing Options will continue to vest according
to the terms of the agreements underlying the Existing Options (the “Existing Option Agreements”); however,
all vesting will cease as of the Actual Separation Date (assuming your continuous employment through that date). At all times, your rights
concerning the Existing Options will continue to be governed by the Existing Option Agreements. Per the Existing Option Agreements, you
will have a fixed period of time following the termination of your employment to exercise any then-vested shares; after that date, you
will no longer have a right to exercise the Existing Options as to any shares.
a.
However, if you execute this Agreement and the Second Release and they become effective, and if you check the box provided on the
signature page hereto electing to receive the post-employment exercise period extension benefit described in this Section 7 in connection
with this Agreement (within the time-period specified for such election below), then subject to approval by the Board, the Company
agrees to extend the post-employment deadline to exercise the unexercised vested portions of your Options to the earliest of: (i) March
31, 2025; (ii) upon the consummation of a Change in Control (as defined in the Plan); (iii) the original expiration date of the applicable
Options; (iv) the effective date of a dissolution or liquidation of the Company; or (v) any earlier date as required by the Plan (the
“Exercise Extension”). On 5:00 p.m. (Pacific Time) of the twenty-ninth (29th) day following the date of
this Agreement, if you have not accepted the Exercise Extension by checking the box and returning it to the Company, the Company’s
offer of the Exercise Extension will automatically be rescinded without any further action on the part of you or the Company, and you
will no longer be eligible to receive the Exercise Extension.
Joseph Powers
Page 4
b.
To the extent that any of the Options are incentive stock options with an exercise price per share that is less than the fair market
value per share of the Company’s common stock on the Effective Date (as defined below), you acknowledge that such Options (or portion
thereof) will be reclassified as non -qualified stock options under applicable tax laws effective as of the Effective Date, and that
you, and not the Company, shall be solely responsible for any tax consequences relating to such reclassification, including satisfaction
of all applicable tax withholding requirements that become due upon exercise of such Options. Each of your Stock Option Agreements is
hereby amended consistent with this Section 7, subject to and contingent on effectiveness of the Agreement, and your election to amend
the Options to provide for the Exercise Extension and Board approval of the Exercise Extension. Your rights concerning the Options will
otherwise continue to be governed by the applicable Stock Option Agreements, as amended herein.
8. General
Release and Waiver of Claims:
a.
The payments and promises set forth in this Agreement are in full satisfaction of all accrued salary, vacation pay, bonus and commission
pay, profit-sharing, stock, stock options or other ownership interest in the Company, termination benefits or other compensation to which
you may be entitled by virtue of your employment with the Company or your separation from the Company. To the fullest extent permitted
by law, you hereby release and waive any other claims you may have against the Company and its owners, agents, officers, shareholders,
employees, directors, attorneys, subscribers, subsidiaries, affiliates, successors and assigns (collectively “Releasees”),
whether known or not known, including, without limitation, claims under any employment laws, including, but not limited to, claims of
unlawful discharge, breach of contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation,
physical injury, emotional distress, claims for additional compensation or benefits arising out of your employment or your separation
of employment, claims under Title VII of the 1964 Civil Rights Act, as amended, and any other laws and/or regulations relating to employment
or employment discrimination, including, without limitation, claims based on age or under the Age Discrimination in Employment Act or
Older Workers Benefit Protection Act, and/or claims based on disability or under the Americans with Disabilities Act. By signing this
Agreement, you are not releasing or waiving any claims under the California Fair Employment and Housing Act; however, for the avoidance
of doubt, you will release and waive such claims once you sign the Second Release.
Joseph Powers
Page 5
b.
By signing below, you expressly waive any benefits of Section 1542 of the Civil Code of the State of California, which provides as follows:
“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.”
You and the Company do not intend to
release claims that you may not release as a matter of law, including but not limited to claims for indemnity under California Labor
Code Section 2802, any claims for enforcement of this Agreement, or any claims for indemnification or advancement of expenses under the
indemnification provisions of the Company’s bylaws. For the avoidance of doubt, the Company remains bound by its obligation to
indemnify you pursuant to the Indemnification Agreement between you and the Company, and such obligation remains in full force and effect
in accordance with all of the terms and conditions thereof.
c.
To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be determined by an arbitrator
under the procedures set forth in the arbitration clause below.
9.
Covenant Not to Sue: To the fullest extent permitted by law, at no time subsequent to the execution of this Agreement will you
pursue, or cause or knowingly permit the prosecution, in any state, federal or foreign court, or before any local, state, federal or
foreign administrative agency, or any other tribunal, of any charge, claim or action of any kind, nature and character whatsoever, known
or unknown, which you may now have, have ever had, or may in the future have against Releasees, which is based in whole or in part on
any matter released by this Agreement. Nothing in this section shall prohibit or impair you or the Company from complying with all applicable
laws, nor shall this Agreement be construed to obligate either party to commit (or aid or abet in the commission of) any unlawful act.
10.
Protected Rights : You understand that nothing in this Agreement, including the General Release and Waiver of Claims, Covenant
Not to Sue and Confidentiality sections contained herein, limits, impedes or restricts your ability to file a charge or complaint with
the Equal Employment Opportunity Commission, the National Labor Relations Board (the “NLRB”), the Occupational
Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local government agency or commission
(“Government Agencies”). You further understand that this Agreement does not limit your ability to communicate
with any Government Agencies or otherwise participate and/or assist in any investigation or proceeding that may be conducted by any Government
Agency, including providing documents (including this Agreement) or other information, without notice to the Company. This Agreement
does not limit your right to receive an award for information provided to any Government Agencies or prohibit you from providing truthful
information in response to a subpoena or other legal process.
Joseph Powers
Page 6
11.
Arbitration: Except for any claim for injunctive relief arising out of a breach of a party’s obligations to protect the
other’s proprietary information, the parties agree to arbitrate, in San Jose, California through JAMS, any and all disputes or
claims arising out of or related to the validity, enforceability, interpretation, performance or breach of this Agreement, whether sounding
in tort, contract, statutory violation or otherwise, or involving the construction or application or any of the terms, provisions, or
conditions of this Agreement. Any arbitration may be initiated by a written demand to the other party. The arbitrator’s decision shall
be final, binding, and conclusive. The parties further agree that this Agreement is intended to be strictly construed to provide for
arbitration as the sole and exclusive means for resolution of all disputes hereunder to the fullest extent permitted by law. The parties
expressly waive any entitlement to have such controversies decided by a court or a jury.
12.
Attorneys’ Fees: If any action is brought to enforce the terms of this Agreement, the prevailing party will be entitled
to recover its reasonable attorneys’ fees, costs and expenses from the other party, in addition to any other relief to which the
prevailing party may be entitled.
13.
Confidentiality: Subject to the Protected Rights section above, and otherwise to the fullest extent permitted by applicable law,
the contents, terms and conditions of this Agreement must be kept confidential by you and may not be disclosed except to your immediate
family, accountant or attorneys or pursuant to subpoena or court order.
14.
No Admission of Liability: This Agreement is not and shall not be construed or contended by you to be an admission or evidence
of any wrongdoing or liability on the part of Releasees, their representatives, heirs, executors, attorneys, agents, partners, officers,
shareholders, directors, employees, subsidiaries, affiliates, divisions, successors or assigns. This Agreement shall be afforded the
maximum protection allowable under California Evidence Code Section 1152 and/or any other state or federal provisions of similar effect.
15.
Complete and Voluntary Agreement: This Agreement, together with Exhibits A and B hereto and the Existing Option Agreements, constitute
the entire agreement between you and Releasees with respect to the subject matter hereof and supersedes all prior negotiations and agreements,
whether written or oral, relating to such subject matter. You acknowledge that neither Releasees nor their agents or attorneys have made
any promise, representation or warranty whatsoever, either express or implied, written or oral, which is not contained in this Agreement
for the purpose of inducing you to execute the Agreement, and you acknowledge that you have executed this Agreement in reliance only
upon such promises, representations and warranties as are contained herein, and that you are executing this Agreement voluntarily, free
of any duress or coercion.
16.
Severability: The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, including,
without limitation, any part of the General Release, Covenant Not to Sue, and/or Confidentiality sections above, the other parts shall
remain fully valid and enforceable. Specifically, should a court, arbitrator, or government agency conclude that a particular claim may
not be released as a matter of law, it is the intention of the parties that the general release, the waiver of unknown claims and the
covenant not to sue above shall otherwise remain effective to release any and all other claims.
Joseph Powers
Page 7
17.
Modification; Counterparts; Electronic/PDF Signatures: It is expressly agreed that this Agreement may not be altered, amended,
modified, or otherwise changed in any respect except by another written agreement that specifically refers to this Agreement, executed
by authorized representatives of each of the parties to this Agreement. This Agreement may be executed in any number of counterparts,
each of which shall constitute an original and all of which together shall constitute one and the same instrument. Execution of an electronic
or PDF copy shall have the same force and effect as execution of an original, and a copy of a signature will be equally admissible in
any legal proceeding as if an original.
18.
Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of California.
19.
Review of Separation Agreement; Expiration of Offer: You understand that you may take up to twenty-one (21) days to consider this
Agreement (the “Consideration Period”). The offer set forth in this Agreement, if not accepted by you before
the end of the Consideration Period, will automatically expire. By signing below, you affirm that you were advised to consult with an
attorney prior to signing this Agreement. You agree that any changes, whether or not material to this Agreement or Exhibit A, shall not
restart the running of the Consideration Period. You also understand you may revoke this Agreement within seven (7) days of signing this
document and that the consideration to be provided to you pursuant to Section 2 will be provided only after the expiration of that seven
(7) day revocation period.
20.
Effective Date: This Agreement is effective on the eighth (8th) day after you sign it provided you have not revoked
the Agreement as of that time (the “Effective Date”).
Joseph Powers
Page 8
If you agree to
abide by the terms outlined in this Agreement, please sign and return it to me. I wish you the best in your future endeavors.
| |
Sincerely, |
| |
|
| |
zSpace, Inc. |
| |
|
| |
By: |
/s/
Paul Kellenberger |
| |
|
Paul Kellenberger, CEO |
x
I ELECT TO RECEIVE THE EXERCISE EXTENSION DESCRIBED IN SECTION 7 OF THIS AGREEMENT.
¨
I DECLINE TO RECEIVE THE EXERCISE EXTENSION DESCRIBED IN SECTION 7 OF THIS AGREEMENT.
READ, UNDERSTOOD AND AGREED
| /s/ Joseph Powers |
|
Date: |
October 11, 2023 |
|
| Joseph Powers |
|
|
|
|
EXHIBIT
A
SECOND
RELEASE
This General
Release of All Claims and Covenant Not to Sue (the “Second Release”) is entered into between Joseph Powers
(“Employee”) and zSpace, Inc. (the “Company”) (collectively, “the parties”).
WHEREAS,
Employee and the Company entered into an agreement regarding Employee’s transition and separation from employment with the Company
(the “Separation Agreement,” to which this Second Release is attached as Exhibit A);
WHEREAS,
on [Date], Employee’s employment with the Company terminated (the “Actual Separation Date”);
WHEREAS,
this agreement serves as the Second Release, pursuant to the Separation Agreement; and
WHEREAS,
Employee and the Company desire to mutually, amicably and finally resolve and compromise all issues and claims surrounding Employee’s
employment and separation from employment with the Company;
NOW THEREFORE,
in consideration for the mutual promises and undertakings of the parties as set forth below, Employee and the Company hereby enter into
this Second Release.
1. Acknowledgment
of Payment of Wages: By Employee’s signature below, Employee acknowledges that, on the Actual Separation Date, the Company
paid Employee for all wages, salary, accrued vacation (if applicable), bonuses, commissions, reimbursable expenses previously submitted
by Employee, and any similar payments due Employee from the Company as of the Actual Separation Date. By signing below, Employee acknowledges
that the Company does not owe Employee any other amounts, except as may become payable under the Separation Agreement and the Second
Release. Please promptly submit for reimbursement all final outstanding expenses, if any.
2.
Return of Company Property: Employee hereby warrants to the Company that Employee has returned to the Company all property or
data of the Company of any type whatsoever that has been in Employee’s possession, custody or control.
3.
Consideration: In exchange for Employee’s agreement to this Second Release and Employee’s other promises in the Separation
Agreement and herein, the Company agrees to provide Employee with the consideration set forth in Section 2(c) of the Separation Agreement.
By signing below, Employee acknowledges that Employee is receiving the consideration in exchange for waiving Employee’s rights
to claims referred to in this Second Release and Employee would not otherwise be entitled to the consideration.
| 4. | General
Release and Waiver of Claims: |
a. The payments
and promises set forth in this Second Release are in full satisfaction of all accrued salary, vacation pay, bonus and commission pay,
profit-sharing, stock, stock options or other ownership interest in the Company, termination benefits or other compensation to which
Employee may be entitled by virtue of Employee’s employment with the Company or Employee’s separation from the Company, including
pursuant to the Separation Agreement. To the fullest extent permitted by law, Employee hereby releases and waives any other claims Employee
may have against the Company and its owners, agents, officers, shareholders, employees, directors, attorneys, subscribers, subsidiaries,
affiliates, successors and assigns (collectively “Releasees”), whether known or not known, including, without
limitation, claims under any employment laws, including, but not limited to, claims of unlawful discharge, breach of contract, breach
of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation, physical injury, emotional distress, claims
for additional compensation or benefits arising out of Employee’s employment or separation of employment, claims under Title VII
of the 1964 Civil Rights Act, as amended, the California Fair Employment and Housing Act and any other laws and/or regulations relating
to employment or employment discrimination, including, without limitation, claims based on age or under the Age Discrimination in Employment
Act or Older Workers Benefit Protection Act, and/or claims based on disability or under the Americans with Disabilities Act.
b. By signing
below, Employee expressly waives any benefits of Section 1542 of the Civil Code of the State of California, which provides as follows:
“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.”
c. Employee and the
Company do not intend to release claims that Employee may not release as a matter of law, including but not limited to claims for indemnity,
or any claims for enforcement of this Second Release. To the fullest extent permitted by law, any dispute regarding the scope of this
general release shall be determined by an arbitrator under the procedures set forth in the arbitration clause set forth in the Separation
Agreement.
5.
Covenant Not to Sue: To the fullest extent permitted by law, at no time subsequent to the execution of this Second Release will
Employee pursue, or cause or knowingly permit the prosecution, in any state, federal or foreign court, or before any local, state, federal
or foreign administrative agency, or any other tribunal, of any charge, claim or action of any kind, nature and character whatsoever,
known or unknown, which Employee may now have, have ever had, or may in the future have against Releasees, which is based in whole or
in part on any matter released by this Second Release. Nothing in this section shall prohibit or impair Employee or the Company from
complying with all applicable laws, nor shall this Second Release be construed to obligate either party to commit (or aid or abet in
the commission of) any unlawful act.
6.
Protected Rights: Employee understands that nothing in this Second Release, including the General Release and Waiver of Claims,
Covenant Not to Sue and Non-disparagement sections contained herein, limits, impedes or restricts Employee’s ability to file a
charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board (the “NLRB”),
the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local government
agency or commission (“Government Agencies”). This Second Release does not limit Employee’s right to
receive an award for information provided to any Government Agencies or prohibit you from providing truthful information in response
to a subpoena or other legal process.
7. Non-disparagement:
Subject to the Protected Rights section above, and otherwise to the fullest extent permitted by applicable law, you agree that you will
not, directly or indirectly, disparage or make negative remarks regarding Releasees or their products, services, agents, representatives,
directors, officers, shareholders, attorneys, employees, vendors, affiliates, successors or assigns, or any person acting by, through,
under or in concert with any of them, with any written or oral statement, including, but not limited to, any statement posted on social
media (including online company review sites) or otherwise on the Internet, whether or not made anonymously or with attribution.
8. Review
of Second Release; Expiration of Offer: Employee understands that Employee may take up to twenty-one (21) days to consider this Second
Release and acknowledges that at the time they were provided the Separation Agreement to consider, they were also provided with this
Second Release. As such, the offer set forth in this Second Release, if not accepted by Employee on the Actual Separation Date,
will automatically expire. By signing below, Employee affirms that Employee was advised to consult with an attorney prior to signing
this Second Release. Employee agrees that any changes, whether or not material to the Separation Agreement or this Second Release, shall
not restart the running of the twenty-one (21) day consideration period. Employee also understands that Employee may revoke this Second
Release within seven (7) days of signing this document and that the consideration to be provided to Employee pursuant to Section 2(c)
of the Separation Agreement will be provided only after the expiration of that seven (7) day revocation period.
9.
Effective Date: This Second Release is effective on the eighth (8th) day after Employee signs it, provided Employee has not revoked
it as of that time (the “Effective Date”).
10.
Other Terms of Separation Agreement Incorporated Herein: All other terms of the Separation Agreement to the extent not inconsistent
with the terms of this Second Release are hereby incorporated in this Second Release as though fully stated herein and apply with equal
force to this Second Release, including, without limitation, the provisions on Arbitration, Governing Law, and Attorneys’ Fees.
| Dated: |
|
|
|
| |
|
|
Name: Paul Kellenberger |
| |
|
Title: CEO |
| |
|
For the Company |
| |
|
|
| Dated: |
|
|
|
| |
|
Joseph Powers |
EXHIBIT
B
At
Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement
EXHIBIT
A
SECOND
RELEASE
This General
Release of All Claims and Covenant Not to Sue (the “Second Release’’) is entered into between Joseph Powers (“Employee”
) and zSpace, Inc. (the “Company” ) (collectively, “the parties” ).
WHEREAS,
Employee and the Company entered into an agreement regarding Employee’s transition and separation from employment with the
Company (the “Separation Agreement,” to which this Second Release is attached as Exhibit A);
WHEREAS,
on March 31, 2024 Employee’s employment with the Company terminated (the “Actual Separation Date”);
WHEREAS, this agreement serves as the Second Release, pursuant to the Separation Agreement; and
WHEREAS, Employee and the Company desire to mutually, amicably and finally resolve and compromise all issues and claims surrounding
Employee’s employment and separation from employment with the Company;
NOW
THEREFORE, in consideration for the mutual promises and undertakings of the parties as set forth below, Employee and the Company
hereby enter into this Second Release.
1.
Acknowledgment of Payment of Wages: By Employee’s signature below, Employee acknowledges that, on the Actual Separation Date,
the Company paid Employee for all wages, salary, accrued vacation ( if applicable), bonuses, commissions, reimbursable expenses previously
submitted by Employee, and any similar payments due Employee from the Company as of the Actual Separation Date. By signing below, Employee
acknowledges that the Company does not owe Employee any other amounts, except as may become payable under the Separation Agreement and
the Second Release. Please promptly submit for reimbursement all final outstanding expenses, if any.
2. Return of Company Property: Employee hereby warrants to the Company that Employee has returned to the Company all property or data
of the Company of any type whatsoever that has been in Employee·s possession. custody or control.
3. Consideration: In exchange for Employee’s agreement to this Second Release and Employee’s other promises in the Separation Agreement
and herein, the Company agrees to provide Employee with the consideration set forth in Section 2(c) of the Separation Agreement. By
signing below, Employee acknowledges that Employee is receiving the consideration in exchange for waiving Employee’s rights to claims
referred to in this Second Release and Employee would not otherwise be entitled to the consideration.
4. General
Release and Waiver of Claims:
a.
The payments and promises set forth in this Second
Release are in full satisfaction of all accrued salary, vacation pay, bonus and commission pay, profit-sharing, stock, stock options
or other ownership interest in the Company, termination benefits or other compensation to which Employee may be entitled by virtue
of Employee’s employment with the Company or Employee’s separation from the Company, including pursuant to the Separation Agreement.
To the fullest extent permitted by law, Employee hereby releases and waives any other claims Employee may have against the Company
and its owners, agents, officers, shareholders, employees, directors, attorneys, subscribers, subsidiaries, affiliates, successors
and assigns (collectively “Releasees” ), whether known or not known, including, without limitation, claims
under any employment laws, including, but not limited to, claims of unlawful discharge, breach of contract, breach of the covenant
of good faith and fair dealing, fraud, violation of public policy, defamation, physical injury, emotional distress, claims for
additional compensation or benefits arising out of Employee’s employment or separation of employment, claims under Title VII
of the 1964 Civil Rights Act, as amended, the California Fair Employment and Housing Act and any other laws and/or regulations
relating to employment or employment discrimination. including, without limitation, claims based on age or under the Age
Discrimination in Employment Act or Older Workers Benefit Protection Act, and/or claims based on disability or under the Americans
with Disabilities Act.
b.
By signing below, Employee expressly waives any benefits of Section 1542 of the Civil Code of the State of California, which provides
as follows:
“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.”
c.
Employee and the Company do not intend to release claims that Employee may not release as a matter of law, including but not limited
to claims for indemnity, or any claims for enforcement of this Second Release. To the fullest extent permitted by law, any dispute regarding
the scope of this general release shall be determined by an arbitrator under the procedures set forth in the arbitration clause set forth
in the Separation Agreement.
5.
Covenant Not to Sue: To the fullest extent permitted by law, at no time subsequent to the execution of this Second Release will
Employee pursue, or cause or knowingly permit the prosecution, in any state, federal or foreign court, or before any local, state, federal
or foreign administrative agency, or any other tribunal, of any charge, claim or action of any kind, nature and character whatsoever,
known or unknown, which Employee may now have, have ever had, or may in the future have against Releases, which is based in whole or
in part on any matter released by this Second Release. Nothing in this section shall prohibit or impair Employee or the Company from
complying with all applicable laws, nor shall this Second Release be construed to obligate either party to commit (or aid or abet in
the commission of) any unlawful act.
6. Protected Rights: Employee understands that nothing in this Second Release, including the General Release and Waiver of Claims, Covenant
Not to Sue and Non-disparagement sections contained herein, limits, impedes or restricts Employee’s ability to file a charge or complaint
with the Equal Employment Opportunity Commission, the National Labor Relations Board (the ’‘NLRB”), the Occupational
Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local government agency or commission
(“Government Agencies”). This Second Release does not limit Employee’s right to receive an award for information provided
to any Government Agencies or prohibit you from providing truthful information in response to a subpoena or other legal process.
7.
Non-disparagement: Subject to the Protected Rights section above, and otherwise to the fullest extent permitted by applicable
law, you agree that you will not, directly or indirectly, disparage or make negative remarks regarding Releases or their products, services,
agents. representatives, directors, officers, shareholders. attorneys, employees, vendors, affiliates, successors or assigns, or any
person acting by. through, under or in concert with any of them, with any written or oral statement, including, but not limited to, any
statement posted on social media (including online company review sites) or otherwise on the Internet, whether or not made anonymously
or with attribution.
8.
Review of Second Release: Expiration of Offer: Employee understands that Employee may take up to twenty-one (21) days to consider
this Second Release and acknowledges that at the time they were provided the Separation Agreement to consider, they were also provided
with this Second Release. As such. the offer set forth in this Second Release, if not accepted by Employee on the Actual Separation
Date, will automatically expire. By signing below, Employee affirms that Employee was advised to consult with an attorney prior to
signing this Second Release. Employee agrees that any changes. whether or not material to the Separation Agreement or this Second Release,
shall not restart the running of the twenty-one (21) day consideration period. Employee also understands that Employee may revoke this
Second Release within seven (7) days of signing this document and that the consideration to be provided to Employee pursuant to Section
2(c) of the Separation Agreement will be provided only after the expiration of that seven (7) day revocation period.
9.
Effective Date: This Second Release is effective on the eighth (8th) day after Employee signs it, provided Employee has not revoked
it as of that time (the “Effective Date”).
10. Other
Terms of Separation Agreement Incorporated Herein: All other terms of the Separation Agreement to the extent not inconsistent with
the terms of this Second Release are hereby incorporated in this Second Release as though fully stated herein and apply with equal force
to this Second Release, including, without limitation. the provisions on Arbitration, Governing Law, and Attorneys Fees.
| |
|
|
|
| Dated: |
3-28-24 |
|
/s/ Paul Kellenberger |
| |
|
Name: Paul Kellenberger |
| |
|
Title: CEO |
| |
|
For the Company |
| |
|
|
| Dated: |
3/20/2024 |
|
/s/ Joseph Powers |
| |
|
Joseph Powers |
Exhibit 10.10
zSpace, Inc.
CONSULTING AGREEMENT
This Consulting Agreement
(this "Agreement') is made and entered into as of April 4, 2024 (the "Effective Date") by
and between zSpace, Inc., a Delaware corporation with its principal place of business at 55 Nicholson Lane, San Jose, Ca 95110 (the "Company"),
and Joseph B. Powers d.b.a Powers Consulting, an individual with a principal place of business at 450 Montecillo Rd., San Rafael,
Ca 94903 ("Consultant") (each herein referred to individually as a "Party," or collectively
as the "Parties").
The Company desires
to retain Consultant as an independent contractor to perform consulting services for the Company, and Consultant is willing to perform
such services, on the terms described below. In consideration of the mutual promises contained herein, the Parties agree as follows:
1. Services
and Compensation
Consultant shall
perform the services described in Exhibit A (the "Services") for the Company (or its designee), and the
Company agrees to compensate Consultant's performance of the Services.
2. Confidentiality
A. Definition
of Confidential Information. "Confidential Information" means any information (including any and all combinations of
individual items of information) that relates to the actual or anticipated business and/or products, research or development of the Company,
its affiliates or subsidiaries, or to the Company's, its affiliates' or subsidiaries' technical data, trade secrets, or know-how, including,
but not limited to, research, product plans, or other information regarding the Company's, its affiliates' or subsidiaries' products
or services and markets therefor, customer lists and customers (including, but not limited to, customers of the Company on whom Consultant
called or with whom Consultant became acquainted during the term of this Agreement), software, developments, inventions, discoveries,
ideas, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances, and
other business information disclosed by the Company, its affiliates or subsidiaries, either directly or indirectly, in writing, orally
or by drawings or inspection of premises, parts, equipment, or other property of Company, its affiliates or subsidiaries. Notwithstanding
the foregoing, Confidential lntormation shall not include any such information which Consultant can establish (i) was publicly known
or made generally available prior to the time of disclosure to Consultant; (ii) becomes publicly known or made generally available after
disclosure to Consultant through no wrongful action or inaction of Consultant; or (iii) is in the rightful possession of Consultant,
without confidentiality obligations, at the time of disclosure as shown by Consultant's then-contemporaneous written records; provided
that any combination of individual items of information shall not be deemed to be within any of the foregoing exceptions merely because
one or more of the individual items are within such exception, unless the combination as a whole is within such exception.
B. Nonuse and
Nondisclosure. During and after the term of this Agreement, Consultant will hold in the strictest confidence, and take all reasonable
precautions to prevent any unauthorized use or disclosure of Confidential Information, and Consultant will not (i) use the Confidential
Information for any purpose whatsoever other than as necessary for the performance of the Services on behalf of the Company, or (ii)
subject to Consultant's right to engage in Protected Activity (as defined below), disclose the Confidential Information to any third
party without the prior written consent of an authorized representative of the Company, except that Consultant may disclose Confidential
Information to any third party on a need-to-know basis for the purposes of Consultant performing the Services; provided, however, that
such third party is subject to written non-use and non-disclosure obligations at least as protective of Company and the Confidential
Information as this Section 2. Consultant may also disclose Confidential Information to the extent compelled by applicable law; provided
however, prior to such disclosure, Consultant shall provide prior written notice to Company and seek a protective order or such similar
confidential protection as may be available under applicable law. Consultant agrees that no ownership of Confidential Information is
conveyed to the Consultant. Without limiting the foregoing, Consultant shall not use or disclose any Company property, intellectual property
rights, trade secrets or other proprietary know-how of the Company to invent, author, make, develop, design, or otherwise enable others
to invent, author, make, develop, or design identical or substantially similar designs as those developed under this Agreement for any
third party. Consultant agrees that Consultant's obligations under this Section 2.B shall continue after the termination of this Agreement.
C. Other Client
Confidential Information. Consultant agrees that Consultant will not improperly use, disclose, or induce the Company to use any
proprietary information or trade secrets of any former or current employer of Consultant or other person or entity with which Consultant
has an obligation to keep in confidence. Consultant also agrees that Consultant will not bring onto the Company's premises or transfer
onto the Company's technology systems any unpublished document, proprietary information, or trade secrets belonging to any third party
unless disclosure to, and use by, the Company has been consented to in writing by such third party.
D. Third Party
Confidential Information. Consultant recognizes that the Company has received and in the future will receive from third parties
their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. Consultant agrees that at all times during the term of this Agreement and thereafter,
Consultant owes the Company and such third parties a duty to hold all such confidential or proprietary information in the strictest confidence
and not to use it or to disclose it to any person, firm, corporation, or other third party except as necessary in carrying out the Services
for the Company consistent with the Company's agreement with such third party.
3. Ownership
A. Assignment
of Inventions. Consultant agrees that all right, title, and interest in and to
any copyrightable material, notes, records, drawings, designs, inventions, improvements, developments, discoveries, ideas and trade
secrets conceived, discovered, authored, invented, developed or reduced to practice by Consultant, solely or in collaboration with
others, during the term of this Agreement and arising out of, or in connection with, performing the Services under this Agreement
and any copyrights, patents, trade secrets, mask work rights or other intellectual property rights relating to the foregoing (
collectively, "Inventions"), are the sole property of the Company. Consultant also agrees to promptly make
full written disclosure to the Company of any Inventions and to deliver and assign ( or cause to be assigned) and hereby irrevocably
assigns fully to the Company all right, title and interest in and to the Inventions.
B. Pre-Existing
Materials. Subject to Section 3.A, Consultant will provide the Company with prior written notice if, in the course of performing
the Services, Consultant incorporates into any Invention or utilizes in the performance of the Services any invention, discovery, idea,
original works of authorship, development, improvements, trade secret, concept, or other proprietary information or intellectual property
right owned by Consultant or in which Consultant has an interest, prior to, or separate from, performing the Services under this Agreement
("Prior Inventions"), and the Company is hereby granted a nonexclusive,
royalty-free, perpetual, irrevocable, transferable, worldwide license (with the right to grant and authorize sublicenses) to make, have
made, use, import, offer for sale, sell, reproduce, distribute, modify, adapt, prepare derivative works of, display, perform, and otherwise
exploit such Prior Inventions, without restriction, including, without limitation, as part of or in connection with such Invention,
and to practice any method related thereto. Consultant will not incorporate any invention, discovery, idea, original works of authorship,
development, improvements, trade secret, concept, or other proprietary information or intellectual property right owned by any third
party into any Invention without Company's prior written permission, including without limitation any free software or open source software.
C. Moral Rights.
Any assignment to the Company oflnventions includes all rights of attribution, paternity, integrity, modification, disclosure
and withdrawal, and any other rights throughout the world that may be known as or referred to as "moral rights," "artist's
rights," "droit moral," or the like (collectively, "Moral Rights"). To the extent that Moral Rights
cannot be assigned under applicable law, Consultant hereby waives and agrees not to enforce any and all Moral Rights, including, without
limitation, any limitation on subsequent modification, to the extent permitted under applicable law.
D. Maintenance
of Records. Consultant agrees to keep and maintain adequate, current, accurate, and authentic written records of all Inventions
made by Consultant (solely or jointly with others) during the term of this Agreement, and for a period of three (3) years thereafter.
The records will be in the form of notes, sketches, drawings, electronic files, reports, or any other format that is customary in the
industry and/or otherwise specified by the Company. Such records are and remain the sole property of the Company at all times and upon
Company's request, Consultant shall deliver (or cause to be delivered) the same.
E. Further
Assurances. Consultant agrees to assist Company, or its designee, at the Company's expense, in every proper way to secure the
Company's rights in Inventions in any and all countries, including the disclosure to the Company of all pertinent information and data
with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments that the Company
may deem necessary in order to apply for, register, obtain, maintain, defend, and enforce such rights, and in order to deliver, assign
and convey to the Company, its successors, assigns and nominees the sole and exclusive right, title, and interest in and to all Inventions
and testifying in a suit or other proceeding relating to such Inventions. Consultant further agrees that Consultant's obligations under
this Section 3.E shall continue after the termination of this Agreement.
F. Attorney-in-Fact.
Consultant agrees that, if the Company is unable because of Consultant's unavailability, dissolution, mental or physical incapacity,
or for any other reason, to secure Consultant's signature with respect to any Inventions, including, without limitation, for the purpose
of applying for or pursuing any application for any United States or foreign patents or mask work or copyright registrations covering
the Inventions assigned to the Company in Section 3.A, then Consultant hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Consultant's agent and attorney-in-fact, to act for and on Consultant's behalf to execute and
file any papers and oaths and to do all other lawfully pennitted acts with respect to such Inventions to further the prosecution and
issuance of patents, copyright and mask work registrations with the same legal force and effect as if executed by Consultant. This power
of attorney shall be deemed coupled with an interest, and shall be irrevocable.
4. Conflicting
Obligations
A. Consultant
represents and warrants that Consultant has no agreements, relationships, or commitments to any other person or entity that conflict
with the provisions of this Agreement, Consultant's obligations to the Company under this Agreement, and/or Consultant's ability to perform
the Services. Consultant will not enter into any such conflicting agreement during the tenn of this Agreement
B. Consultant
shall require all Consultant's employees, contractors, or other third-parties performing Services under this Agreement to execute a Confidential
Information and Assignment Agreement in a form approved by the Company, and promptly provide a copy of each such executed agreement to
the Company. Consultant's violation of this Section 4 will be considered a material breach under Section 6.B.
5. Return
of Company Materials
Upon the termination
of this Agreement, or upon Company's earlier request, Consultant will immediately deliver to the Company, and will not keep in Consultant's
possession, recreate, or deliver to anyone else, any and all Company property, including, but not limited to, Confidential Information,
tangible embodiments of the Inventions, all devices and equipment belonging to the Company, all electronically-stored information and
passwords to access such property, those records maintained pursuant to Section 3 .D and any reproductions of any of the foregoing items
that Consultant may have in Consultant's possession or control.
6. Term
and Termination
A. Term.
The term of this Agreement will begin on the Effective Date of this Agreement and will continue until the earlier of (i) final completion
of the Services or (ii) termination as provided in Section 6.B or (iii) 6 months from the effective date
B. Termination.
The Company may terminate this Agreement upon g1vmg Consultant fifteen (15) days prior written notice of such termination pursuant
to Section 12.G of this Agreement. The Company may terminate this Agreement immediately and without prior notice if Consultant refuses
to or is unable to perform the Services or is in breach of any material provision of this Agreement.
C. Survival.
Upon any termination, all rights and duties of the Company and Consultant toward each other shall cease except:
(1) The Company will
pay, within fifteen (15) days after the effective date of termination, all amounts owing to Consultant for Services completed and accepted
by the Company prior to the termination date and related reimbursable expenses, if any, submitted in accordance with the Company's policies
and in accordance with the provisions of Section 1 of this Agreement; and
(2) Section 2 (Confidentiality),
Section 3 (Ownership), Section 4.B (Conflicting Obligations), Section 5 (Return of Company Materials), Section 6 (Term and Termination),
Section 7 (Independent Contractor; Benefits), Section 8 (Indemnification), Section 9 (Nonsolicitation), Section 10 (Limitation of Liability),
Section 11 (Arbitration and Equitable Relief), and Section 12 (Miscellaneous) will survive termination or expiration of this Agreement
in accordance with their terms.
7. Independent
Contractor; Benefits
A. Independent Contractor.
It is the express intention of the Company and Consultant that Consultant perform the Services as an independent contractor to
the Company. Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative
of the Company. Without limiting the generality of the foregoing, Consultant is not authorized to bind the Company to any liability or
obligation or to represent that Consultant has any such authority. Consultant agrees to furnish (or reimburse the Company for) all tools
and materials necessary to accomplish this Agreement and shall incur all expenses associated with performance. Consultant acknowledges
and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement. Consultant
agrees to and acknowledges the obligation to pay all self-employment and other taxes on such income.
B. Benefits.
The Company and Consultant agree that under this agreement Consultant will receive no Company-sponsored benefits from the Company where
benefits include, but are not limited to, paid vacation, sick leave, medical insurance and 401k participation.
8. Indemnification
Consultant agrees
to indemnify and hold harmless the Company and its affiliates and their directors, officers and employees from and against all taxes,
losses, damages, liabilities, costs and expenses, including attorneys' fees and other legal expenses, arising directly or indirectly
from or in connection with (i) any negligent, reckless or intentionally wrongful act of Consultant or Consultant's assistants, employees,
contractors or agents, (ii) a determination by a court or agency that the Consultant is not an independent contractor, (iii) any breach
by the Consultant or Consultant's assistants, employees, contractors or agents of any of the covenants contained in this Agreement and
corresponding Confidential Information and Invention Assignment Agreement, (iv) any failure of Consultant to perform the Services in
accordance with all applicable laws, rules and regulations, or (v) any violation or claimed violation of a third party's rights resulting
in whole, or in part, from the Company's use of the Inventions or other deliverables of Consultant under this Agreement.
9. Nonsolicitation
To the fullest
extent permitted under applicable law, from the date of this Agreement until twelve ( 12) months after the termination of this Agreement
for any reason (the "Restricted Period''), Consultant will not, without the Company's prior written consent, directly
or indirectly, solicit any of the Company's employees to leave their employment, or attempt to solicit employees of the Company, either
for Consultant or for any other person or entity. Consultant agrees that nothing in this Section 9 shall affect Consultant's continuing
obligations under this Agreement during and after this twelve (12) month period, including, without limitation, Consultant's obligations
under Section 2.
10. Limitation
of Liability
IN NO EVENT SHALL
COMPANY BE LIABLE TO CONSULTANT OR TO ANY OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES
FOR LOST PROFITS OR LOSS OF BUSINESS, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE)
OR OTHER THEORY OF LIABILITY, REGARDLESS OF WHETHER COMPANY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE
OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. IN NO EVENT SHALL COMPANY'S LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
EXCEED THE AMOUNTS PAID BY COMPANY TO CONSULTANT UNDER THIS AGREEMENT FOR THE SERVICES, DELIVERABLES OR INVENTION GIVING RISE TO SUCH
LIABILITY.
11. Arbitration
and Equitable Relief
A. Arbitration. IN
CONSIDERATION OF CONSULTANT'S CONSULTING RELATIONSHIP WITH THE COMPANY, ITS PROMISE TO ARBITRATE ALL DISPUTES RELATED TO
CONSULTANT'S CONSULTING RELATIONSHIP WITH THE COMPANY AND CONSULTANT'S RECEIPT OF THE COMPENSATION AND OTHER BENEFITS PAID TO
CONSULTANT BY COMPANY, AT PRESENT AND IN THE FUTURE, CONSULTANT AGREES THAT ANY AND ALL CONTROVERSIES, CLAIMS, OR DISPUTES WITH
ANYONE (INCLUDING COMPANY AND ANY EMPLOYEE, OFFICER, DIRECTOR, SHAREHOLDER OR BENEFIT PLAN OF THE COMPANY IN THEIR CAPACITY AS SUCH
OR OTHERWISE), ARISING OUT OF, RELATING TO, OR RESULTING FROM CONSULTANT'S CONSULTING OR OTHER RELATIONSHIP WITH THE COMPANY OR THE
TERMINATION OF CONSULTANT'S CONSULTING OR OTHER RELATIONSHIP WITH THE COMP ANY, INCLUDING ANY BREACH OF THIS AGREEMENT, SHALL BE
SUBJECT TO BINDING ARBITRATION UNDER THE FEDERAL ARBITRATION ACT AND PURSUANT TO THE ARBITRATION PROVISIONS SET FORTH IN CALIFORNIA
CODE OF CIVIL PROCEDURE SECTIONS 1280 THROUGH 1294.2 (THE ''CCP ACT') AND PURSUANT TO CALIFORNIA LAW. CONSULTANT MAY
BRING A PROCEEDING AS A PRIVATE ATTORNEY GENERAL AS PERMITTED BYLAW. THE FEDERAL ARBITRATION ACT GOVERNS THIS AGREEMENT AND SHALL
CONTINUE TO APPLY WITH FULL FORCE AND EFFECT NOTWITHSTANDING THE APPLICATION OF PROCEDURAL RULES SET FORTH IN THE CCP ACT AND
CALIFORNIA LAW. CONSULTANT AGREES TO ARBITRATE ANY AND ALL COMMON LAW AND/OR STATUTORY CLAIMS UNDER LOCAL, STATE, OR FEDERAL LAW,
INCLUDING, BUT NOT LIMITED TO, CLAIMS UNDER THE CALIFORNIA LABOR CODE, CLAIMS RELATING TO EMPLOYMENT OR INDEPENDENT CONTRACTOR
STATUS, CLASSIFICATION, AND RELATIONSHIP WITH THE COMPANY, AND CLAIMS OF BREACH OF CONTRACT, EXCEPT AS PROHIBITED BY LAW. CONSULTANT
ALSO AGREES TO ARBITRATE ANY AND ALL DISPUTES ARISING OUT OF OR RELATING TO THE INTERPRETATION OR APPLICATION OF THIS AGREEMENT TO
ARBITRATE, BUT NOT TO DISPUTES ABOUT THE ENFORCEABILITY, REVOCABILITY OR VALIDITY OF THIS AGREEMENT TO ARBITRATE OR ANY PORTION
HEREOF OR THE CLASS, COLLECTIVE AND REPRESENTATIVE PROCEEDING WAIVER HEREIN. WITH RESPECT TO ALL SUCH CLAIMS AND DISPUTES THAT
CONSULTANT AGREES TO ARBITRATE, CONSULTANT HEREBY EXPRESSLY AGREES TO WAIVE, AND DOES WAIVE, ANY RIGHT TO A TRIAL BY JURY. CONSULTANT
FURTHER UNDERSTANDS THAT THIS AGREEMENT TO ARBITRATE ALSO APPLIES TO ANY DISPUTES THAT THE COMPANY MAY HA VE WITH CONSULTANT.
B. Procedure. CONSULTANT AGREES THAT ANY ARBITRATION WILL BE ADMINISTERED BY JUDICIAL ARBITRATION & MEDIATION SERVICES,
INC. ("JAMS") PURSUANT TO ITS EMPLOYMENT ARBTTRATTON RULES & PROCEDURES
(THE "JAMS RULES"), WHICH ARE AVAILABLE AT http://www.jamsadr.com/rules-employment-arbitration/. CONSULTANT AGREES
THAT THE USE OF THE JAMS RULES DOES NOT CHANGE CONSULTANT'S CLASSIFICATION TO THAT OF AN EMPLOYEE. TO THE CONTRARY, CONSULTANT REAFFIRMS
THAT CONSULTANT IS AN INDEPENDENT CONTRACTOR. CONSULTANT AGREES THAT THE ARBITRATOR SHALL HA VE THE POWER TO DECIDE ANY MOTIONS BROUGHT
BY ANY PARTY TO THE ARBITRATION, INCLUDING MOTIONS FOR SUMMARY JUDGMENT AND/OR ADJUDICATION AND MOTIONS TO DISMISS AND DEMURRERS APPL
YING THE STANDARDS SET FORTH UNDER THE CALIFORNIA CODE OF CNIL PROCEDURE. CONSULTANT AGREES THAT THE ARBITRATOR SHALL ISSUE A WRITTEN
DECISION ON THE MERITS. CONSULTANT ALSO AGREES THAT THE ARBITRATOR SHALL HA VE THE POWER TO AWARD ANY REMEDIES AVAILABLE UNDER APPLICABLE
LAW, AND THAT THE ARBITRATOR SHALL AWARD ATTORNEYS' FEES AND COSTS TO THE PREVAILING PARTY WHERE PROVIDED BY APPLICABLE LAW. CONSULTANT
AGREES THAT THE DECREE OR AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED AS A FINAL AND BINDING JUDGMENT IN ANY COURT HAVING JURISDICTION
THEREOF. CONSULTANT AGREES THAT THE ARBITRATOR SHALL ADMINISTER AND CONDUCT ANY ARBITRATION IN ACCORDANCE WITH CALIFORNIA LAW, INCLUDING
THE CALIFORNIA CODE OF CIVIL PROCEDURE AND THE CALIFORNIA EVIDENCE CODE, AND THAT THE ARBITRATOR SHALL APPLY SUBSTANTIVE AND PROCEDURAL
CALIFORNIA LAW TO ANY DISPUTE OR CLAIM, WITHOUT REFERENCE TO RULES OF CONFLICT OF LAW. TO THE EXTENT THAT THE JAMS RULES CONFLICT WITH
CALIFORNIA LAW, CALIFORNIA LAW SHALL TAKE PRECEDENCE. CONSULTANT FURTHER AGREES THAT ANY ARBITRATION UNDER THIS AGREEMENT SHALL BE CONDUCTED
IN SANTA CLARA, CALIFORNIA.
C. Remedy.
EXCEPT AS PROVIDED BY THE CCP ACT AND THIS AGREEMENT, ARBITRATION SHALL BE THE SOLE, EXCLUSIVE,
AND FINAL REMEDY FOR ANY DISPUTE BETWEEN CONSULTANT AND THE COMPANY. ACCORDINGLY, EXCEPT AS PROVIDED FOR BY THE CCP ACT AND THIS AGREEMENT,
NEITHER CONSULTANT NOR THE COMPANY WILL BE PERMITTED TO PURSUE COURT ACTION REGARDING CLAIMS THAT ARE SUBJECT TO ARBITRATION.
D. Availability
of Injunctive Relief. IN ACCORDANCE WITH RULE 1281.8 OF THECALIFORNIACODEOFCIVILPROCEDURE, THEPARTIESAGREETHATANYPARTYMAY
ALSO PETITION THE COURT FOR INJUNCTIVE RELIEF WHERE EITHER PARTY ALLEGES OR CLAIMS A VIOLATION OF ANY AGREEMENT REGARDING INTELLECTUAL
PROPERTY, CONFIDENTIAL INFORMATION OR NONINTERFERENCE. IN THE EVENT EITHER PARTY SEEKS INJUNCTIVE RELIEF, THE PREVAILING PARTY SHALL
BE ENTITLED TO RECOVER REASONABLE COSTS AND ATTORNEYS' FEES.
E. Administrative
Relief. CONSULTANT UNDERSTANDS THAT EXCEPT AS PERMITTED BY LAW THIS AGREEMENT DOES NOT PROHIBIT
CONSULTANT FROM PURSUING CERTAIN ADMINISTRATIVE CLAIMS WITH LOCAL, STATE OR FEDERAL ADMINISTRATIVE BODIES OR GOVERNMENT AGENCIES SUCH
AS THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING, THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, THE NATIONAL LABOR RELATIONS BOARD, OR
THE WORKERS' COMPENSATION BOARD. THIS AGREEMENT DOES, HOWEVER, PRECLUDE CONSULTANT FROM BRINGING ANY ALLEGED WAGE CLAIMS WITH THE DEPARTMENT
OF LABOR STANDARDS ENFORCEMENT. LIKEWISE, THIS AGREEMENT DOES PRECLUDE CONSUL TANT FROM PURSUING COURT ACTION REGARDING ANY ADMINISTRATIVE
CLAIMS, EXCEPT AS PERMITTED BY LAW.
F. Voluntary
Nature of Agreement. CONSULTANT ACKNOWLEDGES AND
AGREES THAT CONSULTANT IS EXECUTING THIS AGREEMENT VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE ELSE.
CONSULTANT FURTHER ACKNOWLEDGES AND AGREES THAT CONSULTANT HAS CAREFULLY READ THIS AGREEMENT AND THAT CONSULTANT HAS ASKED ANY QUESTIONS
NEEDED FOR CONSULTANT TO UNDERSTAND THE TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND IT, INCLUDING THAT
CONSULTANT JS WAIVING CONSULTANT'S RIGHT TO A JURY TRIAL. FINALLY, CONSULTANT AGREES
THAT CONSULTANT HAS BEEN PROVIDED AN OPPORTUNITY TO SEEK THE ADVICE OF AN ATTORNEY OF CONSULTANT'S CHOICE BEFORE SIGNING THIS AGREEMENT.
12. Miscellaneous
A. Governing
Law; Consent to Personal Jurisdiction. This Agreement shall be governed by the laws of the State
of California, without regard to the conflicts of law provisions of any jurisdiction. To the extent that any lawsuit is permitted under
this Agreement, the Parties hereby expressly consent to the personal and exclusive jurisdiction and venue of the state and federal
courts located in California.
B. Assignability.
This Agreement will be binding upon Consultant's heirs, executors, assigns, administrators, and other legal representatives,
and will be for the benefit of the Company, its successors, and its assigns. There are no intended third-party beneficiaries to this
Agreement, except as expressly stated. Except as may otherwise be provided in this Agreement, Consultant may not sell, assign or delegate
any rights or obligations under this Agreement. Notwithstanding anything to the contrary herein, Company may assign this Agreement and
its rights and obligations under this Agreement to any successor to all or substantially all of Company's relevant assets, whether by
merger, consolidation, reorganization, reincorporation, sale of assets or stock, change of control or otherwise.
C. Entire
Agreement. This Agreement constitutes the entire agreement and understanding between the Parties with respect to the subject
matter herein and supersedes all prior written and oral agreements, discussions, or representations between the Parties. Consultant represents
and warrants that Consultant is not relying on any statement or representation not contained in this Agreement. To the extent any terms
set forth in any exhibit or schedule conflict with the terms set forth in this Agreement, the terms of this Agreement shall control unless
otherwise expressly agreed by the Parties in such exhibit or schedule.
D. Headings.
Headings are used in this Agreement for reference only and shall not be considered when interpreting this Agreement.
E. Severability.
If a court or other body of competent jurisdiction finds, or the Parties mutually believe, any provision of this Agreement, or
portion thereof, to be invalid or unenforceable, such provision will be enforced to the maximum extent pennissible so as to effect the
intent of the Parties, and the remainder of this Agreement will continue in full force and effect.
F. Modification,
Waiver. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective
unless in a writing signed by the Parties. Waiver by the Company of a breach of any provision of this Agreement will not operate as a
waiver of any other or subsequent breach.
G. Notices.
Any notice or other communication required or permitted by this Agreement to be given to a Party shall be in writing and shall
be deemed given (i) if delivered personally or by commercial messenger or courier service, (ii) when sent by confirmed facsimile, or
(iii) if mailed by U.S. registered or certified mail (return receipt requested), to the Party at the Party's address written below or
at such other address as the Party may have previously specified by like notice. If by mail, delivery shall be deemed effective three
business days after mailing in accordance with this Section 12.G.
| (1) | If to the Company,
to: |
| | 55 Nicholson
Lane
San Jose, Ca 95110 |
| | | Attention: Chief Executive Officer |
(2) If
to Consultant, to the address for notice on the signature page to this Agreement or, if no such address is provided, to the last address
of Consultant provided by Consultant to the Company.
H. Attorneys'
Fees. In any court action at law or equity that is brought by one of the Parties to this Agreement to enforce or interpret
the provisions of this Agreement, the prevailing Party will be entitled to reasonable attorneys' fees, in addition to any other relief
to which that Party may be entitled.
I. Signatures.
This Agreement may be signed in two counterparts, each of which shall be deemed an original, with the same force and effectiveness
as though executed in a single document.
J. Protected
Activity Not Prohibited. Consultant understands that nothing in this Agreement shall in any
way limit or prohibit Consultant from engaging in any Protected Activity. For purposes of this Agreement, "Protected Activity"
shall mean filing a charge, complaint, or report with, or otherwise communicating, cooperating, or participating in any investigation
or proceeding that may be conducted by, any federal, state or local government agency or commission, including the Securities and Exchange
Commission ("Government Agencies"). Consultant understands that in connection with such Protected Activity, Consultant
is permitted to disclose documents or other information as permitted by law, and without giving notice to, or receiving authorization
from, the Company. Notwithstanding the foregoing, Consultant agrees to take all reasonable precautions to prevent any unauthorized use
or disclosure of any information that may constitute Company confidential information to any parties other than the Government Agencies.
Consultant further understands that "Protected Activity" does not include the disclosure of any Company attorney-client
privileged communications. Pursuant to the Defend Trade Secrets Act of 2016, Consultant is notified that an individual will not be held
criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made in confidence
to a federal, state, or local government official (directly or indirectly) or to an attorney solely for the purpose of reporting
or investigating a suspected violation of law, or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding,
if ( and only if) such filing is made under seal. In addition, an individual who files a lawsuit for retaliation by an employer for reporting
a suspected violation of law may disclose the trade secret to the individual's attorney and use the trade secret information in the court
proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except
pursuant to court order.
(signature page follows)
IN WITNESS WHEREOF, the Parties hereto have executed
this Consulting Agreement as of the date first written above.
| CONSULTANT |
| ZSPACE,
INC. |
| |
|
| | |
| By: |
/s/ Joseph B. Powers |
| By: | /s/ Erick DeOliveira |
| Name: |
Joseph B. Powers |
| Name: | Erick DeOliveira |
| |
|
| Title: | CFO |
| Address for Notice: |
Address for Notice: |
| |
|
| 450 Montecillo Rd. |
55 Nicolson Lane |
| |
|
| San Rafael, Ca 94903 |
San Jose, Ca 95110 |
EXHIBIT A
SERVICES AND COMPENSATION
1. Contact.
Consultant's principal Company contact:
Name: Erick DeOliveira, Chief Financial Officer
Paul Kellenberger, Chief Executive Officer
| 2. | Services.
Consultant shall perform accounting, financial and legal review services that will
include but not be limited to the following: |
| A. | Manage,
deliver and / or participate with internal and external accounting and legal resources in
the activities for the completion of technical accounting and disclosure matters including
but not limited to revenue recognition, debt and equity conversions, intellectual property
purchases, stock compensation and tax provision in completion of the Company's S-1 registration
statement and the financial audit, including the responses to SEC comment letters. |
| B. | Prepare
and finalize, to the extent possible, SAFE transactions with Innotron, Timespeed, Compal
and Foxconn relating to the COVID-19 inventory liabilities in conjunction with the S-1 registration. |
| C. | Coordinate
with external legal counsel in the P.R.C. and the U.S. (if needed) to complete the following
for zSpace Technologies (Shanghai) Limited: |
(1)
Finalize employment separations and settle the regulatory employment actions with the applicable P.R.C. agencies and courts for
terminated employees and
(2)
complete a transition with the P.R.C. government to a simplified WOFE status that allows for limited activities with the option
to restart fully operational status in the future.
| D. | Advise
and perform the necessary activities on documenting commercial transaction terms and conditions
and contract structuring and drafting. |
| E. | Advise
on tax matters and refer necessary outside taxation professionals to address special situations,
such as tax compliance and/ or planning considerations in state and foreign locations. |
| F. | Help
in referring a financial positions recruiting firm and/or candidate for the Assistant Controller
position and participate in the transfer of historical knowledge and functional experience
in on-boarding the candidate into employment with the Company. |
| G. | Completion
of final corporate governance, registration, supplier communication and any other activities
to complete transition of corporate officer responsibilities. |
The Company will pay Consultant
fixed fees of $25,000 per month from April 1 -July 31, 2024. Any additional services requested by Company in addition to those listed
above or extending beyond July 31, 2024 will be billed at an hourly rate of $150.
Consultant
shall submit to the Company a written invoice for Services and expenses, and such invoices shall be subject to the approval of the contact
person listed above or other designated agent of the Company. The Company will remit payment for properly submitted and approved invoices
within fifteen (15) days following invoice submission. In order to help prevent adverse tax consequences to Consultant under Section
409A (as defined below), in no event will any payment under Section 3 of this Exhibit be made later than the later of (1) March 15th
of the calendar year following the calendar year in which such payment was earned, or (2)
the 15th day of the third (3rd) month following
the end of the Company's fiscal year in which such payment was earned.
All payments and benefits provided
for under this Agreement are intended to be exempt from or otherwise comply with the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended, and the regulations and guidance thereunder (together, "Section 409A"), so that none of the
payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities
or ambiguous terms herein will be interpreted to be exempt or so comply. Each payment and benefit payable under this Agreement is intended
to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. In no event will the Company reimburse
Consultant for any taxes that may be imposed on Consultant as a result of Section 409A.
The Company will reimburse
Consultant, in accordance with Company policy, for all reasonable expenses incurred by Consultant in performing the Services
pursuant to this Agreement and submits receipts for such expenses to the Company in accordance with Company policy.
Pursuant to Section 6 of the Agreement.
This Exhibit A is accepted and agreed upon
as of April 4, 2024.
| CONSULTANT |
| zSpace,
Inc. |
| |
|
| | |
| By: |
/s/ Joseph B. Powers |
| By: | /s/ Erick DeOliveira |
| Name: |
Joseph B. Powers |
| Name: | Erick DeOliveira |
| |
|
| Title: | CFO |
Email: josbpowers@gmail.com
EXHIBIT B
DEFEND TRADE SECRETS ACT,
18 U.S. CODE§ 1833 NOTICE:
18 U.S. Code Section 1833 provides as follows:
Immunity
From Liability For Confidential Disclosure Of A Trade Secret To The Government Or In A Court Filing. An individual shall not be
held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made,
(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii)
solely for the purpose of reporting or investigating a suspected violation of law; or (8) is made in a complaint or other document
filed in a lawsuit or other proceeding, if such filing is made under seal.
Use of Trade
Secret Information in Anti-Retaliation Lawsuit. An individual who files a lawsuit for retaliation by an employer for reporting a
suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the
court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade
secret, except pursuant to court order.
Exhibit
10.11
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Issuer: zSpace, Inc., a Delaware corporation (the “Company”)
Number of Shares: $60,000 divided by the Exercise Price
Class of Stock: See below
Exercise Price: See below
Issue Date: July 21, 2015
Expiration Date: The earlier of (i) 11:59PM
on July 21, 2025 (the “Expiration Date”), (ii) the effectiveness of the Company’s first firm commitment underwritten
public offering of common stock (an “IPO”), or (iii) a Liquidation Event as defined in the Company’s Certificate
of Incorporation, as may be amended from time to time (an “Acquisition”).
THIS WARRANT CERTIFIES THAT, for the agreed upon
value of $1.00 and for other good and valuable consideration, WESTERN ALLIANCE BANK, an Arizona corporation ("Holder") is entitled
to purchase the number of fully paid and nonassessable shares of the class and series of securities (the “Shares”) of the
Company at the initial exercise price per Share (the “Exercise Price”) all as set forth above and herein, and as adjusted
pursuant to Article 2 of this Warrant. The Shares shall be the class and series issued in the Company’s next bona fide equity
financing (the “Next Round Financing”) in which Company receives at least $5,000,000 in cash proceeds after the Issue Date
(“Next Round Stock”); provided, however, that the Company will provide notice to Holder of the issuance or intent to issue
such Next Round Stock, including a summary of the material terms, rights preferences and privileges of the Next Round Stock (the “Next
Round Notice”), and Holder may elect for the Shares to be shares of the Company’s Series C Preferred Stock upon exercise
of this Warrant in lieu of Next Round Stock in writing within thirty (30) calendar days following the later of (i) the initial closing
of the Next Round Financing or (ii) the date Holder receives the Next Round Notice. If the Company has not issued Next Round Stock
when the Holder exercises this Warrant, including an automatic cashless exercise pursuant to Section 1.6 hereof, the Shares will
be Series C Preferred Stock. If the Company issues Next Round Stock and does not deliver the Next Round Notice to Holder, the Shares
shall be, at the Holder’s election, either Next Round Stock or Series C Preferred Stock. The Exercise Price shall be (i) $0.3337
if the Shares are the Company’s Series C Preferred Stock, or (ii) the lowest cash price per share paid by investors acquiring
shares of Next Round Stock, if the Shares are Next Round Stock.
ARTICLE 1 EXERCISE.
1.1 Method
of Exercise. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date
set forth above. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise, in substantially the form attached
as Appendix 1, to the principal office of Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder
shall also deliver to Company a check for the aggregate Exercise Price for Shares being purchased.
1.2 Conversion
Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing
(a) the aggregate fair market value of Shares or
other securities otherwise issuable upon exercise of this Warrant minus the aggregate Exercise Price of such Shares by (b) the
fair market value of one Share. The fair market value of Shares shall be determined pursuant to Section 1.3.
1.3 Fair
Market Value. If this Warrant is exercised in connection with the Company’s IPO, the fair market value of the Shares (or
the common stock into which the Shares are convertible) shall be the per share IPO price to the public as specified in the final
prospectus relating to the IPO. If the Shares are traded in a public market, the fair market value of the Shares shall be the
closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the
business day immediately before Holder delivers its Notice of Exercise to the Company. If the Company’s common stock is not
traded in a public market, the Board of Directors of Company shall determine fair market value in its reasonable good faith
judgment.
1.4 Delivery
of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, Company shall deliver to Holder certificates
for Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing Shares
not so acquired.
1.5 Replacement
of Warrants. On receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to Company
or, in the case of mutilation, on surrender and cancellation of this Warrant, Company at its expense shall execute and deliver, in lieu
of this Warrant, a new warrant of like tenor.
1.6 Automatic
Cashless Exercise; Automatic Termination. Upon the earlier to occur of the Expiration Date, an IPO, or an Acquisition (each, an “Expiration
Event”), if Holder has not exercised its rights hereunder and the fair market value of one Share (or other security issuable upon
the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect upon such Expiration
Event, then this Warrant shall automatically be deemed to be exercised immediately prior to the Expiration Event pursuant to Section 1.2
above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall, within
a reasonable time, deliver a certificate representing the Shares (or such other securities) issued upon such exercise to Holder. The Company
shall use commercial reasonably efforts to provide Holder with written notice of any Acquisition or IPO (together with such reasonable
information as Holder may reasonably require with respect to such Acquisition or IPO) at least ten days prior to the consummation of such
Acquisition or IPO. Upon an Expiration Event, if Holder has not exercised its rights hereunder and the fair market value of one Share
(or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is less than or equal to
the Warrant Price in effect upon such Expiration Event, the Warrant will expire automatically immediately prior to the Expiration Event.
ARTICLE 2 ADJUSTMENTS.
2.1 Redemption
or Conversion of Preferred Stock. If the outstanding shares of the series of the Company’s preferred stock underlying this Warrant
are redeemed or converted into shares of common stock, then this Warrant shall automatically become exercisable for that number of shares
of common stock equal to the number of shares of common stock that would have been received if this Warrant had been exercised in full
and the shares of preferred stock received thereupon had been simultaneously converted into shares of common stock immediately prior to
such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate purchase
price of the shares of preferred stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the
number of shares of common stock for which this Warrant is exercisable immediately after such redemption or conversion. Thereafter all
references herein to Shares or preferred stock shall be deemed to refer to common stock.
2.2 Stock
Dividends, Splits, Etc. If, on or after the Issue Date, Company declares or pays a dividend on its common stock (or Shares if Shares
are securities other than common stock) payable in common stock or other securities, subdivides the outstanding common stock into a greater
amount of common stock, or, if Shares are securities or property other than common stock, subdivides Shares in a transaction that increases
the amount of common stock into which Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned Shares
on the date of such dividend or subdivision; provided however, for purposes of calculating the amount of dividend payment to Holder if
a dividend is declared and paid upon an Expiration Event, Holder will be deemed to have owned the Shares as of the Issue Date of this
Warrant set forth above.
2.3 Reclassification,
Recapitalization, Exchange or Substitution. Upon any reclassification, recapitalization, exchange, substitution, or other event that
results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be
entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have
received for Shares if this Warrant had been exercised immediately before such reclassification, recapitalization, exchange, substitution,
or other event. Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon
exercise of the new Warrant. The provisions of this Section 2.3 shall similarly apply to successive reclassifications, recapitalizations,
exchanges, substitutions, or other events.
2.4 Adjustments
for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Exercise Price shall be proportionately increased and the number of Shares as to which this warrant is exercisable shall
be proportionately decreased.
2.5 Antidilution
Protection. Any shares of the Company’s preferred stock issued upon exercise of this Warrant will be convertible into shares
of the Company’s common stock at the conversion price in effect for such series of preferred stock set forth in the Company’s
Certificate of Incorporation, as such conversion price may be adjusted in accordance with the terms thereof.
2.6 Adjustment
for Pay-to-Play Transactions. In the event that the Company’s Certificate of Incorporation provides, or is amended to so provide,
for the amendment or modification of the rights, preferences or privileges of the Shares, or the reclassification, conversion or exchange
of the outstanding shares of the Class of Stock, in each case in the event that a holder of shares thereof fails to participate in
an equity financing transaction (a “Pay-to-Play Provision”), and in the event that such Pay-to-Play Provision becomes operative
in a transaction occurring after the date hereof, this Warrant shall automatically and without any action required become exercisable
for that number and type of shares of equity securities as would have been issued or exchanged, or would have remained outstanding, in
respect of the Shares issuable hereunder had this Warrant been exercised in full prior to such event, and had the Holder participated
in the equity financing to the maximum extent permitted.
2.7 No
Impairment. Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed under this Warrant by Company, but shall at all times in good faith assist in carrying
out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If Company takes any action affecting Shares or its common stock other than as described
above that adversely affects Holder's rights under this Warrant, the Exercise Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner that such action is offset and the aggregate Exercise
Price of this Warrant is unchanged. Notwithstanding the foregoing, the Company shall not have been deemed to have impaired Holder’s
rights hereunder if: (a) it amends its Certificate of Incorporation, and the holders of the Company’s preferred stock waive
rights thereunder, in a manner that does not affect the Shares differently from the effect that such amendments or waivers have generally
on the rights, preferences, privileges or restrictions of the other shares of the same series of stock, or (b) the Shares are not
differently affected than other shares of the same series of stock in connection with any reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action.
2.8 Fractional
Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall
be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, Company
shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the fair
market value of a full Share.
2.9 Certificate as to
Adjustments. Upon each adjustment of the Exercise Price, Company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.
Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price in effect upon the date thereof and
the series of adjustments leading to such Exercise Price.
ARTICLE 3 REPRESENTATIONS,
WARRANTIES AND COVENANTS OF COMPANY.
3.1 Representations and
Warranties. The Company hereby represents and warrants to the Holder as follows:
(a) The initial Exercise
Price referenced on the first page of this Warrant with respect to the Company’s Series C Preferred Stock is not greater
than the lowest per share price paid by investors acquiring the Company’s Series C Preferred Stock on or prior to the Issue
Date.
(b) All Shares which
may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion
of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Company’s
capitalization table attached to this Warrant as Appendix 2 is true and complete as of the Issue Date.
3.2 Notice
of Certain Events. If Company proposes at any time (a) to declare any dividend or distribution upon its common stock,
whether in cash, property, stock, or other securities (other than a dividend or similar event that triggers an automatic adjustment
pursuant to Section 2.2 hereof) and whether or not a regular cash dividend; (b) to offer for subscription pro rata to all
holders of the class or series of the Company’s capital stock underlying this Warrant any additional shares of stock of any
class or series or other rights; or (c) to effect any reclassification or recapitalization of common stock (other than a
reclassification or recapitalization or similar event that triggers an automatic adjustment pursuant to Section 2.3 hereof);
then Company shall give Holder (1) in the case of the matters referred to in (a) above at least 20 days prior written
notice of the date on which a record will be taken for such dividend or distribution (and specifying the date on which the holders
of common stock will be entitled thereto); and
(2) in the case of the matters referred to in
(b) and (c) above notice in the same manner and format and at the same time as notice is given to such other holders.
3.3 Information.
So long as the Holder holds this Warrant and/or any of the Shares, Company shall deliver to Holder (a) promptly, copies of all notices
or other written communications to which Holder would be entitled if it held Shares as to which this Warrant was then exercisable and
(b) such other financial statements required under and in accordance with any loan documents between Holder and Company, or if there
are no such requirements or if the subject loan(s) are no longer are outstanding, then upon Holder’s reasonable request, Company’s
most recently completed annual financial statements, provided, that (i) at least 180 days have passed since the end of the annual
period covered by such financial statements, and (ii) the financial statements may be unaudited if audited financial statements are
unavailable at the time of such request by Holder.
3.4 Registration
Rights. The Company agrees that next time it amends the Amended and Restated Investors’ Rights Agreement, by and between the
Company and certain of its stockholders, dated March 9, 2015, as may be amended from time to time (the "Investors’ Rights
Agreement" -- a true copy of which as in effect on the date hereof has been furnished by Company to Holder), it also will amend the
Investors’ Rights Agreement to add Holder as a party thereto such that the common stock issuable upon conversion of the Shares shall
have piggyback registration rights under the Investors’ Rights Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF HOLDER. Holder represents and warrants to the Company as follows:
4.1 Purchase
Entirely for Own Account. This Warrant is issued to Holder in reliance upon Holder's representation to the Company that this Warrant
and the Shares will be acquired for investment for Holder's, or its affiliate's, own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof other than to an affiliate, and that Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same other than to an affiliate. By executing this Warrant, Holder further
represents that Holder does not have any contract, undertaking, agreement or arrangement with any person, other than an affiliate, to
sell, transfer or grant participations to such person or to any third person with respect to any of the Shares.
4.2 Reliance
upon Holder's Representations. Holder understands that this Warrant and the Shares are not registered under the Securities Act of
1933, as amended (the "Act") on the ground that the issuance of such securities is exempt from registration under the Act, and
that the Company's reliance on such exemption is predicated on Holder's representations set forth herein.
4.3 Investment
Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has
experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk
of such Holder's investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business
matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or
has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of
a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited
Investor Status. Holder represents to the Company that Holder is an Accredited Investor (as defined in the Act).
4.5 Restricted
Securities. Holder understands that this Warrant and the Shares are "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such federal
securities laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain
limited circumstances.
4.6 Market
Stand-off Agreement. Holder hereby agrees that it will not, directly or indirectly, without the prior written consent of the Company
and the managing underwriter, during the period commencing on the date of the final prospectus relating to the IPO and ending on the date
specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days), sell, transfer, pledge,
grant an option to purchase, enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership or otherwise dispose of, directly or indirectly, any Shares or other shares of the Company’s common stock
or any securities convertible into or exercisable or exchangeable for the Company’s common stock (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired). The underwriters in connection with the IPO are intended third party
beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were
a party hereto. Further, Holder hereby agrees to enter into a written agreement with such underwriters containing terms substantially
equivalent to the terms of this Section, and Holder hereby agrees that such underwriters shall be entitled to require Holder to enter
into such a written agreement.
ARTICLE 5 MISCELLANEOUS.
5.1 Legends. This Warrant and the Shares
(and the securities issuable, directly or indirectly, upon conversion of Shares, if any) shall be imprinted with a legend in substantially
the following form:
THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER; AND SUCH RESTRICTION IS BINDING
ON TRANSFEREES OF THESE SHARES.
5.2 Compliance
with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of Shares, if any) may not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to Company, as reasonably requested by Company). Company shall not require
Western Alliance Bank (“Bank”) to provide an opinion of counsel if the transfer is to Bank’s parent company, Western
Alliance Bancorporation, or any other affiliate of Bank, or if there is no material question as to the availability of current information
as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.3 Transfer
Procedure. After receipt by Holder of the executed Warrant, Bank will transfer all of this Warrant to Bank’s parent company,
Western Alliance Bancorporation, by execution of an Assignment substantially in the form of Appendix 3. Subject to the provisions of Article 5.3
and upon providing Company with written notice, Western Alliance Bancorporation and any subsequent Holder may transfer all or part of
this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the
Shares, if any) to any transferee, provided, however, in connection with any such transfer, Western Alliance Bancorporation or any subsequent
Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification
number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Unless Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, Company shall
have the right to refuse to transfer any portion of this Warrant to any person who directly competes with Company, except in connection
with transfer or assignment of the Loan and Security Agreement by and between Bank and Company dated as of the date hereof and as amended
from time to time.
5.4 Notices.
All notices and other communications from Company to Holder, or vice versa, shall be in writing and shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail, postage prepaid, or by overnight courier, at such address
as may have been furnished to Company or Holder, as the case may be, in writing by Company or such Holder from time to time.
5.5 Attorneys’
Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees.
5.6 Governing
Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect
to its principles regarding conflicts of law.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Company has caused this Warrant
to be duly executed by its authorized officers, all as of the day and year first above written.
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COMPANY |
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ZSPACE, INC. |
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By |
/s/ Joseph B. Powers |
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|
Name: |
Joseph B. Powers |
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|
Title: |
Chief Financial Officer |
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| Agreed
and Acknowledged: |
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| HOLDER |
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| WESTERN
ALLIANCE BANK |
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| By |
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| Name: |
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| Title: |
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APPENDIX 1
Notice of Exercise
[Strike paragraph that does not apply.]
1. The
undersigned hereby elects to purchase shares
of the Common/Series ______ Preferred [strike
one] Stock of zSpace, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The
undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the Shares covered by the Warrant.
2. Please
issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance
with applicable securities laws.
APPENDIX 2
Capitalization Table
As of Issue Date of Warrant
| | |
Issued and Outstanding
Shares (and CSE) | |
| Common Stock | |
| 19,798,439 | |
| Series C Preferred Stock | |
| 86,082,402 | |
| Series CC Preferred Stock | |
| 33,566,734 | |
| Options Outstanding and Available | |
| 30,378,590 | |
| Total Fully Diluted Shares | |
| 169,826,165 | |
APPENDIX 3
Assignment
For value received, WESTERN ALLIANCE BANK hereby sells, assigns and
transfers unto:
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Name: |
WESTERN
ALLIANCE BANCORPORATION |
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Address: |
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Tax ID: |
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that certain Warrant to Purchase Stock issued by zSpace, Inc.
(the “Company”), on July __, 2015 (the “Warrant”) together with all rights, title and interest therein.
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WESTERN ALLIANCE BANK |
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By: |
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Name: |
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Title: |
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| Date: |
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By its execution below, and for the benefit of the Company, Western
Alliance Bancorporation agrees to all other provisions of the Warrant as of the date hereof.
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WESTERN ALLIANCE BANCORPORATION |
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By: |
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Name: |
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Title: |
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Exhibit
10.12
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Issuer: zSpace, Inc., a Delaware corporation (the “Company”)
Number of Shares: $57,654.77 divided by the Exercise Price
Class of Stock: See below
Exercise Price: See below
Issue Date: July 21, 2015
Expiration Date: The earlier of (i) 11.59
PM on July 21, 2025 (the “Expiration Date”) (ii) the effectiveness of the Company’s first firm commitment
underwritten public offering of common stock (an “IPO”), or (iii) a Liquidation Event as defined in the Company’s
Certificate of Incorporation, as may be amended from time to time (an “Acquisition”).
THIS WARRANT CERTIFIES THAT, for the agreed upon
value of $1.00 and for other good and valuable consideration, Artiman Ventures II, L.P. ("Holder") is entitled to purchase the
number of fully paid and nonassessable shares of the class and series of securities (the “Shares”) of the Company at the initial
exercise price per Share (the “Exercise Price”) all as set forth above and herein, and as adjusted pursuant to Article 2
of this Warrant. The Shares shall be the class and series issued in the Company’s next bona fide equity financing (the “Next
Round Financing”) in which Company receives at least $5,000,000 in cash proceeds after the Issue Date (“Next Round Stock”);
provided, however, that the Company will provide notice to Holder of the issuance or intent to issue such Next Round Stock, including
a summary of the material terms, rights preferences and privileges of the Next Round Stock (the “Next Round Notice”), and
Holder may elect for the Shares to be shares of the Company’s Series C Preferred Stock upon exercise of this Warrant in lieu
of Next Round Stock in writing within thirty (30) calendar days following the later of (i) the initial closing of the Next Round
Financing or (ii) the date Holder receives the Next Round Notice. If the Company has not issued Next Round Stock when the Holder
exercises this Warrant, including an automatic cashless exercise pursuant to Section 1.6 hereof, the Shares will be Series C
Preferred Stock. If the Company issues Next Round Stock and does not deliver the Next Round Notice to Holder, the Shares shall be, at
the Holder’s election, either Next Round Stock or Series C Preferred Stock. The Exercise Price shall be (i) $0.3337 if
the Shares are the Company’s Series C Preferred Stock, or (ii) the lowest cash price per share paid by investors acquiring
shares of Next Round Stock, if the Shares are Next Round Stock.
ARTICLE 1 EXERCISE.
1.1 Method
of Exercise. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date
set forth above. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise, in substantially the form attached
as Appendix 1, to the principal office of Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder
shall also deliver to Company a check for the aggregate Exercise Price for Shares being purchased.
1.2 Conversion
Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing
(a) the aggregate fair market value of Shares or
other securities otherwise issuable upon exercise of this Warrant minus the aggregate Exercise Price of such Shares by (b) the
fair market value of one Share. The fair market value of Shares shall be determined pursuant to Section 1.3.
1.3 Fair
Market Value. If this Warrant is exercised in connection with the Company’s IPO, the fair market value of the Shares (or
the common stock into which the Shares are convertible) shall be the per share IPO price to the public as specified in the final
prospectus relating to the IPO. If the Shares are traded in a public market, the fair market value of the Shares shall be the
closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the
business day immediately before Holder delivers its Notice of Exercise to the Company. If the Company’s common stock is not
traded in a public market, the Board of Directors of Company shall determine fair market value in its reasonable good faith
judgment.
1.4 Delivery
of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, Company shall deliver to Holder certificates
for Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing Shares
not so acquired.
1.5 Replacement
of Warrants. On receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to Company
or, in the case of mutilation, on surrender and cancellation of this Warrant, Company at its expense shall execute and deliver, in lieu
of this Warrant, a new warrant of like tenor.
1.6 Automatic
Cashless Exercise; Automatic Termination. Upon the earlier to occur of the Expiration Date, an IPO, or an Acquisition (each, an “Expiration
Event”), if Holder has not exercised its rights hereunder and the fair market value of one Share (or other security issuable upon
the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect upon such Expiration
Event, then this Warrant shall automatically be deemed to be exercised immediately prior to the Expiration Event pursuant to Section 1.2
above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall, within
a reasonable time, deliver a certificate representing the Shares (or such other securities) issued upon such exercise to Holder. The Company
shall use commercial reasonably efforts to provide Holder with written notice of any Acquisition or IPO (together with such reasonable
information as Holder may reasonably require with respect to such Acquisition or IPO) at least ten days prior to the consummation of such
Acquisition or IPO. Upon an Expiration Event, if Holder has not exercised its rights hereunder and the fair market value of one Share
(or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is less than or equal to
the Warrant Price in effect upon such Expiration Event, the Warrant will expire automatically immediately prior to the Expiration Event.
ARTICLE 2 ADJUSTMENTS.
2.1 Redemption
or Conversion of Preferred Stock. If the outstanding shares of the series of the Company’s preferred stock underlying this Warrant
are redeemed or converted into shares of common stock, then this Warrant shall automatically become exercisable for that number of shares
of common stock equal to the number of shares of common stock that would have been received if this Warrant had been exercised in full
and the shares of preferred stock received thereupon had been simultaneously converted into shares of common stock immediately prior to
such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate purchase
price of the shares of preferred stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the
number of shares of common stock for which this Warrant is exercisable immediately after such redemption or conversion. Thereafter all
references herein to Shares or preferred stock shall be deemed to refer to common stock.
2.2 Stock
Dividends, Splits, Etc. If, on or after the Issue Date, Company declares or pays a dividend on its common stock (or Shares if Shares
are securities other than common stock) payable in common stock or other securities, subdivides the outstanding common stock into a greater
amount of common stock, or, if Shares are securities or property other than common stock, subdivides Shares in a transaction that increases
the amount of common stock into which Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned Shares
on the date of such dividend or subdivision; provided however, for purposes of calculating the amount of dividend payment to Holder if
a dividend is declared and paid upon an Expiration Event, Holder will be deemed to have owned the Shares as of the Issue Date of this
Warrant set forth above.
2.3 Reclassification,
Recapitalization, Exchange or Substitution. Upon any reclassification, recapitalization, exchange, substitution, or other event that
results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be
entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have
received for Shares if this Warrant had been exercised immediately before such reclassification, recapitalization, exchange, substitution,
or other event. Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon
exercise of the new Warrant. The provisions of this Section 2.3 shall similarly apply to successive reclassifications, recapitalizations,
exchanges, substitutions, or other events.
2.4 Adjustments
for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Exercise Price shall be proportionately increased and the number of Shares as to which this warrant is exercisable shall
be proportionately decreased.
2.5 Antidilution
Protection. Any shares of the Company’s preferred stock issued upon exercise of this Warrant will be convertible into shares
of the Company’s common stock at the conversion price in effect for such series of preferred stock set forth in the Company’s
Certificate of Incorporation, as such conversion price may be adjusted in accordance with the terms thereof.
2.6 Adjustment
for Pay-to-Play Transactions. In the event that the Company’s Certificate of Incorporation provides, or is amended to so provide,
for the amendment or modification of the rights, preferences or privileges of the Shares, or the reclassification, conversion or exchange
of the outstanding shares of the Class of Stock, in each case in the event that a holder of shares thereof fails to participate in
an equity financing transaction (a “Pay-to-Play Provision”), and in the event that such Pay-to-Play Provision becomes operative
in a transaction occurring after the date hereof, this Warrant shall automatically and without any action required become exercisable
for that number and type of shares of equity securities as would have been issued or exchanged, or would have remained outstanding, in
respect of the Shares issuable hereunder had this Warrant been exercised in full prior to such event, and had the Holder participated
in the equity financing to the maximum extent permitted.
2.7 No
Impairment. Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed under this Warrant by Company, but shall at all times in good faith assist in carrying
out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If Company takes any action affecting Shares or its common stock other than as described
above that adversely affects Holder's rights under this Warrant, the Exercise Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner that such action is offset and the aggregate Exercise
Price of this Warrant is unchanged. Notwithstanding the foregoing, the Company shall not have been deemed to have impaired Holder’s
rights hereunder if: (a) it amends its Certificate of Incorporation, and the holders of the Company’s preferred stock waive
rights thereunder, in a manner that does not affect the Shares differently from the effect that such amendments or waivers have generally
on the rights, preferences, privileges or restrictions of the other shares of the same series of stock, or (b) the Shares are not
differently affected than other shares of the same series of stock in connection with any reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action.
2.8 Fractional
Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall
be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, Company
shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the fair
market value of a full Share.
2.9 Certificate as to
Adjustments. Upon each adjustment of the Exercise Price, Company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.
Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price in effect upon the date thereof and
the series of adjustments leading to such Exercise Price.
ARTICLE 3 REPRESENTATIONS,
WARRANTIES AND COVENANTS OF COMPANY.
3.1 Representations and
Warranties. The Company hereby represents and warrants to the Holder as follows:
(a) The initial Exercise
Price referenced on the first page of this Warrant with respect to the Company’s Series C Preferred Stock is not greater
than the lowest per share price paid by investors acquiring the Company’s Series C Preferred Stock on or prior to the Issue
Date.
(b) All Shares which
may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion
of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
(c) The Company’s
capitalization table attached to this Warrant as Appendix 2 is true and complete as of the Issue Date.
3.2
Notice of Certain Events. If Company proposes at
any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other
securities (other than a dividend or similar event that triggers an automatic adjustment pursuant to Section 2.2 hereof) and
whether or not a regular cash dividend; (b) to offer for subscription pro rata to all holders of the class or series of the
Company’s capital stock underlying this Warrant any additional shares of stock of any class or series or other rights; or
(c) to effect any reclassification or recapitalization of common stock (other than a reclassification or recapitalization or
similar event that triggers an automatic adjustment pursuant to Section 2.3 hereof); then Company shall give Holder (1) in
the case of the matters referred to in (a) above at least 20 days prior written notice of the date on which a record will be
taken for such dividend or distribution (and specifying the date on which the holders of common stock will be entitled thereto); and
(2) in the case of the matters referred to in (b) and (c) above notice in the same manner and format and at the same
time as notice is given to such other holders.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF HOLDER. Holder represents and warrants to the Company as follows:
4.1 Purchase
Entirely for Own Account. This Warrant is issued to Holder in reliance upon Holder's representation to the Company that this Warrant
and the Shares will be acquired for investment for Holder's, or its affiliate's, own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof other than to an affiliate, and that Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same other than to an affiliate. By executing this Warrant, Holder further
represents that Holder does not have any contract, undertaking, agreement or arrangement with any person, other than an affiliate, to
sell, transfer or grant participations to such person or to any third person with respect to any of the Shares.
4.2 Reliance
upon Holder's Representations. Holder understands that this Warrant and the Shares are not registered under the Securities Act of
1933, as amended (the "Act") on the ground that the issuance of such securities is exempt from registration under the Act, and
that the Company's reliance on such exemption is predicated on Holder's representations set forth herein.
4.3 Investment
Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder
has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic
risk of such Holder's investment in this Warrant and its underlying securities and has such knowledge and experience in financial or
business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities
and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited
Investor Status. Holder represents to the Company that Holder is an Accredited Investor (as defined in the Act).
4.5 Restricted
Securities. Holder understands that this Warrant and the Shares are "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such federal
securities laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain
limited circumstances.
4.6 Market
Stand-off Agreement. Holder acknowledges that it is a party to that certain Amended and Restated Investors' Rights Agreement, dated
March 9, 2015, as may be amended from time to time (the “Rights Agreement”) and hereby agrees that Holder will be bound
by the market standoff provision set forth in the Rights Agreement with respect to the Shares.
4.7 Registration
Rights. The Company acknowledges that Holder is a party to the Rights Agreement and that Holder will receive registration rights with
respect to the common stock into which the Shares are convertible pursuant to the terms of the Rights Agreement and so long as such shares
are Registrable Securities (as defined in the Rights Agreement).
ARTICLE 5 MISCELLANEOUS.
5.1 Legends. This
Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of Shares, if any) shall be imprinted with
a legend in substantially the following form (in addition to any legends that are applicable to the Shares pursuant to the Existing Agreements
(as defined below) or any other agreements between Holder and the Company):
THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER AND SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE
SHARES.
5.2 Compliance
with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of Shares, if any) may not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to Company, as reasonably requested by Company). Company shall not require
Holder to provide an opinion of counsel if the transfer is to any affiliate of Holder, or if there is no material question as to the availability
of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in
reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of
Holder's notice of proposed sale.
5.3 Transfer
Procedure. Subject to the provisions of Article 5.3 and upon providing Company with written notice, Holder may transfer all
or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion
of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, (i) Holder will give the Company
notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee (ii) Holder
and transferee will deliver to the Company a completed copy of Appendix 3, and (iii) Holder will surrender this Warrant to the Company
for reissuance to the transferee(s) (and Holder if applicable). Unless Company is filing financial information with the SEC pursuant
to the Securities Exchange Act of 1934, Company shall have the right to refuse to transfer any portion of this Warrant to any person who
directly competes with Company.
5.4 Notices.
All notices and other communications from Company to Holder, or vice versa, shall be in writing and shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail, postage prepaid, or by overnight courier, at such address
as may have been furnished to Company or Holder, as the case may be, in writing by Company or such Holder from time to time.
5.5 Attorneys’
Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees.
5.6 Governing
Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect
to its principles regarding conflicts of law.
5.7 Conflict
with Existing Agreements. Holder and Company hereby acknowledge that Holder is party to the Rights Agreement and that certain Amended
and Restated Voting Agreement, dated March 9, 2015, and that certain Amended and Restated Right of First Refusal, Co-Sale and Drag
Along Agreement, dated March 9, 2015 (collectively, and as such agreements may be amended from time to time, the “Existing
Agreements”). To the extent there is a conflict between any of the Holder’s obligations under this Warrant and Holder’s
obligations under the Existing Agreement, the Holder’s obligations under the Existing Agreements will prevail.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Company has
caused this Warrant to be duly executed by its authorized officers, all as of the day and year first above written.
| |
|
COMPANY |
| |
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|
| |
|
ZSPACE, INC. |
| |
|
|
| |
|
By: |
/s/ Joseph B. Powers |
| |
|
Name: |
Joseph B. Powers |
| |
|
Title: |
Chief Financial Officer |
| |
|
|
| Agreed and Acknowledged: |
|
|
| |
|
|
| HOLDER |
|
|
| |
|
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| ARTIMAN VENTURES II, L.P. |
|
|
| |
|
|
| By: |
/s/ Yatin Mundkur |
|
|
| Name: |
Yatin Mundkur |
|
|
| Title: |
Managing Member of the General Partner |
|
|
APPENDIX 1
Notice of Exercise
[Strike paragraph that does not apply.]
1. The
undersigned hereby elects to purchase shares of the Common/Series ______
Preferred [strike one] Stock
of zSpace, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares
in full.
1. The
undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the Shares covered by the Warrant.
2. Please
issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance
with applicable securities laws.
APPENDIX 2
Capitalization Table
As of Issue Date of Warrant
| |
|
Issued and Outstanding
Shares (and CSE) |
|
| Common Stock |
|
|
19,798,439 |
|
| Series C Preferred Stock |
|
|
86,082,402 |
|
| Series CC Preferred Stock |
|
|
33,566,734 |
|
| Options Outstanding and Available |
|
|
30,378,590 |
|
| Total Fully Diluted Shares |
|
|
169,826,165 |
|
APPENDIX 3
Assignment
For value received, ________________ (transferor) hereby sells, assigns
and transfers unto:
that certain Warrant to Purchase Stock issued by zSpace, Inc.
(the “Company”), on July __, 2015 (the “Warrant”) together with all rights, title and interest therein.
By its execution below, and for the benefit of the Company, _________________
(transferee) agrees to all other provisions of the Warrant as of the date hereof.
Exhibit 10.13
SERIES
A PREFERRED STOCK PURCHASE AGREEMENT
THIS
SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), is made as of December 4, 2020, by and among
zSpace, Inc., a Delaware corporation (the “Company”), dSpace Investments Limited, an entity organized under
the law of the Cayman Islands (“dSpace” or a “Purchaser”) and the other investors listed
on Exhibit A attached to this Agreement and approved by dSpace (each a “Purchaser” and together with
dSpace the “Purchasers”).
The
parties hereby agree as follows:
1. dSpace
Convertible Note and Purchase and Sale of Preferred Stock.
1.1
Issuance of Convertible Note. Concurrently with the effectiveness of the Secured Convertible Promissory Note dated as of
the date hereof by and between the Company and Purchaser (as amended, the “Convertible Note”) and the satisfaction
of the conditions of Section 4 below, dSpace shall make the first and second $1.0 million Advances (as defined under the Convertible
Note) (the “CN Closing”, and , collectively, the principal and accrued interest on such Advances, the “dSpace
Convertible Note Amount”).
1.2 Sale and Issuance of Preferred
Stock.
(a)
On or prior to the CN Closing, the Company shall have (i) effected the Debt Restructuring (as defined
below), (ii) the Equity Restructuring (as defined below), and (iii) adopted and filed with the Secretary of State of the
State of Delaware the Amended and Restated Certificate of Incorporation in the form of Exhibit B attached to this
Agreement (the “Restated Certificate”).
(b)
On the earlier of (x) the closing of the Arowana Funding (as defined below) or (y) December 15, 2020 (subject to adjustment of
the closing as permitted in Section 1.3, the “Initial Closing Date”), the Company hereby automatically agrees
to sell, without any further action by the Company, and dSpace, automatically agrees to purchase at the Initial Closing Date without
any further action by dSpace:
(i)
if the Initial Closing Date is without an Arowana Funding (the “No-Arowana Closing”), by the automatic
conversion of the dSpace Convertible Note Amount arising under dSpace Convertible Note and the conversion of the remaining unfunded
$1.0 million Advance under the terms of the Convertible Note into a binding payment obligation for the purchase of shares of Series
A Preferred Stock hereunder (as so converted, the “dSpace Purchase Note”) pursuant to which dSpace agrees to
pay $1.0 million on December 31, 2020 to the Company for the purchase of Series A Preferred Stock, the number of shares of Series
A Preferred Stock, $0.00001 par value per share (the “Series A Preferred Stock”), equal to 64% of the Fully-Diluted
Capitalization (as defined below) of the Company immediately post such Initial Closing (as defined below) (before taking into
account the number of shares of Series A Preferred Stock to be issued to other Purchasers as provided in Section 1.4 below
but including for purpose of clarity, (x) the increase of the Company’s equity incentive plan to 18.5% of the Fully-Diluted
Capitalization on a post-money basis, (y) KIA Warrant (as defined below) of 15% of the Fully-Diluted Capitalization on a post-money
basis) or (z) Runway Warrant (as defined below) of 1.5% of the Fully-Diluted Capitalization on a post-money basis); or
(ii)
if the Initial Closing Date is in connection with an Arowana Funding closed by December 15, 2020 (the “Arowana Related
Closing”), by the automatic conversion of the dSpace Convertible Note Amount arising under dSpace Convertible Note,
the number of shares of Series A Preferred Stock, equal to 20.0% of the Fully-Diluted Capitalization of the Company immediately
post such Initial Closing (before taking into account of the number of shares of Series A Preferred Stock to be issued to other
Purchasers as provided in Section 1.4 below but including (x) the increase of the Company’s equity incentive plan to 18.5%
of the Fully-Diluted Capitalization on a post-money basis, (y) KIA Warrant of 15% of the Fully-Diluted Capitalization on a post-money
basis, and (z) Runway Warrant (as defined below) of 1.5% of the Fully-Diluted Capitalization on a post-money basis). For purpose
of clarity, the aggregate purchase price to be paid by dSpace at the Arowana Related Closing shall be the cancellation of $2.0
million of the dSpace Convertible Note Amount (plus, for the avoidance of doubt, the interest accrued on such $2.0 million principal
amount) and the parties hereby acknowledge that the remaining obligation of dSpace to make advances under the Convertible Note
shall automatically be cancelled and without force and effect in connection with such Arowana Related Closing.
(c)
The shares of Series A Preferred Stock issued to the Purchasers pursuant to this Agreement shall be referred to in this
Agreement as the “Shares.” The original issue price per share for Series A Preferred Stock (the
“Series A Original Issue Price”) shall equal (i) with respect to Shares issued in the No-Arowana Closing,
$0.01032602, and (ii) with respect to Shares issued in the Arowana Related Closing, $0.99145621.
(d)
Exhibit A attached hereto sets forth the Pro Forma number of shares to be purchased by dSpace at either the Arowana
Related Closing or a No-Arowana Closing (excluding any additional number of Shares to be issued to other Purchasers pursuant to
Section 1.4 below).
(e)
“Fully-Diluted Capitalization” shall mean the sum,
as of immediately after the Initial Closing, of: (i) all shares of Common Stock and Preferred Stock (on an as-converted
basis) issued and outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants and
other convertible securities (excluding convertible securities issuable pursuant to the Loan Agreement and KIA Amended Note
(each as defined below)); and (ii) all shares of Common Stock reserved and available for future grant under any equity
incentive or similar plan of the Company, and/or any equity incentive or similar plan to be created or increased in
connection with the transactions contemplated hereby, but excluding equity to be issued in connection with the Arowana
Funding and pursuant to Sections 1.4 and 1.5 below.
1.3 Closing;
Delivery.
(a)
The initial purchase and sale of the Shares shall take place automatically on the Initial Closing Date, or at such other time
and place as the Company and dSpace mutually agree upon, in writing (which time and place are designated as the “Initial
Closing”). In the event there is more than one closing, the term “Closing” shall apply to each such
closing unless otherwise specified.
(b)
At each Closing, the Company shall deliver to each Purchaser a certificate or notice of issuance representing the Shares being
purchased by such Purchaser at such Closing against payment of the purchase price therefor by check payable to the Company, by
wire transfer to a bank account designated by the Company, by cancellation or conversion of indebtedness or other convertible
securities of the Company to Purchaser, or by the dSpace Purchase Note or by any other means mutually agreed between the Company
and such Purchaser or by any combination of such methods.
1.4
Rights Offering to Existing Preferred Stockholders. Promptly after the CN Closing, but within three (3) business days thereafter,
the Company may offer to each of the Company’s stockholders holding Preferred Stock prior to the Equity Restructuring who
is an “accredited investor” as defined in Rule 501(a) issued under the Securities Act of 1933, as amended, (collectively,
as set forth on Exhibit A attached hereto, the “Rights Offering Investors”) a right to participate in the purchase
and sale of the number of shares of Series A Preferred Stock and for the amount listed next to such stockholder’s name on
Schedule 1.4 attached hereto (the “Rights Offering”); provided that the following existing stockholders
of the Company and their respective Affiliates shall not have a right to participate in the purchase and sale of Series A Preferred
Stock, and each shall have waived such rights as a condition of the CN Closing and shall for all purposes not be Rights Offering
Investors: Kuwait Investment Authority, Artiman Ventures II, L.P., Artiman Ventures II Affiliates Fund, L.P., Artiman Ventures
II Principals Fund, Artiman Ventures Special Opportunities Fund, L.P., Kalpendu Shastri, and 44 Zspace LLC (the “Excluded
Investors”). To participate in the Rights Offering, a Rights Offering Investor shall be required to execute this Stock
Purchase Agreement and the other Transaction Agreements and pay for the purchase price of the Shares to be purchased by such Rights
Offering Investor on or prior to December 15, 2020 and, on the Initial Closing Date, such Rights Offering Investors each shall
be deemed an “Additional Purchaser”. The Company shall provide copies of all rights offering materials to dSpace
prior to distribution to any potential Rights Offering Investor and require any potential Rights Offering Investor to deliver
a copy of their commitment to participate in the Rights Offering to dSpace and its counsel directly.
1.5
Future Issuances. After the Initial Closing, the Company may sell, on the same terms and conditions as those contained
in this Agreement, up to $1,000,000 worth of additional shares at the Series A Original Issue Price (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares) of Series A Preferred
Stock (the “Additional Shares”), to one (1) or more purchasers acceptable to dSpace and the Company (the “Additional
Purchasers”), provided that (i) such subsequent sale is consummated on or prior to January 31, 2021, and (ii)
each Additional Purchaser becomes a party to the Transaction Agreements (as defined below), by executing and delivering a counterpart
signature page to each of the Transaction Agreements. Exhibit A to this Agreement shall be updated to reflect the number
of Additional Shares purchased at each such Closing and the parties purchasing such Additional Shares.
1.6
Defined Terms Used in this Agreement. In addition to the terms defined above, the following terms used in this Agreement
shall be construed to have the meanings set forth or referenced below.
(a)
“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls,
is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member,
officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing
that is controlled by one (1) or more general partners, managing members or investment advisers of, or shares the same management
company or investment adviser with, such Person.
(b)
“Arowana” means AlicornCo Pty Limited, a wholly owned subsidiary of AWN Holdings Limited.
(c)
“Arowana Funding” means an equity investment in the Company of $10,000,000 (USD) in cash by Arowana or investors
associated with or introduced to the Company directly or indirectly by Arowana, but only to the extent such equity investment
occurs on or before December 15, 2020 and at a pre-money valuation of at least $100,000,000.
(d)
“Code” means the Internal Revenue Code of 1986, as amended.
(e)
“Company Intellectual Property” means all patents, patent applications, registered and unregistered
trademarks, trademark applications, registered and unregistered service marks, service mark applications, tradenames,
copyrights, trade secrets, domain names, information and proprietary rights and processes, similar or other intellectual
property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and
under any of the foregoing, and in any and all such cases as are necessary to the Company in the conduct of the
Company’s business as now conducted and as presently proposed to be conducted.
(f)
“Debt Restructuring” shall mean the Company has
taken all action and signed all necessary agreements to effect the following to the satisfaction of dSpace: (i) the Amended and
Restated Promissory Note issued to Kuwait Investment Authority on the date hereof in the form acceptable to dSpace (the “KIA
Amended Note”) has been executed by the parties and is effective, (ii) the Amended and Restated Loan and Security Agreement
between the Company and bSpace Investments Limited date as of the date hereof (the “Loan Agreement”) has been
executed by the parties and is effective, (iii) the Convertible Note is executed and effective, (iv) the Subordination Agreement
is executed and effective; and (v) the termination of all of the rights of the Forbearance Agreement and First Amendment to Loan
Security Agreement dated as of February 11, 2019 by and between Runway Growth Credit Fund Inc. (“Runway”) and
the Company (the “Runway Agreement”), including the right to a Success Fee (as defined therein), board observer
rights and any existing warrants issued to Runway (or its affiliates) in exchange for a new Warrant (the “Runway Warrant”)
pursuant to terms of Termination Agreement in the form acceptable to dSpace (the “Runway Termination Agreement”)
(g)
“Equity Restructuring” shall mean the Company has taken all action to cause the following to occur
to the satisfaction of dSpace: (i) the Company has converted all of the Company’s Preferred Stock outstanding prior to
the CN Closing into Common Stock of the Company and cancelled all existing warrants to purchase Common Stock outstanding
prior to such Equity Restructuring (but for avoidance of doubt any warrants to purchase Preferred Stock shall not be so
cancelled, but instead shall automatically become exercisable for Common Stock), (ii) the Company has effected a 40-1 reverse
stock split, (iii) the Company has terminated all existing management carveout or bonus plans and has adopted the Management
Bonus Plan; and (iv) the Company has adopted or amended its existing 2017 Stock Incentive Plan so that the number of shares
of Common Stock reserved for issuance is set forth to the pro-forma number as set forth on Exhibit A attached
hereto.
(h) “Convertible
Note” has the meaning set forth in Section 1.1 of this Agreement.
(i)
“Key Employee” means any executive-level employee (including division
director and vice president-level positions) as well as any employee or consultant who either alone or in concert with others
develops, invents, programs or designs any Company Intellectual Property.
(j)
“KIA Warrant” means the agreement between the Company and Kuwait Investment Authority, dated as of the date
of the CN Closing, in the form of Exhibit E attached to this Agreement.
(k)
“Knowledge” including the phrase “to the Company’s knowledge” shall mean the actual
knowledge of the following officers: Paul Kellenberger and Joe Powers. Additionally, for purposes of Section 2.8, the Company
shall be deemed to have “knowledge” of a patent right if the Company has actual knowledge of the patent right or would
be found to be on notice of such patent right as determined by reference to United States patent laws.
(l)
“Loan Agreement” shall have the meaning set forth in the definition of “Debt Restructuring”.
(m)
“Management Bonus Plan” means the bonus plan, adopted by the Company’s Board of Directors, in the form
of Exhibit F attached to this Agreement.
(n)
“Material Adverse Effect” means a material adverse effect on the business, assets (including intangible assets),
liabilities, financial condition, property, prospects or results of operations of the Company.
(o)
“Person” means any individual, corporation, partnership,
trust, limited liability company, association or other entity.
(p)
“Purchaser” means dSpace and each of the Purchasers who is initially a party to this Agreement and any Additional
Purchaser who becomes a party to this Agreement at a subsequent Closing under Section 1.2(b).
(q)
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(r)
“Subordination Agreement” means the agreement between the Company, dSpace and Kuwait Investment Authority and
the other parties thereto, dated as of the date of the CN Closing.
(s) “Transaction
Agreements” means this Agreement and the Voting Agreement.
(t)
“Voting Agreement” means the agreement among the Company, the Purchasers and certain other stockholders of
the Company, dated as of the date of the Initial Closing, in the form of Exhibit D attached to this Agreement.
2.
Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser that, except as set forth on the Disclosure Schedule attached as Exhibit C
to this Agreement, which exceptions shall be deemed to be part of the representations and warranties made hereunder, the
following representations are true and complete as of the date of the CN Closing assuming the closing of the transactions
contemplated by the Equity Restructuring and Debt Restructuring have been consummated, except as otherwise indicated. The
Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Section
2, and the disclosures in any section of the Disclosure Schedule shall qualify other sections in this Section 2
only to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other
sections.
For
purposes of these representations and warranties (other than those in Sections 2.2, 2.3, 2.4, 2.5,
and 2.6), the term the “Company” shall include any subsidiaries of the Company, unless otherwise noted
herein.
2.1
Organization, Good Standing, Corporate Power and Qualification. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its
business as now conducted and as presently proposed to be conducted. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.
2.2 Capitalization.
(a)
The authorized capital of the Company consists, immediately prior to the CN Closing and after giving effect to the Equity Restructuring,
of:
(i)
596,900,000 shares of common stock, $0.00001 par value per share (the “Common Stock”), 5,380,120 shares of
which are issued and outstanding immediately prior to the Initial Closing. All of the outstanding shares of Common Stock have
been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities
laws.
(ii) 433,402,771 shares of Preferred Stock, all of which have been designated Series A Preferred
Stock, none of which are issued and outstanding immediately prior to the Initial Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Certificate and as provided by the Delaware General
Corporation Law.
(b)
The Company has reserved (i) 201,022 shares of Common Stock for issuance upon
exercise of granted and outstanding equity awards to officers, directors, employees and consultants of the Company pursuant
to its 2007 Stock Plan duly adopted by the Board of Directors and approved by the Company stockholders (the “2007
Stock Plan”), (ii) 632,042 shares of Common Stock for issuance upon exercise of granted and outstanding equity
awards to officers, directors, employees and consultants of the Company pursuant to its 2017 Equity Incentive Plan duly
adopted by the Board of Directors and approved by the Company stockholders (the “2017 Stock Plan” and
together with the 2007 Stock Plan, the “Stock Plan”)) and also has reserved 1,033,211 shares of Common
Stock for future issuance to officers, directors, employees and consultants pursuant to the 2017 Stock Plan. The Company has
furnished to the Purchasers complete and accurate copies of the Stock Plan and forms of agreements used
thereunder.
(c)
Except for (A) the conversion privileges of the Shares to be issued under
this Agreement, (B) the KIA Warrant, the Runway Warrant and outstanding warrants to purchase 5,784 shares of the Common
Stock, and (C) the other securities and rights described in Sections 2.2(a)(ii) and 2.2(b) of this Agreement
and Section 2.2(d) of the Disclosure Schedule, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to
purchase or acquire from the Company any shares of Common Stock or Series A Preferred Stock, or any securities convertible
into or exchangeable for shares of Common Stock or Series A Preferred Stock. All outstanding shares of the Company’s
Common Stock and all shares of the Company’s Common Stock underlying outstanding options are subject to (i) a right of
first refusal in favor of the Company upon any proposed transfer (other than transfers for estate planning purposes); and
(ii) a lock-up or market standoff agreement of not less than one hundred eighty (180) days following the Company’s
initial public offering pursuant to a registration statement filed with the Securities and Exchange Commission under the
Securities Act.
(d)
None of the Company’s stock purchase agreements or stock option documents contains
a provision for acceleration of vesting (or lapse of a repurchase right) or other changes in the vesting provisions or other terms
of such agreement or understanding upon the occurrence of any event or combination of events, including, without limitation, in
the case where the Company’s Stock Plan is not assumed in an acquisition. The Company has never adjusted or amended the
exercise price of any stock options previously awarded, whether through amendment, cancellation, replacement grant, repricing,
or any other means. Except as set forth in the Restated Certificate, the Company has no obligation (contingent or otherwise) to
purchase or redeem any of its capital stock.
(e)
The Company has obtained valid
waivers of any rights by other parties to purchase any of the Shares covered by this Agreement.
(f)
The Company has no agreement with any shareholder regarding rights to participate in future financings, anti-dilution rights,
information or inspection rights, board observer or board rights, or other management rights except for the Voting Agreement.
2.3
Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, limited liability company, association, or other business entity. The Company is not a participant
in any joint venture, partnership or similar arrangement.
2.4
Authorization. All corporate action required to be taken by the Company’s Board of Directors and stockholders in
order to authorize the Company to enter into the Transaction Agreements and the transactions contemplated by the Equity Restructuring
and the Debt Restructuring (collectively, the “Restructuring Agreements”), and to issue the Shares at the Initial
Closing and the Common Stock issuable upon conversion of the Shares, has been taken. All action on the part of the officers of
the Company necessary for the execution and delivery of the Transaction Agreements and Restructuring Agreements, the performance
of all obligations of the Company under the Transaction Agreements and Restructuring Agreements to be performed as of each Closing,
and the issuance and delivery of the Shares has been taken. The Transaction Agreements, when executed and delivered by the Company,
shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their
respective terms except (i) 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, (ii) as limited
by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (iii) to the
extent the indemnification provisions contained in the Indemnification Agreement may be limited by applicable federal or state
securities laws.
2.5
Valid Issuance of Shares. The Shares, when issued, sold and delivered in accordance
with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and
free of restrictions on transfer other than restrictions on transfer under the Transaction Agreements, applicable state and federal
securities laws and liens or encumbrances created by or imposed by a Purchaser. Assuming the accuracy of the representations of
the Purchasers in Section 3 of this Agreement and subject to the filings described in the Voting Agreement, the Shares
will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion
of the Shares has been duly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate,
will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer
under the Transaction Agreements, applicable federal and state securities laws and liens or encumbrances created by or imposed
by a Purchaser. Assuming the accuracy of the representations of the Purchasers in Section 3 of this Agreement and in the
Voting Agreement, the Common Stock issuable upon conversion of the Shares will be issued in compliance with all applicable federal
and state securities laws.
2.6
Governmental Consents and Filings. Assuming the accuracy of the representations made by the Purchasers in Section 3
of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the
consummation of the transactions contemplated by this Agreement, except for filings pursuant to applicable securities laws, which
have been made or will be made in a timely manner.
2.7
Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to
the Company’s knowledge, currently threatened in writing (i) against the Company or any officer, director or Key Employee
of the Company arising out of their employment or board relationship with the Company; or (ii) to the Company’s knowledge,
that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the
transactions contemplated by the Transaction Agreements. Neither the Company nor, to the Company’s knowledge, any of its
officers, directors or Key Employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality (in the case of officers, directors or Key Employees, such as would
affect the Company). There is no action, suit, proceeding or investigation by the Company pending or which the Company intends
to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in
writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their
services provided in connection with the Company’s business, any information or techniques allegedly proprietary to any
of their former employers or their obligations under any agreements with prior employers.
2.8 Intellectual
Property.
(a)
The Company has not received any communications alleging that the Company has violated, or by conducting its business, would violate
any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or
processes of any other Person.
(b)
To the Company’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Company violates
or will violate any license or infringes or will infringe any intellectual property rights of any other party.
(c)
The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled
electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with
the Company’s business.
(d)
Each employee and consultant has assigned to the Company all intellectual property rights he or she owns that are related to the
Company’s business as now conducted and as presently proposed to be conducted and all intellectual property rights that
he, she or it solely or jointly conceived, reduced to practice, developed or made during the period of his, her or its employment
or consulting relationship with the Company that (i) relate, at the time of conception, reduction to practice, development, or
making of such intellectual property right, to the Company’s business as then conducted or as then proposed to be conducted,
(ii) were developed on any amount of the Company’s time or with the use of any of the Company’s equipment, supplies,
facilities or information or (iii) resulted from the performance of services for the Company. To the Company’s knowledge,
it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire)
made prior to their employment by the Company, including prior employees or consultants.
(e)
Section 2.8(f) of the Disclosure Schedule lists all patents, patent applications, registered trademarks, trademark applications,
service marks, service mark applications, tradenames, registered copyrights, and licenses to and under any of the foregoing, in
each case owned by the Company.
(f)
The Company has not embedded, used or distributed any open source, copyleft or community source code (including but not limited
to any libraries or code, software, technologies or other materials that are licensed or distributed under any General Public
License, Lesser General Public License or similar license arrangement or other distribution model described by the Open Source
Initiative at www.opensource.org, collectively “Open Source Software”) in connection with any of its products
or services that are generally available or in development in any manner that would materially restrict the ability of the Company
to protect its proprietary interests in any such product or service or in any manner that requires, or purports to require (i)
any Company IP (other than the Open Source Software itself) be disclosed or distributed in source code form or be licensed for
the purpose of making derivative works; (ii) any restriction on the consideration to be charged for the distribution of any Company
IP; (iii) the creation of any obligation for the Company with respect to Company IP owned by the Company, or the grant to any
third party of any rights or immunities under Company IP owned by the Company; or (iv) any other limitation, restriction or condition
on the right of the Company with respect to its use or distribution of any Company IP.
(g)
No government funding, facilities of a university, college, other educational institution or research center, or funding from
third parties was used in the development of any Company Intellectual Property. No Person who was involved in, or who contributed
to, the creation or development of any Company Intellectual Property, has performed services for the government, university, college,
or other educational institution or research center in a manner that would affect Company’s rights in the Company Intellectual
Property.
2.9
Compliance with Other Instruments. The Company is not in violation or default (i) of any provisions of its Restated Certificate
or Bylaws, (ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, or (iv) under
any lease, agreement, contract or purchase order to which it is a party or by which it is bound that is required to be listed
on the Disclosure Schedule, or (v) to its knowledge, of any provision of federal or state statute, rule or regulation applicable
to the Company, the violation of which would have a Material Adverse Effect. The execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated by the Transaction Agreements will not result in any such violation
or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any
such provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, forfeiture, or nonrenewal of
any material permit or license applicable to the Company.
2.10 Agreements;
Actions.
(a) Except for the Transaction Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions
to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments
to, the Company in excess of $100,000, (ii) the license of any patent, copyright, trademark, trade secret or other proprietary
right to or from the Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products
to any other Person that limit the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell
its products, or (iv) indemnification by the Company with respect to infringements of proprietary rights.
(b)
The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class
or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $250,000 in the aggregate, (iii) made any loans or advances to any Person, other than ordinary
advances for business expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than in the
ordinary course of business. For the purposes of (a) and (b) of this Section 2.10, all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving the same Person (including Persons the Company has
reason to believe are affiliated with each other) shall be aggregated for the purpose of meeting the individual minimum dollar
amounts of such section.
(c) The
Company is not a guarantor or indemnitor of any indebtedness of any other Person.
2.11 Certain
Transactions.
(a) Other than (i) standard employee benefits generally made available to all employees, standard employee offer letters and Confidential
Information Agreements (as defined below), (ii) standard director and officer indemnification agreements approved by the Board
of Directors, (iii) the purchase of shares of the Company’s capital stock and the issuance of options to purchase shares
of the Company’s Common Stock, in each instance, approved in the written minutes of the Board of Directors (previously provided
to the Purchasers or their respective counsel), and (iv) the Transaction Agreements, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors, consultants or Key Employees, or any Affiliate thereof.
(b) Except
as set forth on Section 2.11 of the Disclosure Schedule, the Company is not indebted, directly or indirectly, to any of its directors,
officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection
with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses and for other
customary employee benefits made generally available to all employees. None of the Company’s directors, officers or employees,
or any members of their immediate families, or any Affiliate of the foregoing are, directly or indirectly, indebted to the Company.
2.12 Rights of Registration and Voting Rights. The Company is not under any obligation to register under the Securities Act
any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding
securities. To the Company’s knowledge, except as contemplated in the Voting Agreement, no stockholder of the Company has
entered into any agreements with respect to the voting of capital shares of the Company.
2.13 Property. The property and assets that the Company owns are free and clear of all mortgages, deeds of trust, liens, loans
and encumbrances, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances and
liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such
property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and holds
a valid leasehold interest free of any liens, claims or encumbrances other than those of the lessors of such property or assets.
The Company does not own any real property.
2.14 Financial Statements. The Company has delivered to each Purchaser its unaudited financial statements as of December 31,
2019 and for the fiscal year ended December 31, 2019 and its unaudited financial statements (including balance sheet, income statement
and statement of cash flows) as of September 30, 2020 (the “Balance Sheet Date”) and for the nine-month period
ended on the Balance Sheet Date (collectively, the “Financial Statements”). The Financial Statements have been
prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis
throughout the periods indicated, except that the unaudited Financial Statements may not contain all footnotes required by GAAP.
The Financial Statements fairly present in all material respects the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end
audit adjustments. Except as set forth in the Financial Statements, the Company has no material liabilities or obligations, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the Balance Sheet Date; (ii)
obligations under contracts and commitments incurred in the ordinary course of business; and (iii) liabilities and obligations
of a type or nature not required under GAAP to be reflected in the Financial Statements, which, in all such cases, individually
and in the aggregate would not have a Material Adverse Effect. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with GAAP.
2.15 Changes.
Since the Balance Sheet Date there has not been:
(a)
any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect;
(b)
any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect;
(c)
any waiver or compromise by the Company of a valuable right or of a material debt owed to it;
(d)
any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;
(e)
any material change to a material contract or agreement by which the Company or any of its assets is bound or subject;
(f)
any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;
(g)
any resignation or termination of employment of any officer or Key Employee of the Company;
(h)
any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and
do not materially impair the Company’s ownership or use of such property or assets;
(i)
any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the ordinary course of its business;
(j)
any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;
(k)
any sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to result in a Material
Adverse Effect;
(l)
receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;
(m)
to the Company’s knowledge, any other event or condition of any character, other than events affecting the economy or the
Company’s industry generally, that could reasonably be expected to result in a Material Adverse Effect; or
(n)
any arrangement or commitment by the Company to do any of the things described in this Section 2.15.
2.16 Employee
Matters.
(a)
To the Company’s knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would
materially interfere with such employee’s ability to promote the interest of the Company or that would conflict with the
Company’s business. Neither the execution or delivery of the Transaction Agreements, nor the carrying on of the Company’s
business by the employees of the Company, nor the conduct of the Company’s business as now conducted and as presently proposed
to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.
(b)
The Company is not delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries,
commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to
be reimbursed to such employees, consultants or independent contractors. The Company has complied in all material respects with
all applicable state and federal equal employment opportunity laws and with other laws related to employment, including those
related to wages, hours, worker classification and collective bargaining. The Company has withheld and paid to the appropriate
governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with
any of the foregoing.
(c)
To the Company’s knowledge, no Key Employee intends to terminate employment with the Company or is otherwise likely to become
unavailable to continue as a Key Employee. The Company does not have a present intention to terminate the employment of any of
the foregoing. The employment of each employee of the Company is terminable at the will of the Company. Except as set forth in
Section 2.16(c)(i) of the Disclosure Schedule or as required by law, upon termination of the employment of any such employees,
no severance or other payments will become due. Except as set forth in Section 2.16(c)(ii) of the Disclosure Schedule,
the Company has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection
with the termination of employment services.
(d)
The Company has not made any representations regarding equity incentives to any officer, employee, director or consultant that
are inconsistent with the share amounts and terms set forth in the minutes of meetings of (or actions taken by unanimous written
consent by) the Company’s Board of Directors.
2.17
Tax Returns and Payments. There are no federal, state, county, local or foreign taxes due and payable by the Company which
have not been timely paid. There are no accrued and unpaid federal, state, country, local or foreign taxes of the Company which
are due, whether or not assessed or disputed. There have been no examinations or audits of any tax returns or reports by any applicable
federal, state, local or foreign governmental agency. The Company has duly and timely filed all federal, state, county, local
and foreign tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations
with respect to taxes for any year.
2.18
Insurance. The Company has in full force and effect insurance policies concerning such casualties as would be reasonable
and customary for companies like the Company, with extended coverage, sufficient in amount (subject to reasonable deductions)
to allow it to replace any of its properties that might be damaged or destroyed.
2.19
Employee Agreements. Each current and former employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the Purchasers
or their respective counsel (the “Confidential Information Agreements”). No current or former Key Employee
has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information
Agreement, unless such excluded works or inventions are unrelated to the Company’s business as now conducted and as presently
proposed to be conducted. Each current and former Key Employee has executed a non-solicitation agreement substantially in the
form or forms delivered to the Purchasers or their respective counsel. The Company is not aware that any of its Key Employees
is in violation of any agreement described in this Section 2.19.
2.20
Permits. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business,
the lack of which could reasonably be expected to have a Material Adverse Effect. The Company is not in default in any material
respect under any of such franchises, permits, licenses or other similar authority.
2.21
Corporate Documents. The Certificate of Incorporation and Bylaws of the Company as of the date of this Agreement are in
the form provided to the Purchasers. The copy of the minute books of the Company provided to the Purchasers contains minutes of
all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders
since the date of incorporation and accurately reflects in all material respects all actions by the directors (and any committee
of directors) and stockholders.
2.22
CFIUS Representations. The Company does not engage in (a) the design, fabrication, development, testing, production or
manufacture of one (1) or more “critical technologies” as defined on the date of this Agreement under the Defense
Production Act of 1950, as amended, including all implementing regulations thereof (the “DPA”); (b) the ownership,
operation, maintenance, supply, manufacture, or servicing of “covered investment critical infrastructure” within the
meaning of the DPA (where such activities are covered by column 2 of Appendix A to 31 C.F.R. Part 800); or (c) the maintenance
or collection, directly or indirectly, of “sensitive personal data” of U.S. citizens within the meaning of the DPA.
The Company has no current intention of engaging in such activities in the future.
2.23
Covid-19. The Company is in compliance in all material respects with all applicable laws regarding the COVID 19 health
pandemic, including without limitation, all health orders and recommended CDC and California protocols with respect to the Company’s
business.
2.24
Disclosure. The Company has made available to the Purchasers all the information reasonably available to the Company that
the Purchasers have requested for deciding whether to acquire the Shares, including certain of the Company’s projections
describing its proposed business plan (the “Business Plan”). No representation or warranty of the Company contained
in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished to Purchasers at the
Closing contains any untrue statement of a material fact or, to the Company’s knowledge, omits to state a material fact
necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which
they were made. The Business Plan was prepared in good faith; however, the Company does not warrant that it will achieve any results
projected in the Business Plan. It is understood that this representation is qualified by the fact that the Company has not delivered
to the Purchasers, and has not been requested to deliver, a private placement or similar memorandum or any written disclosure
of the types of information customarily furnished to purchasers of securities.]
3.
Representations and Warranties of the Purchasers. Each Purchaser hereby represents and warrants to the Company, severally
and not jointly, that:
3.1 Authorization. The Purchaser has full power and authority to enter into the Transaction Agreements. The Transaction Agreements
to which the Purchaser is a party, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations
of the Purchaser, enforceable against such Purchaser in accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and any other laws of general application affecting enforcement
of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.2 Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation
to the Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Shares to
be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents
that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer
or grant participations to such Person or to any third Person, with respect to any of the Shares. The Purchaser has not been formed
for the specific purpose of acquiring the Shares.
3.3 Disclosure
of Information. The Purchaser has had an opportunity to discuss the Company’s business, management, financial affairs
and the terms and conditions of the offering of the Shares with the Company’s management and has had an opportunity to review
the Company’s facilities. The foregoing, however, does not limit or modify the representations and warranties of the Company
in Section 2 of this Agreement or the right of the Purchasers to rely thereon.
3.4
Restricted Securities. The Purchaser understands that the Shares have not been, and will not be, registered under the Securities
Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein.
The Purchaser understands that the Shares are “restricted securities” under applicable U.S. federal and state securities
laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless they are registered with the Securities
and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements
is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Shares, or the Common Stock
into which it may be converted, for resale except as set forth in the Investors’ Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to
the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able
to satisfy.
3.5
No Public Market. The Purchaser understands that no public market now exists for the Shares, and that the Company has made
no assurances that a public market will ever exist for the Shares.
3.6
Legends. The Purchaser understands that the Shares and any securities issued in respect of or exchange for the Shares,
may be notated with one or all of the following legends:
“THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(a) Any
legend set forth in, or required by, the other Transaction Agreements.
(b)
Any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the
certificate, instrument, or book entry so legended.
3.7
Accredited Investor. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act.
3.8 Foreign
Investors. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Code), the Purchaser
hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with
any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within
its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any,
that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Purchaser’s
subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or
other laws of the Purchaser’s jurisdiction.
3.9
Foreign Investment Regulations. Each Purchaser represents that any consideration to be paid for Shares pursuant
to this Agreement does not derive from activity that is or was contrary to law or from a person or location that is or was the
subject of a United States embargo or other economic sanction and that no consideration to be paid for Securities in accordance
with this Agreement will provide the basis for liability for any person under United States anti-money laundering laws or economic
sanctions laws. Each Purchaser further represents that neither such Purchaser nor any of its nominees or affiliates is on the
specially designated OFAC list or similar European Union watch list.
3.10
No General Solicitation. Neither the Purchaser, nor any of its officers, directors, employees, agents, stockholders or
partners has either directly or indirectly, including, through a broker or finder (a) engaged in any general solicitation, or
(b) published any advertisement in connection with the offer and sale of the Shares.
3.11
Exculpation Among Purchasers. The Purchaser acknowledges that it is not relying upon any Person, other than the Company
and its officers and directors, in making its investment or decision to invest in the Company. The Purchaser agrees that neither
any Purchaser nor the respective controlling Persons, officers, directors, partners, agents, or employees of any Purchaser shall
be liable to any other Purchaser for any action heretofore taken or omitted to be taken by any of them in connection with the
purchase of the Shares.
3.12
Residence. If the Purchaser is an individual, then the Purchaser resides in the state or province identified in the address
of the Purchaser set forth on Exhibit A; if the Purchaser is a partnership, corporation, limited liability company or other
entity, then the office or offices of the Purchaser in which its principal place of business is identified in the address or addresses
of the Purchaser set forth on Exhibit A.
4.
Conditions to the Purchasers’ Obligations at Closing. The obligations of dSpace hereunder are subject to the fulfillment,
on or before the CN Closing, of each of the following conditions, unless otherwise waived:
4.1
Representations and Warranties. The representations and warranties of the Company contained in Section
2 shall be true and correct in all respects as of CN Closing.
4.2
Performance. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by the Company on or before CN Closing.
4.3
Compliance Certificate. The President of the Company shall deliver to the Purchasers at the CN Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4
Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall be obtained and effective as of such Closing.
4.5
Voting Agreement. The Company, each Purchaser (other than the Purchaser relying upon this condition to excuse such Purchaser’s
performance hereunder), and the other stockholders of the Company named as parties thereto who are necessary to amend and restate
the prior Voting Agreement and other applicable investor agreements shall have executed and delivered the Voting Agreement.
4.6
Convertible Note. The Company and dSpace shall have executed and delivered the Convertible Note.
4.7
Debt and Equity Restructuring. The Company shall have effected to the satisfaction of dSpace the Debt Restructuring and
Equity Restructuring, including without limitation the execution and delivery of the Restructuring Agreements, including without
limitation the Runway Termination Agreement, the Runway Warrant, the KIA Amended Note and the Subordination Agreement.
4.8
Restated Certificate. The Company shall have filed the Restated Certificate with the Secretary of State of Delaware on
or prior to the CN Closing, which shall continue to be in full force and effect as of the Initial Closing.
4.9
Secretary’s Certificate. The Secretary of the Company shall have delivered to the Purchasers at the CN Closing a
certificate certifying (i) the Certificate of Incorporation and Bylaws of the Company as in effect at the Closing, (ii) resolutions
of the Board of Directors of the Company approving the Transaction Agreements, the Equity and Debt Restructurings and the transactions
contemplated under the Transaction Agreements, and (iii) resolutions of the stockholders of the Company approving the Restated
Certificate.
4.10
Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the
CN Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to dSpace and each Purchaser
(or its respective counsel) shall have received all such counterpart original and certified or other copies of such documents
as reasonably requested. Such documents may include good standing certificates.
4.11
Termination of Investor Documents. The Amended and Restated Investors’ Rights Agreement by and among the Company
and the other parties thereto dated as of May 9, 2019, the Amended and Restated Right of First Refusal, Co-Sale and Drag Along
Agreement by and among the Company and the other parties thereto dated as of May 9, 2019 and any other agreements entered into
with the Company’s preferred or common stock investors in connection with such investments prior to the date hereof have
been terminated.
4.12
Equity Incentive Plan. The Company shall have amended the 2017 Stock Plan to reserve the number of shares of Common Stock
for issuance to employees, officers and consultants as set forth on Exhibit A.
4.13
Management Bonus Plan. The Company shall have adopted the Management Bonus Plan in form and substance acceptable to dSpace.
4.14
Bylaws. The Company shall have amended and restated the Bylaws in form and substance acceptable to dSpace.
4.15
PPP Loan. The Company shall have (i) applied for forgiveness of the $2,386,400 incurred under the SBA’s Paycheck
Protection Program pursuant to the CARES Act (the “SBA PPP Loan”) in accordance with Section 1106 of the CARES
Act, and (ii) applied for consent under the SBA PPP Loan to a change of control of the Company as contemplated hereby.
5.
Conditions of the Company’s Obligations at Closing. The obligation of the Company to sell
Shares to any Purchaser at the Initial Closing is subject to the fulfillment, on or before the Closing, of each of the following
conditions with respect to such Purchaser, unless otherwise waived:
5.1
Representations and Warranties. The representations and warranties of such Purchaser contained in Section 3 shall be true
and correct in all respects as of such Closing.
5.2
Performance. The Purchasers shall have performed and complied with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with by them on or before such Closing.
5.3
Voting Agreement. Such Purchaser shall have executed and delivered the Voting Agreement.
5.4
CN Funding. dSpace shall have executed and funded the Convertible Note in accordance with its terms.
6. Miscellaneous.
6.1
Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties of the Company
and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement
and each Closing and shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on
behalf of the Purchasers or the Company.
6.2
Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided in this Agreement.
6.3
Governing Law. This Agreement shall be governed by the internal law of the State of Delaware, without regard to conflict
of law principles that would result in the application of any law other than the law of the State of Delaware.
6.4
Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Counterparts may be delivered via electronic mail (including
pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission
method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for
all purposes.
6.5
Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
6.6 Notices.
(a) General. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be
deemed effectively given upon the earlier of actual receipt, or (a) personal delivery to the party to be notified, (b) when sent,
if sent by electronic mail during normal business hours of the recipient, and if not sent during normal business hours, then on
the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight
prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the
respective parties at their address as set forth on the signature page or Exhibit A, or to such e-mail address or address
as subsequently modified by written notice given in accordance with this Section 6.6. If notice is given to the Company,
a copy (which copy shall not constitute notice) shall also be sent to Fenwick & West LLP, Attn: Sayre Stevick and Lara Foster,
801 California Street, Mountain View, California 94041, and if notice is given to the Purchasers, a copy (which copy shall not
constitute notice) shall also be given to Larry Kane c/o Orrick, Herrington & Sutcliffe LLP, 405 Howard Street, San Francisco,
CA 94105.
(b) Consent
to Electronic Notice. Each Purchaser consents to the delivery of any stockholder notice pursuant to the Delaware General Corporation
Law (the “DGCL”), as amended or superseded from time to time, by electronic transmission pursuant to Section
232 of the DGCL (or any successor thereto) at the e-mail address set forth below such Purchaser’s name on the signature
page or Exhibit A, as updated from time to time by notice to the Company. To the extent that any notice given by means
of electronic transmission is returned or undeliverable for any reason, the foregoing consent shall be deemed to have been revoked
until a new or corrected e-mail address has been provided, and such attempted electronic notice shall be ineffective and deemed
to not have been given. Each Purchaser agrees to promptly notify the Company of any change in its e-mail address, and that failure
to do so shall not affect the foregoing.
6.7
No Finder’s Fees. Each party represents that it neither is nor will be obligated for any finder’s fee or commission
in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for
any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the
costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers,
employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability
for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and
the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
6.8
Fees and Expenses. The Company shall reimburse dSpace for the reasonable fees and expenses of Orrick, Herrington &
Sutcliffe LLP, the counsel for dSpace, incurred in connection with the transactions contemplated hereby and the Loan Agreement,
and dSpace may deduct such expenses from its advances under the Convertible Note, subject to Orrick, Herrington & Sutcliffe
LLP providing an invoice for such amount; and provided that such deducted amount shall be deemed to have been paid by dSpace to
the Company.
6.9
Amendments and Waivers. Except as set forth in Section 1.3(a) of this Agreement, any term of this Agreement may
be amended, terminated or waived only with the written consent of the Company and dSpace. Any amendment or waiver effected in
accordance with this Section 6.10 shall be binding upon the Purchasers and each transferee of the Shares (or the Common
Stock issuable upon conversion thereof), each future holder of all such securities, and the Company.
6.10
Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability
of any other provision.
6.11
Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement,
upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching
or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or
of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind
or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of
any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
6.12
Entire Agreement. This Agreement (including the Exhibits hereto), the Restated Certificate and the other Transaction Agreements
constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and
any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.
6.13
Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION
BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.14
Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts
of New York and to the jurisdiction of the United States District Court for the District of Southern New York for the purpose
of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action
or other proceeding arising out of or based upon this Agreement except in the state courts of New York or the United States District
Court for the District of Southern New York, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties have executed this Series A Preferred Stock Purchase Agreement as of the date first written above.
| ZSPACE,
INC. |
| | | |
| | By: | /s/
Paul Kellenberger |
| | Name: | Paul Kellenberger |
| | | (print) |
| | Address: | 2728
Orchard Pkwy |
| | | San
Jose, CA 95131 |
Signature
Page to Stock Purchase Agreement
IN
WITNESS WHEREOF, the parties have executed this Series A Preferred Stock Purchase Agreement as of the date first written above.
| PURCHASERS: |
| | |
| | DSPACE
INVESTMENTS LIMITED |
| | | |
| | By: | /s/
Pankaj
Gupta |
SIGNATURE
PAGE TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
| |
|
EXHIBITS
|
| Exhibit A |
- |
SCHEDULE OF PURCHASERS/Pro
Forma Cap Table |
| |
|
|
| Exhibit B |
- |
FORM OF AMENDED
AND RESTATED CERTIFICATE OF
INCORPORATION |
| |
|
|
| Exhibit C |
- |
DISCLOSURE SCHEDULE |
| |
|
|
| Exhibit D |
- |
FORM OF VOTING
AGREEMENT |
| |
|
|
| Exhibit E |
- |
FORM OF KIA WARRANT |
| |
|
|
| Exhibit F |
- |
FORM OF MANAGEMENT
BONUS PLAN |
| |
|
|
| Schedule 1.4 |
- |
SCHEDULE OF RIGHTS OFFERING INVESTORS |
EXHIBIT
A
SCHEDULE
OF PURCHASERS/PRO FORMA
No-Arowana
Closing
| | |
Number | | |
Percentage | |
| Common Stock | |
| | | |
| | |
| Existing Shareholders and Warrantholders | |
| 4,541,519 | | |
| 1.0 | % |
| KIA Common and Warrants | |
| 68,114,298 | | |
| 15.0 | % |
| Runway Warrant | |
| 6,811,430 | | |
| 1.5 | % |
| Stock Incentive Plan | |
| 84,007,072 | | |
| 18.5 | % |
| Series A Preferred Stock** | |
| | | |
| | |
| dSpace | |
| 290,621,000 | | |
| 64.0 | % |
| Total: | |
| 454,095,319 | | |
| 100.0 | % |
**100
votes per share and one Series A Preferred Director gets up to 5 votes
Arowana
Related Closing
| | |
Number | | |
Percentage | |
| Common Stock | |
| | |
| |
| Existing Shareholders and Warrantholders | |
| 4,541,519 | | |
| 45.0 | % |
| KIA Common and Warrants | |
| 1,513,649 | | |
| 15.0 | % |
| Runway Warrant | |
| 151,365 | | |
| 1.5 | % |
| Stock Incentive Plan | |
| 1,866,275 | | |
| 18.5 | % |
| Series A Preferred Stock** | |
| | | |
| | |
| dSpace | |
| 2,018,202 | | |
| 20.0 | % |
| Total: | |
| 10,091,010 | | |
| 100.00 | % |
EXHIBIT
B
FORM
OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
AMENDED
AND RESTATED
CERTIFICATE
OF INCORPORATION
OF
ZSPACE,
INC.
(Pursuant
to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
zSpace,
Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the “General Corporation Law”),
DOES
HEREBY CERTIFY:
1.
That the name of this corporation is zSpace, Inc, and that this corporation was originally organized as
Infinite Z, LLC. The original Certificate of Incorporation was filed with the Secretary of State of the state of Delaware on
October 26, 2006 under the name Infinite Z, Inc.
2.
That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders,
and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution
setting forth the proposed amendment and restatement is as follows:
RESOLVED,
that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
FIRST:
The name of this corporation is zSpace, Inc. (the “Corporation”).
SECOND:
The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is National Registered Agents, Inc.
THIRD:
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law.
FOURTH:
Immediately upon the effective time of this Amended and Restated Certificate of Incorporation (the “Restated Certificate”
and such time, the “Effective Time”), each 40 shares of the Corporation’s Common Stock then outstanding,
par value $0.00001 per share, shall be and hereby is automatically converted and reconstituted into one (1) share of Common Stock,
par value $0.00001 per share, which shall be fully paid and nonassessable, without any action on the part of the holders of such
shares of the Corporation’s Common Stock (the “Reverse Stock Split”). No fractional shares shall be issued
upon the Reverse Stock Split of any share or shares of the Common Stock, and, in lieu of issuing fractional shares upon the Reverse
Stock Split, the Corporation shall pay each holder the fair value, as of the Effective Time, of the fractional shares that would
otherwise be issued upon the Reverse Stock Split. Whether or not fractional shares would have been issuable (but for the preceding
sentence) upon the Reverse Stock Split shall be determined on the basis of the total number of shares represented by each stock
certificate. Each outstanding stock certificate of the Corporation, which, immediately prior to the Effective Time, represents
one or more shares of the Corporation’s capital stock shall thereafter be deemed to represent the appropriate number of
shares of the Corporation’s capital stock, taking into account the Reverse Stock Split, until such stock certificate is
exchanged for a new stock certificate, if such shares are certificated, or if the shares are uncertificated, the stock records
maintained by the Company shall be appropriately adjusted to reflect the number of shares resulting from the Reverse Stock Split.
Exept as otherwise noted, all numbers herein shall reflect the Reverse Stock Split.
The
total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 596,900,000 shares of
Common Stock, $0.00001 par value per share (“Common Stock”) and (ii) 433,402,771 shares of Preferred Stock,
$0.00001 par value per share (“Preferred Stock”).
The
following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON
STOCK
1.
General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by
the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2.
Voting. The holders of the Common Stock are entitled to one (1) vote for each share of Common Stock held at all meetings
of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required
by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate
of Incorporation that relates solely to the terms of one (1) or more outstanding series of Preferred Stock if the holders of such
affected series are entitled, either separately or together with the holders of one (1) or more other such series, to vote thereon
pursuant to this Amended and Restated Certificate of Incorporation or pursuant to the General Corporation Law. The number of authorized
shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition
to any vote of the holders of one (1) or more series of Preferred Stock that may be required by the terms of this Amended and
Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing
a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective
of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED
STOCK
433,402,771
shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock”
with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise
indicated, references to “sections” or “Sections” in this Part B of this Article Fourth refer to sections
of Part B of this Article Fourth. References to “Preferred Stock” mean the Series A Preferred Stock.
1. Dividends.
From
and after the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate per annum of 11% of the Original
Issuance Price for the Series A Preferred Stock shall accrue on such shares of Series A Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the
Series A Preferred Stock) (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether
or not declared, and shall be cumulative; provided, however, that except as set forth in the following sentence
of this Section 1, in Section 2.1, or immediately prior to the Mandatory Conversion Time, such Accruing Dividends
shall be payable only when, as, and if declared by the Board of Directors and the Corporation shall be under no obligation to
pay such Accruing Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or
series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock)
unless (in addition to the obtaining of any consents required elsewhere in this Amended and Restated Certificate of Incorporation)
the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding
share of Preferred Stock in an amount at least equal to the sum of (i) the amount of the aggregate Accruing Dividends then accrued
on such share of Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or
series that is convertible into Common Stock, that dividend per share of Preferred Stock as would equal the product of (1) the
dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had
been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Preferred
Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the
case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined
by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance
price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount
equal to the applicable Original Issue Price (as defined below); provided that if the Corporation declares, pays or sets
aside, on the same date, a dividend on shares of more than one (1) class or series of capital stock of the Corporation, the dividend
payable to the holders of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the
class or series of capital stock that would result in the highest Preferred Stock dividend. The “Original Issue Price”
shall mean, as to the Series A Preferred Stock, the Series A Original Issuance Price as defined in the Series A Preferred Stock
Purchase Agreement dated on or about November [ ___ ], 2020 between the Corporation and the purchasers of Series A Preferred Stock
named therein (the “Purchase Agreement”), subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.
2.
Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1
Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders or, in the case of a Deemed Liquidation Event (as
defined below), out of the consideration payable to stockholders in such Deemed Liquidation Event or the Available Proceeds (as
defined below), before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount
per share equal to the Original Issue Price, plus any dividends accrued but unpaid thereon. If upon any such liquidation, dissolution
or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled
under this Section 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets
available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.2
Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, after the payment in full of all Liquidation Amounts required to be paid to the holders of shares of Preferred
Stock the remaining assets of the Corporation available for distribution to its stockholders or, in the case of a Deemed Liquidation
Event, the consideration not payable to the holders of shares of Preferred Stock pursuant to Section 2.1 or the remaining
Available Proceeds, as the case may be, shall be distributed among the holders of the shares of Preferred Stock and Common Stock,
pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had
been converted to Common Stock pursuant to the terms of this Amended and Restated Certificate of Incorporation immediately prior
to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Preferred
Stock is entitled to receive under Sections 2.1 and 2.2 is hereinafter referred to as the “Liquidation
Amount.”
2.3 Deemed
Liquidation Events.
2.3.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the
holders of at least a majority of the outstanding shares of Preferred Stock (the “Requisite Holders”) elect
otherwise by written notice sent to the Corporation at least 20 days prior to the effective date of any such event:
| (a) | a
merger or consolidation in which |
| (i) | the
Corporation is a constituent party or |
| (ii) | a
subsidiary of the Corporation is a constituent party and the Corporation issues shares
of its capital stock pursuant to such merger or consolidation, |
except
any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation
outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares
of capital stock that represent, immediately following such merger or consolidation, at least a majority by voting power of the
capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned
subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving
or resulting corporation; or
(b)
(1) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions,
by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries
taken as a whole, or (2) the sale or disposition (whether by merger, consolidation or otherwise, and whether in a single transaction
or a series of related transactions) of one (1) or more subsidiaries of the Corporation if substantially all of the assets of
the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease,
transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
2.3.2
Effecting a Deemed Liquidation Event. The Corporation shall not have the power to effect a Deemed Liquidation Event referred
to in Section 2.3.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the “Merger
Agreement”) provides that the consideration payable to the stockholders of the Corporation in such Deemed Liquidation
Event shall be allocated to the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2.
2.3.3
Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation
upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the
value of the property, rights or securities to be paid or distributed to such holders pursuant to such Deemed Liquidation Event.
The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
2.3.4
Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Section 2.3.1(a)(i),
if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies
(the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration
that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the
holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 as if the Initial Consideration
were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which
becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders
of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 after taking into account the previous
payment of the Initial Consideration as part of the same transaction. For the purposes of this Section 2.3.4, consideration
placed into escrow or retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection
with such Deemed Liquidation Event shall be deemed to be Initial Consideration.
3. Voting.
3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting
of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares
of Preferred Stock shall be entitled to cast the number of votes equal to one hundred (100) times the number of whole shares of
Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining
stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Amended and Restated
Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class
and on an as-converted to Common Stock basis.
3.2 Election of Directors. The holders of record of the shares of Preferred Stock, exclusively and as a separate class, shall
be entitled to elect three directors of the Corporation (the “Preferred Directors” or “Series A Directors”),
the holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect two directors
of the Corporation (the “Common Directors”) until the Series A Preferred Stock is issued if the Corporation
does not close the Arowana Funding at an Arowana Related Closing (as such terms are defined in the Purchase Agreement), and the
holders of record of the shares of Common Stock and Preferred Stock voting together as a single class with the holders of Series
A Preferred Stock having one hundred (100) votes per whole share, shall be entitled to elect the remaining directors of the Corporation
(the “Remaining Directors”); provided, however, for administrative convenience, the initial Preferred
Director may also be appointed by the Board of Directors in connection with the approval of the initial issuance of Preferred
Stock without a separate action by the holders of Preferred Stock. Any director elected as provided in the preceding sentence
may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital
stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that
purpose or pursuant to a written consent of stockholders. For purpose of clarity, the right of the holders of the Common Stock
to continue to exclusively elect the Common Directors shall only continue if the Company has closed the Arowana Funding at an
Arowana Related Closing (as such terms are defined by the Purchase Agreement) and such right shall automatically terminate if
the Arowana Funding does not close at an Arowana Related Closing.
The
Preferred Directors shall be entitled to cast the number of votes on any matter brought before the Board for approval, whether
at a meeting of the Board of Directors or in connection with an action by unanimous written consent of the Board of Directors,
or any committee thereof as provided in Section 3.3. If the holders of shares of Preferred Stock or Common Stock, as applicable,
fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting
exclusively and as a separate class, pursuant to the first sentence of this Section 3.2, then any directorship not so filled
shall remain vacant until such time as the holders of the Preferred Stock elect a person to fill such directorship by vote or
written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by
the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a
separate class.
At
any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the
outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing
such director. Except as otherwise provided in this Section 3.2, a vacancy in any directorship filled by the holders of
any class or classes or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class
or classes or series or by any remaining director or directors elected by the holders of such class or classes or series pursuant
to this Section 3.2.
For
the purpose of clarity, every reference in this Amended and Restated Certificate of Incorporation and the Bylaws of the Corporation,
in each case as the same may be amended or restated from time to time, to a majority or other proportion of the directors of the
Corporation shall refer to a majority or other proportion of the votes of the directors. The voting rules set forth in this Section
3.2 and Section 3.3 shall apply to any vote taken at any meeting of a committee or sub-committee of the Board of Directors,
such that, at any meeting of a committee or sub-committee of the Board of Directors, each director shall be entitled to cast the
number of votes he or she would be entitled to cast if the vote were being taken at a meeting of the Board of Directors.
3.3 Director Voting Power. Subject to the proviso below, each director who is serving on the Board of Directors shall be entitled
to cast one (1) vote on all matters submitted to the Board of Directors or a committee thereof for a vote; provided, however,
that (i) if there is only one (1) Preferred Director serving on the Board, then such Preferred Director shall be automatically
deemed the Super-Voting Preferred Designee (as defined in the Amended and Restated Voting and Rights Agreement, dated on or about
the date of this Amended and Restated Certificate of Incorporation, by and between the Corporation and the investors party thereto
(the “Voting Agreement”)) and shall then be entitled to cast five (5) votes on all matters submitted to the
Board of Directors or a committee thereof for a vote or written consent; (ii) if there are only two (2) Preferred Directors serving
on the Board, the Super-Voting Preferred Designee shall then be entitled to cast four (4) votes on all matters submitted to the
Board of Directors or a committee thereof for a vote or written consent; and (iii) if there are three (3) Preferred Directors
then serving on the Board, the Super-Voting Preferred Designee shall then be entitled to cast three (3) votes on all matters submitted
to the Board of Directors or a committee thereof for a vote or written consent. For so long as the Super-Voting Preferred Designee
is entitled to more than one (1) vote in accordance with preceding sentence on any matter submitted to a vote of the Board of
Directors or any committee thereof, any reference in this Amended and Restated Certificate of Incorporation, the Bylaws of the
Corporation or the General Corporation Law, as each may be amended or restated from time to time, to a majority or other proportion
of the Board of Directors or of any committee thereof shall refer to a majority or other proportion of the votes of the Board
of Directors or of such committee. The foregoing provisions of this Section 3.3 are intended to confer additional voting power
on the Super-Voting Preferred Designee under certain circumstances in accordance with and as permitted under Section 141(d) of
the General Corporation Law.
3.4 Preferred
Stock Protective Provisions. At any time when at least 200,000 shares of Preferred Stock (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock)
are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation, recapitalization,
reclassification, or otherwise, do any of the following without (in addition to any other vote required by law or this Amended
and Restated Certificate of Incorporation) the written consent or affirmative vote of the Requisite Holders given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered
into without such consent or vote shall be null and void ab initio, and of no force or effect.
3.4.1 liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any merger or consolidation or any other Deemed
Liquidation Event, or consent to any of the foregoing;
3.4.2 amend, alter or repeal any provision of this Amended and Restated Certificate of Incorporation or Bylaws of the Corporation;
3.4.3 (i) create, or authorize the creation of, or issue or obligate itself to issue shares of, or reclassify, any capital stock other
than equity issuances to non-executive service providers pursuant to the Corporation’s 2017 Equity Incentive Plan that are
approved by the Board of Directors, including the Series A Director, if any, or (ii) increase the authorized number of shares
of Preferred Stock or any additional class or series of capital stock of the Corporation;
3.4.4 cause or permit any of its subsidiaries to sell, issue, sponsor, create or distribute any digital tokens, cryptocurrency or other
blockchain-based assets (collectively, “Tokens”), including through a pre-sale, initial coin offering, token
distribution event or crowdfunding, or through the issuance of any instrument convertible into or exchangeable for Tokens;
3.4.5 purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on,
any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Preferred Stock
as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons
who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at
no greater than the original purchase price thereof;
3.4.6 create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security
interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other
similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including
but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with
respect to any debt security lien, security interest or other indebtedness for borrowed money, unless, in each case, such debt
security has received the prior approval of the Board of Directors, including the Series A Director, if any;
3.4.7 create,
or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one (1) or more other subsidiaries)
by the Corporation, or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue, any
shares of any class or series of capital stock, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect
subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise
dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary,
unless, in each case, approved by the Board of Directors, including the Series A Director, if any; or
3.4.8 increase or decrease the authorized number of directors constituting the Board of Directors, change the number of votes entitled
to be cast by any director or directors on any matter, or adopt any provision inconsistent with Article Sixth.
Notwithstanding
anything to the contrary set forth in this Section 3.4, the consent of the Requisite Holders will not be required under any circumstance
to initiate any insolvency proceeding, without limitation, a filing under Chapter 7 or Chapter 11 of the United States Bankruptcy
Code. Furthermore, unless required by law or explicitly provided elsewhere in this Amended and Restated Certificate of Incorporation,
the consent of the Requisite Holders will not be required to pursue or consummate a Qualified Public Offering.
4. Optional Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion
Rights”):
4.1 Right
to Convert.
4.1.1
Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time
and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid
and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price by the Conversion Price (as defined
below) in effect at the time of conversion. The “Conversion Price” applicable to the Series A Preferred Stock
shall initially be equal to the Series A Original Issuance Price. Such initial Conversion Price, and the rate at which shares
of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2
Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed
Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed
for the payment of any such amounts distributable on such event to the holders of Preferred Stock; provided that the foregoing
termination of Conversion Rights shall not affect the amount(s) otherwise paid or payable in accordance with Section 2.1
to holders of Preferred Stock pursuant to such liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation
Event.
4.2 Fractional
Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the number of shares of Common Stock to be issued upon conversion of the
Preferred Stock shall be rounded to the nearest whole share.
4.3 Mechanics
of Conversion.
4.3.1 Notice
of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of
Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the
transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own
transfer agent) that such holder elects to convert all or any number of such holder’s shares of Preferred Stock and, if
applicable, any event on which such conversion is contingent and (b), if such holder’s shares are certificated,
surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such
certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the
Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged
loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such
holder’s name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If
required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or
his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or
by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or
lost certificate affidavit and agreement) shall be the time of conversion (the “Conversion Time”), and the
shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of
such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder
of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the
shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, and (ii) pay
all declared but unpaid dividends on the shares of Preferred Stock converted.
4.3.2 Reservation
of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding
Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for
such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Amended and Restated Certificate of Incorporation. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred
Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.
4.3.3 Effect
of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the
Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to
receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and
cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock
accordingly.
4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but
unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance
or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation
shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no
such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4 Adjustments
to Conversion Price for Diluting Issues.
4.4.1
Special Definitions. For purposes of this Article Fourth, the following definitions shall
apply:
(a)
“Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section
4.4.3 below, deemed to be issued) by the Corporation after the Original Issue Date, other than (1) the following shares of
Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses
(1) and (2), collectively, “Exempted Securities”):
| (i) | as
to any series of Preferred Stock shares of Common Stock, Options or Convertible Securities
issued as a dividend or distribution on such series of Preferred Stock; |
| (ii) | shares
of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock
split, split-up or other distribution on shares of Common Stock that is covered by Section
4.5, 4.6, 4.7 or 4.8; |
| (iii) | shares
of Common Stock or Options issued to employees or directors of, or consultants or advisors
to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement
approved by the Board of Directors of the Corporation; |
| (iv) | shares
of Common Stock or Convertible Securities actually issued upon the exercise of Options
or shares of Common Stock actually issued upon the conversion or exchange of Convertible
Securities, in each case provided such issuance is pursuant to the terms of such Option
or Convertible Security and such Option or Convertible Security was outstanding prior
to the Original Issue Date or is approved or ratified after the Original Issue Date by
the Board of Directors of the Corporation, including the Series A Director, if any; or |
| (v) | shares
of Common Stock, Options or Convertible Securities issued to banks, equipment lessors
or other financial institutions, or to real property lessors, pursuant to a debt financing,
equipment leasing or real property leasing transaction approved by the Board of Directors
of the Corporation. |
(b) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock, but excluding Options.
(c)
“Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
4.4.2
No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made as the result of the issuance or
deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the Requisite Holders agreeing
that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3 Deemed
Issue of Additional Shares of Common Stock.
(a) If
the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities
(excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination
of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability,
convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price pursuant
to the terms of Section 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to
the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution
or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number
of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or
(2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then,
effective upon such increase or decrease becoming effective, the Conversion Price computed upon the original issue of such Option
or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion
Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible
Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing
the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original
adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock
as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment
date.
(c)
If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted
Securities), the issuance of which did not result in an adjustment to the Conversion Price pursuant to the terms of Section
4.4.4 (either because the consideration per share (determined pursuant to Section 4.4.5) of the Additional Shares of
Common Stock subject thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible
Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to
such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic
adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for
either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such
Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion
or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject
thereto (determined in the manner provided in Section 4.4.3(a) shall be deemed to have been issued effective upon such
increase or decrease becoming effective.
(d)
Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof)
which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price pursuant
to the terms of Section 4.4.4, the Conversion Price shall be readjusted to such Conversion Price as would have obtained
had such Option or Convertible Security (or portion thereof) never been issued.
(e)
If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such
Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment
to the Conversion Price provided for in this Section 4.4.3 shall be effected at the time of such issuance or amendment
based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any
subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Section 4.4.3). If the
number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security,
or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at
the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price that would result under
the terms of this Section 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number
of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes
of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation
can first be made.
4.4.4
Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at
any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed
to be issued pursuant to Section 4.4.3), without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to such issuance or deemed issuance, then the Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP2
= CP1* (A + B) ÷ (A + C).
For
purposes of the foregoing formula, the following definitions shall apply:
(a)
“CP2” shall mean the Conversion Price in effect immediately after such issuance or deemed issuance of Additional Shares
of Common Stock
(b)
“CP1” shall mean the Conversion Price in effect immediately prior to such issuance or deemed issuance of Additional
Shares of Common Stock;
(c)
“A” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance
of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise
of Options outstanding immediately prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities
(including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such
issue);
(d)
“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common
Stock had been issued or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received
by the Corporation in respect of such issue by CP1); and
(e)
“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5
Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation
for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows:
| (a) | Cash
and Property. Such consideration shall: |
| (i) | insofar
as it consists of cash, be computed at the aggregate amount of cash received by the Corporation,
excluding amounts paid or payable for accrued interest; |
| (ii) | insofar
as it consists of property other than cash, be computed at the fair market value thereof
at the time of such issue, as determined in good faith by the Board of Directors of the
Corporation; and |
| (iii) | in
the event Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers both, be
the proportion of such consideration so received, computed as provided in clauses
(i) and (ii) above, as determined in good faith by the Board of Directors
of the Corporation. |
(b) Options
and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 4.4.3, relating to Options and Convertible Securities, shall be
determined by dividing:
| (i) | The
total amount, if any, received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and
the conversion or exchange of such Convertible Securities, by |
| (ii) | the
maximum number of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of such Convertible
Securities. |
4.4.6 Multiple
Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are
a part of one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price
pursuant to the terms of Section 4.4.4, then, upon the final such issuance, the Conversion Price shall be
readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without
giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5
Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original
Issue Date effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before that subdivision
shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation
shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number
of shares of Common Stock outstanding. Any adjustment under this Section shall become effective at the close of business on the
date the subdivision or combination becomes effective.
4.6
Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such
event the Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction:
(1)
the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution.
Notwithstanding
the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such
record date and thereafter the Conversion Price shall be adjusted pursuant to this Section as of the time of actual payment of
such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously
receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as
they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such
event.
4.7
Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common
Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply
to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with
the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount
equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock
had been converted into Common Stock on the date of such event.
4.8 Adjustment
for Merger or Reorganization, etc. Subject to the provisions of Section 2.3, if there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred
Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Sections
4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation
or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible
prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common
Stock of the Corporation issuable upon conversion of one (1) share of Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction;
and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be
made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the
holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect
to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock.
4.9
Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later
than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities,
cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment
or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of
any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to
such holder a certificate setting forth (i) the Conversion Price then in effect, and (ii) the number of shares of Common Stock
and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.
4.10 Notice
of Record Date. In the event:
(a)
the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable
upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution,
or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive
any other security; or
(b)
of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation
Event; or
(c)
of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then,
and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying,
as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders
of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred
Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or
other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation
or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock.
Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory
Conversion.
5.1
Trigger Events. Upon either (a) immediately prior to the closing of the sale of shares of Common Stock to the public in
a firm-commitment underwritten public offering (i) pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $30,000,000 of gross proceeds to the Corporation or (ii) pursuant to a similar regulatory
framework applicable to a non-U.S. public offering resulting in at least $10,000,000 of gross proceeds to the Corporation, in
either case, with such offering resulting in the Common Stock being listed for trading on an exchange or marketplace approved
the Board of Directors (a “Qualified Public Offering”) which permits the Lender (as defined in that certain
Amended and Restated Loan and Security Agreement dated as of November [__], 2020 by and between the bSpace Investments Limited
and the Company, as such agreement is amended from time to time (as amended, the “Loan Agreement”)) to receive
listed equity in exchange for all principal, interest and premiums payable under the Loan Agreement or (b) the date and time,
or the occurrence of an event, specified by vote or written consent of the Requisite Holders (the time of such closing or the
date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory
Conversion Time”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate as calculated pursuant to Section 4.1.1 and (ii) such shares may not
be reissued by the Corporation.
5.2
Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory
Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section
5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice,
each holder of shares of Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for
all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit
and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against
the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated
in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied
by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder
or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to
Section 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate
at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at
or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such
holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this
Section 5.2. As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate
or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall (a) issue and deliver
to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable
on such conversion in accordance with the provisions hereof and (b) pay any declared but unpaid dividends on the shares of Preferred
Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series,
and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized number of shares of Preferred Stock accordingly.
6.
Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed, converted or otherwise acquired
by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued,
sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the
holders of Preferred Stock following redemption, conversion or acquisition.
7.
Waiver. Except as otherwise set forth herein, (a) any of the rights, powers, preferences and other terms of the Preferred
Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of
the holders of at least a majority of the shares of Preferred Stock then outstanding and (b) at any time more than one (1) series
of Preferred Stock is issued and outstanding, any of the rights, powers, preferences and other terms of any series of Preferred
Stock set forth herein may be waived on behalf of all holders of such series of Preferred Stock by the affirmative written consent
or vote of the holders of at least a majority of the shares of such series of Preferred Stock then outstanding.
8.
Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of
Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or
given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon
such mailing or electronic transmission.
FIFTH:
Subject to any additional vote required by this Amended and Restated Certificate of Incorporation or Bylaws, in furtherance
and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
SIXTH:
Subject to any additional vote required by this Amended and Restated Certificate of Incorporation, the number of directors
of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation. Each director shall be entitled
to one (1) vote on each matter presented to the Board of Directors except as provided in Article Fourth, Section B.3.3.
SEVENTH:
Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH:
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide.
The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH:
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other
law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action
further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall
be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any
repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director
of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH:To
the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of
expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits
the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of
the General Corporation Law.
Any
amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not (a) adversely affect any right or
protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification
or (b) increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer
or agent occurring prior to, such amendment, repeal or modification.
ELEVENTH:
The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in
being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any
matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the
possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii)
any holder of Preferred Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder,
other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, the persons referred to in
clauses (i) and (ii) are “Covered Persons”), unless such matter, transaction or interest is presented
to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in
such Covered Person’s capacity as a director of the Corporation while such Covered Person is performing services in such
capacity. Any repeal or modification of this Article Eleventh will only be prospective and will not affect the rights under this
Article Eleventh in effect at the time of the occurrence of any actions or omissions to act giving rise to liability. Notwithstanding
anything to the contrary contained elsewhere in this Amended and Restated Certificate of Incorporation, the affirmative vote of
the holders of at least a majority of the shares of Preferred Stock the outstanding, will be required to amend or repeal, or to
adopt any provisions inconsistent with this Article Eleventh.
TWELFTH:
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of
Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative
action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed
by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii)
any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of
the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting
a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as
to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party
not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction
of the Court of Chancery within ten (10) days following such determination), which is vested in the exclusive jurisdiction of
a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any
person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality
and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including,
without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal
or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other
persons or entities and circumstances shall not in any way be affected or impaired thereby.
THIRTEENTH:
For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase
of shares of Common Stock permitted under this Amended and Restated Certificate of Incorporation from employees, officers, directors
or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements
approved by the Board of Directors (in addition to any other consent required under this Amended and Restated Certificate of Incorporation),
such repurchase may be made without regard to any “preferential dividends arrears amount” or “preferential rights
amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making
any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential
dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed
to be zero (0).
* *
*
3.
That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation
in accordance with Section 228 of the General Corporation Law.
4.
That this Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s
Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of
this corporation on this __ day of December, 2020.
| By: | |
| | | Paul
Kellenberger, President |
DISCLOSURE
SCHEDULE
This
Disclosure Schedule is made and given pursuant to Section 2 of the Series A Preferred Stock Purchase Agreement, dated as
of December 1 (the “Agreement”), between zSpace, Inc. (the “Company”) and the Purchasers
listed on Schedule A thereto. All capitalized terms used but not defined herein shall have the meanings as defined in the Agreement,
unless otherwise provided. The section numbers below correspond to the section numbers of the representations and warranties in
the Agreement; provided, however, that any information disclosed herein under any section number shall be deemed
to be disclosed and incorporated into any other section number under the Agreement where such disclosure would be appropriate
and such appropriateness is reasonably apparent from the face of such disclosure. Nothing in this Disclosure Schedule is intended
to broaden the scope of any representation or warranty contained in the Agreement or to create any covenant. Inclusion of any
item in this Disclosure Schedule (1) does not represent a determination that such item is material or establish a standard of
materiality, (2) does not represent a determination that such item did not arise in the ordinary course of business, (3) does
not represent a determination that the transactions contemplated by the Agreement require the consent of third parties, and (4)
shall not constitute, or be deemed to be, an admission to any third party concerning such item. This Disclosure Schedule includes
brief descriptions or summaries of certain agreements and instruments, copies of which are available upon reasonable request.
Such descriptions do not purport to be comprehensive, and are qualified in their entirety by reference to the text of the documents
described, true and complete copies of which have been provided to the Purchasers or their respective counsel.
Section
2.2 Capitalization All shares numbers are shown post the 40-1 reverse stock split to be effective.
(a)(i)
Certain
of the Company’s outstanding shares of Common Stock were issued pursuant to exercises of stock options under the Option
Plan that took place after the expiration date for such stock options.
(c)
There
are currently 57,725 pending options grants to be proposed to the Board of Directors for approval after the Initial Closing, which
are attached as Exhibit 2.2(c).
KIA
Warrant.
Runway
Warrant.
The
following warrants to purchase an aggregate of 5,784 shares of the Company’s Common Stock:
| Western
Alliance Bank |
2,170 |
| Artiman
Ventures II, L.P. |
2,085 |
| Artiman
Ventures II Principals Fund, a Delaware Multiple Series L.L.C. |
41 |
| Artiman
Ventures II Affiliates Fund, L.P. |
42 |
| Western
Alliance Bank |
1,446 |
(d)
The
Company has granted equity awards to executive employees in the past that contain vesting acceleration provisions.
(f)
Reference
is made to the Warrants listed in Section 2.2(c) above.
Section
2.3 Subsidiaries
The
following are all of the Company’s Subsidiaries and their respective states (or countries, if other than the U.S.), as well
as the percentage of total capital stock owned by the Company:
| |
|
|
| |
|
Record
Owner(s) |
| |
|
(indicating |
|
|
percentage |
| |
Country
of |
ownership
by |
| Company |
Formation |
Company) |
| zSpace
K.K. |
Japan |
zSpace,
Inc. 100% |
| zSpace
Technologies |
Shanghai,
China |
zSpace,
Inc. 100% |
| (Shanghai)
Co. Ltd. |
|
|
Section
2.6 Governmental Consents and Filings.
To
the extent SBA approval is required for the transactions contemplated by the Agreement as a result of the terms of the Company’s
outstanding PPP loan, such consent was not secured prior to the date of the Agreement.
Section
2.7 Litigation
Complaint
for Breach of Contract Civil Case #20CV368736 for nonpayment of rent and direct expenses since April 2020 under a sublease by
Lookingglass Cyber Solutions, Inc. as plaintiff dated July 27, 2020. The Company responded with an answer to the complaint asserting
defenses on September 14, 2020. Total estimated unpaid rent and direct expenses under the sublease through October 31, 2020 is
$471,929.50 and through the term of the sublease is $2,019,732.90. This disclosure is referred to as the “Landlord Dispute.”
In
October 2020, the Company notified Kastech Company/ImaginX (“Kastech”) that Kastech (i) was misrepresenting
itself as a reseller of the zSpace trademarked products and (ii) had been making unauthorized use
of zSpace trademarks in association with the marketing or sale of zSpace products and/or Kastech products and services.
Kastech is in the process of curing that infringement and its activities relating to the sale of zSpace products is being monitored
on an ongoing basis.
Section
2.8 Intellectual Property
(e)
Reference
is made to Annex 2.8(e) attached hereto.
(f)
Reference
is made to Annex 2.8(f) attached hereto.
Section
2.10 Agreements; Actions
(a)(i)
As
of November 24, 2020, the Company has amounts due in excess of $100,000 to each of the following trade creditors invoiced for
the purchase of hardware and software products or components and Company expenses due under a bank credit card facility.
In
addition, the Company has issued purchase orders in excess of $100,000 to each of the following suppliers.
The
Company processed a credit for the return of products sold to a customer in a preliminary amount of $335,665.05. The Company and
the customer are in the process of finalizing the amount and Company’s refund payment schedule.
Reference
is made the Company’s employee compensation obligations as identified on the Financial Statements as of the Balance Sheet
Date.
(a)(ii)
| · | Product
Purchase Agreement dated March 1, 2007, by and between the Company and In-Q-Tel, Inc., as amended on February 28, 2008 and October
19, 2009 (the “In-Q-Tel Product Purchase Agreement”). |
| · | Joint
Development Agreement entered into as of June 25, 2010 with Chimei Innolux Corporation and the Company. |
| · | Supply
Agreement entered into as of February 1, 2012 with Chimei Innolux Corporation. |
| · | Manufacturing
Services Agreement entered into as of July 24, 2013 with Chimei Innolux Corporation. |
| · | Product
Manufacturing Agreement entered into as of October 22, 2013 with Kaedar Electronics (Kunshan) Co. Ltd. |
| · | Development
Kit License and Purchase Agreement entered into as of May 04, 2011 with Valve Corporation and the Company. |
| · | Technology
License Agreement entered into as of August 29, 2011 between NaturalPoint, Inc. and the Company. |
| · | Development
Services Agreement entered into as of October 31, 2014 with Cyber Anatomy Corporation. |
| · | Software
Resale Agreement entered into as of October 31, 2014 with Cyber Anatomy Corporation, as amended. |
| · | Software
Sales Representation Agreement with NGRAIN (Canada) Corporation, Inc. dated July 15, 2014. |
| · | Software
Resale Agreement entered into as of June 11, 2015 with Leopoly Ltd., as amended. |
| | · | Software Resale Agreement entered into
as of June 26, 2015 with Corinth. |
| · | Software
License Agreement entered into as of July 28, 2015 with Sidekick Ltd. |
| · | OEM
Master License entered into as of May 1, 2015 with Microsoft Corporation. |
| · | Image
and Digital Media License Agreement entered into as of August 15, 2016 with Seiko Holdings Corporation. |
| · | License
Agreement entered into as of June 24, 2016 with BioDigital, Inc., as amended. |
| · | Unity
Technologies Software License agreement entered into as of March 7, 2016 with Unity Technologies ApS., as amended. |
| · | Visible
Body App Development Agreement entered into as of December 30, 2015 with Argosy Publishing, Inc. d.b.a. Visible Body, as amended. |
| · | Software
Resale Agreement entered into as of December 30, 2015 with Argosy Publishing, Inc. d.b.a. Visible Body, as amended. |
| · | License
and Collaboration Agreement entered into as of January 1, 2016 with GeoGebra gmbH. |
| · | Software
Resale Agreement entered into as of October 17, 2016 with Vizitech U.S.A., as amended. |
| · | 3D
Content Sales and Distribution Agreement entered into as of September 30, 2014 with Zygote Media Group, Inc., as amended. |
| · | Development
Services Agreement entered into as of July 9, 2018 with BlocksCAD, Inc. |
| · | Development
Services Agreement entered into as of November 2, 2018 with Tabeltopia, Inc., as amended. |
| · | Development
Services Agreement entered into as of May 5, 2018 with Labster ApS., as amended. |
| · | Development
Services Agreement entered into as of April 18, 2018 with Want2B, SL., as amended. |
| | · | Development Services Agreement entered
into as of November 7, 2018 with Beijing Ranier Software Technology Co. Ltd. |
| · | Development
Services Agreement entered into as of January 19, 2016, as amended with Leopoly Ltd., as amended. |
| · | Software
Resale Agreement entered into as of November 8, 2020 with Labtech International, Ltd. |
| | · | Development Services Agreement entered
into as of February 1, 2020 as amended with Labtech International, Ltd. |
| · | Software
Resale Agreement entered into as of February 24, 2020 with Mimbus, Inc., as amended. |
| | · | Software Resale Agreement entered into
as of October 87, 2020 with EchoPixel, Inc. |
| · | Software
Resale Agreement entered into as of January 1, 2019 with Jiangxi Kmax Industrial Co., Ltd., as amended. |
| · | Software
Resale Agreement entered into as of November 8, 2020 with Mimbus, Inc., as amended. |
| | · | Software Resale Agreement entered into
as of August 1, 2020 with Certify-Ed, LLC. |
| · | Software
Resale Agreement entered into as of November 8, 2020 with Mimbus, Inc |
| · | Software
Resale Agreement entered into as of June 26, 2020 with Rafael Izquierdo, as amended. |
| | · | Manufacturing and Supply Agreement entered
into as of August 1, 2020 with Darwin Precisions Corporation. |
| · | Software
Resale Agreement entered into as of November 8, 2020 with Mimbus, Inc., as amended. |
| · | Manufacturing
and Supply Agreement entered into as of September 1, 2019 with Truly Semiconductors Limited. |
| · | Software
Resale Agreement entered into as of December 3, 2019 with MEL Science Ltd. |
| | · | Product Resale Agreement entered into as
of December 1, 2019 with NOCTI. |
| · | Distribution
Agreement entered into as of October 28, 2020 with Ingram Micro Trading (Shanghai) Co., Ltd., as amended. |
| · | Product
Distribution Agreement entered into as of October 28, 2020 with Ingram Micro Trading (Shanghai) Co., Ltd., as amended. |
| · | Product
Distribution Agreement and Logistics Terms Contract entered into as of October 1, 2020 with DS Impex, Ltd. |
| · | The
Company has agreed in principle and is final negotiations of definitive Software Transfer Agreement for the purchase of software
source code from Vizitech USA, LLC. |
(a)(iii)
The
Company is in discussions with multiple third parties for the assembly, manufacture, license/sale of certain intellectual property
and/or distribution of the AIO product under the third party’s brand within the P.R.C. The outcome of these discussion may
include providing AIO product sales exclusivity in the P.R.C. to one of these third parties.
(a)(iv)
The
Company provides indemnification to its channel sales partners (“CER”) that have entered into Certified Education
Reseller Agreements for intellectual property infringement Claims. The Company, at its own expense, agrees to defend or settle
any suit or proceeding (“Claim”) that is instituted against CER to the extent such Claim alleges that any product
sold by the Company infringes any duly issued patent or copyright of the United States and shall pay all damages awarded therein
against CER or agreed upon in settlement by the Company; provided that certain notice and control requirements are met to enable
the Company to defend or settle any such Claim.
(b)(i)
The
following is all of the Company’s indebtedness existing as of November 24, 2020, other than ordinary course accounts payable
and purchase obligations as disclosed in Section 2.10(a)(i).
|
Company |
Lender |
Name of
Agreement/
Description |
Outstanding Balance /
Availability |
Collateral
Security |
|
zSpace, Inc. |
Comerica Bank |
Credit Card Facility in an amount of
$100,000 |
$30,257.53 Bal
$69,742.57 Avl |
Cash collateral maintained in Comerica
Bank deposit account #1893955607 |
|
zSpace, Inc. |
Western Alliance Bank |
Credit Card Facility in an amount of
$200,000 |
$65,901.70 Bal
$134,098.30Avl |
Cash collateral maintained in Western
Alliance Bank deposit account #8723986694 |
| zSpace, Inc. |
bSpace Limited |
LSA Promissory Notes, as amended |
$31,466,666.67 (as of November 5, 2020) |
Secured |
| zSpace, Inc. |
Kuwait Investment Authority |
Promissory Note |
$5,244,863.01 |
Unsecured |
| zSpace, Inc. |
Gulf Islamic Investments LLC |
Fee Letter |
$474,250.00 (as of November 5, 2020) |
Secured |
| zSpace, Inc. |
East West Bank |
U.S. Small Business Administration Paycheck
Protection Program (PPP) Loan |
$2,401,306.83 |
Unsecured |
Reference
is made to the disclosures for Sections 2.10(a)(i) and 2.10(a)(iii) and the September 30, 2020 Balance Sheet.
Section
2.11 Certain Transactions
Management
Bonus Plan.
Change
in Control Severance Agreements by and between the Company and each of Paul Kellenberger and Joe Powers.
Reference
is made to the agreements and transactions contemplated by the Equity Restructuring and Debt Restructuring.
Section
2.13 Property
The
Company is in default in making payments totaling $4,393.67 under an equipment lease with TIAA Commercial Finance, Inc. for a
multi-function printer/copier.
Reference
is made to the Landlord Dispute.
Section
2.14 Financial Statements
Reference
is made to the disclosure for Section 2.10(a)(i) relating to purchase orders.
Reference
is made to the disclosure for Section 2.16(b) relating to certain payroll matters.
Section
2.15 Changes
(d)
Reference
is made to disclosure for Section 2.7.
Reference
is made to certain agreements listed in Section 2.10.
Management
Bonus Plan.
Equity
Restructuring and Debt Restructuring. The Company’s total liabilities as of the date of the Balance Sheet Date are $53,073,938
and exceed the Company’s assets by $36,715,715. The Company’s current cash balance plus additional net proceeds from
the Convertible Note is estimated to provide operating funds until December 15, 2020.
Section
2.16 Employee Matters
(b)
The
Company’s payroll service provider made an error in determining taxable wages requiring amendment to the Company’s
2019 941 Quarterly Federal Tax Returns (2019 941-x). The 2019 941-x has not been filed and is expected to show taxes due of approximately
$140,000.
In
February 2020, the Company filed a Voluntary Correction Program submission to the Internal Revenue Service (IRS) to correct a
401(k)plan compliance matter related to participant eligibility for plan years 2017 - 2019. The IRS approved the submission on
September 24, 2020. The amount of the correction for the failure in the amount of $46,723.52 is unpaid.
Compensation
not reflected in the Financial Statements at the Balance Sheet Date for the difference between 75% (reduced-time) and 100% (full-time)
work levels is due to Paul Kellenberger, Joe Powers, Ron Rheinheimer and Mike Harper for employment between August 16, 2020 and
November 15, 2020 where services were performed at the full-time level but paid at the reduced-time level.
(c)
Change
in Control Severance Agreements by and between the Company and each of Paul Kellenberger and Joe Powers.
Section
2.17 Tax Returns and Payments
Reference
is made to the disclosures for Section 2.16.
Section
2.18 Insurance
The
Company has in place a Directors & Officers, Employment Practices and Fiduciary Insurance Policy that is in effect until April
29, 2021. As a result of the transactions contemplated by the Equity Restructuring and Debt Restructuring, this policy will end
as a result of the associated change in control. As a result, a run-off period policy will be purchased to cover potential claims
for the Company’s current board directors and officers. The cost of this policy will be $189,819 to be paid on or before
closing of the transactions contemplated by the Equity Restructuring and Debt Restructuring.
Exhibit
2.2(c)
| First Name |
Last Name |
Hire / Service Date |
Job Title |
ISO |
Shares |
Exercise Price |
Residence |
Vesting Commencement Date |
Vesting Schedule |
| Guan Rong (Peter) |
Wu |
01/15/18 |
Manufacturing Quality Engineer |
NSO |
1,500 |
Pending |
China |
Service Start Date |
1 |
| Lan (Shirley) Shuxian |
Lan Lan |
02/01/2018* |
Marketing Director |
NSO |
1,500 |
Pending |
China |
Date of Hire |
1 |
| Mao (Alyssa) Xiao Qin |
Mao |
06/19/2018* |
Marketing Specialist |
NSO |
750 |
Pending |
China |
Date of Hire |
1 |
| Shang Jia |
Shang |
02/01/2018* |
Education Manager |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| Qiao Zirui |
Qiao |
02/01/2018* |
Education Specialist |
NSO |
750 |
Pending |
China |
Service Start Date |
1 |
| Li Xing |
Li |
02/01/2018* |
Regional Sales Director |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| Ren Guohua |
Ren |
02/01/2018* |
Regional Sales Director |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| Chen Changsen |
Chen |
02/01/2018* |
Regional Sales Director |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| Zhuang Chengming |
Zhuang |
02/01/2018* |
Regional Sales Director |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| ChengFeng (Ella) |
Zhang |
05/09/2018 |
Logistics & Fulfillment Manager |
ISO |
750 |
Pending |
CA |
05/09/2018 |
1 |
| Tara |
Choy |
05/16/2018 |
Director, HR & Administration |
ISO |
7,500 |
Pending |
CA |
05/16/2018 |
1 |
| Diahann |
Beach |
08/01/2018 |
Office Administrator |
ISO |
750 |
Pending |
CA |
08/01/2018 |
1 |
| Hua |
Guo |
08/13/2018 |
Visual/UX Designer |
ISO |
750 |
Pending |
CA |
08/13/2018 |
1 |
| Christian |
Larsen |
09/04/2018 |
Senior Software Engineer |
ISO |
2,500 |
Pending |
CA |
09/04/2018 |
1 |
| Kamilah |
Williams |
09/17/2018 |
QA Tester-Jr. |
ISO |
750 |
Pending |
CA |
09/17/2018 |
1 |
| Hsien-Hui |
Cheng |
N/A |
Sr. Display Engineer |
ISO |
975 |
Pending |
CA |
06/01/2018 |
2 |
| Bryanna |
Giacomelli |
11/01/2018 |
Field Sales Coordinator |
ISO |
750 |
Pending |
CA |
11/01/2019 |
1 |
| Vinodh |
Nedyavila |
11/15/2018 |
Demand Generation Manager |
ISO |
750 |
Pending |
CA |
11/15/2018 |
1 |
| Marla |
Byrd |
11/15/2018 |
CSM & Account Specialist |
ISO |
1,875 |
Pending |
GA |
11/15/2018 |
1 |
| Ryan |
Jones |
11/26/2018 |
Software Engineer |
ISO |
1,250 |
Pending |
CA |
11/26/2018 |
1 |
| Delynda |
Dickson |
12/17/2018 |
PD Program Manager |
ISO |
1,875 |
Pending |
AZ |
12/17/2018 |
1 |
| Alyssa |
Brown |
02/25/2019 |
Sr. CSM & Account Specialist |
ISO |
1,875 |
Pending |
CA |
02/25/2019 |
1 |
| Nikki |
Lester |
04/01/2019 |
CTE Specialist |
ISO |
1,875 |
Pending |
CO |
04/01/2019 |
1 |
| Matthew |
Gilbert |
04/16/2019 |
Sr Software Engineer |
ISO |
2,500 |
Pending |
FL |
04/16/2019 |
1 |
| Timothy |
Partee |
05/01/2019 |
Sr Software Engineer |
ISO |
2,500 |
Pending |
NM |
05/01/2019 |
1 |
| Jimmy |
Kennedy |
06/17/2019 |
Customer Service Engineer |
ISO |
750 |
Pending |
CA |
06/17/2019 |
1 |
| David |
Cipres |
06/17/2019 |
Graphic Designer |
ISO |
750 |
Pending |
CA |
06/17/2019 |
1 |
| Clifford |
Champion |
N/A |
Director, Product Management |
ISO |
1,500 |
Pending |
CA |
05/01/2019 |
2 |
| Ou Tianhui |
Ou |
N/A |
General Manager China |
NSO |
12,500 |
Pending |
China |
Date of Grant |
2 |
| Trong |
Doan |
07/01/2019 |
Sr Director, QA |
ISO |
2,500 |
Pending |
CA |
07/01/2019 |
1 |
| Wang |
Fu |
07/01/2019 |
Regional Sales Director |
NSO |
1,000 |
Pending |
China |
Service Start Date |
1 |
| |
57,725 |
|
*Pending
review of contractual start date
Vesting
Schedules:
| (1) | Twenty-five
percent (25%) of the total number of shares subject to such option shall vest on the
date that is twelve (12) months after the Vesting Commencement Date, and one forty-eighth
(1/48th) of the total number of shares subject to the option shall vest each month thereafter,
so that all such shares shall be fully vested on the fourth anniversary of the Vesting
Commencement Date, subject to the Optionee’s continuing to be a Service Provider
(as defined in the Plan) of the Company. The option shall be exercisable as it vests. |
| (2) | One
thirty-sixth (1/36) of the shares subject to the option will vest in equal monthly installments
following the vesting commencement date. |
Annex
2.8(e)
Trademarks
| Trademark |
Application or
Registration
Number |
Application or
Registration Date |
Owner |
| ZSPACE |
USA 4038815 |
October 11, 2011 |
zSpace, Inc. |
– Class 9 |
China 30132144A |
March 21, 2019 |
zSpace, Inc. |
 – Class 41 |
China 30132143A |
March 21, 2019 |
zSpace, Inc. |
| zSpace – Class 9 |
China 30132141A |
March 21, 2019 |
zSpace, Inc. |
Patents
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
|
Three Dimensional Horizontal Perspective
Work Station |
11/429,829 |
7907167 |
USA |
|
Modifying Perspective of Stereoscopic
Images Based on Changes in Viewpoint |
13/019,384 |
8717423 |
USA |
|
Modifying Perspectives of a 3D Scene
Based on Changes in User to Display |
14/268,386 |
9292962 |
USA |
| 15/074,233 |
9684994 |
USA |
|
Presenting a View Within a Three Dimensional
Scene |
12/797,958 |
8717360 |
USA |
| Capturing Views within a Three Dimensional Scene |
14/268,613 |
9202306 |
USA |
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
|
Presenting a View Within a Three
Dimensional Scene |
14/952,397 |
9824485 |
USA |
|
Detection of Partially Obscured
Objects in Three Dimensional Stereoscopic Scenes |
14/198,252 |
9299183 |
USA |
| 15/078,326 |
9704285 |
USA |
|
Tools for use within a Three
Dimensional Scene |
13/182,305 |
8643569 |
USA |
|
Three-Dimensional Tracking
of a User Control Device in a Volume
|
13/333,299 |
8970625 |
USA |
| 201180067594.2 |
CN103443746B |
China |
| 201611142538.1 |
CN106774880B |
China |
|
11850825.8
|
2656181
|
EPO National Filings |
| |
Denmark |
|
| Finland |
| Italy |
| Netherlands |
| Norway |
| Spain |
| Sweden |
| Germany |
| France |
| UK |
| 14/635,654 |
9201568 |
USA |
| 19190922.5 |
|
EPO |
| Three Dimensional Collaboration |
13/867,245 |
9595127 |
USA |
| Liquid Crystal Variable |
13/110,563 |
8786529 |
USA |
| |
|
|
|
|
|
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
| Drive Voltage |
14/335,708 |
9134556 |
USA |
| 14/838,248 |
9958712 |
USA |
| Optimizing Stereo Video Display |
13/481,243 |
9736466 |
USA |
| Extended Overdrive Tables and Use |
13/597,499 |
9161025 |
USA |
| Tightly Coupled Interactive Stereo Display |
13/300,424 |
9354718 |
USA |
| Stylus with Three Distinct Button Configurations |
29/437,600 |
D719162 |
USA |
|
Head Tracking Eyewear System |
13/679,630 |
9106903 |
USA |
| 14/822,384 |
9473763 |
USA |
| 15/187,164 |
9706191 |
USA |
| Indirect 3D Scene Positioning Control |
14/358,762 |
9292184 |
USA |
| 15/075,725 |
9864495 |
USA |
|
Operations in Three Dimensional
Display System |
13/926,200 |
9829996 |
USA |
| Three Dimensional Display System and Use |
14/854,458 |
9886102 |
USA |
| Multi-Plane Horizontal Perspective Display |
11/141,649 |
7796134 |
USA |
| Brain Balancing by Binural Beat |
11/292,376 |
7769439 |
USA |
|
Methods for Automatically Assessing
User Handedness in Computer Systems and the Utilization of Such Information |
14/072,933
|
9841821
|
USA
|
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
|
The Use of
Modified Driving Waveform to Eliminate the Acoustic Noise During Driving of a Liquid Crystal Polarization Rotator |
14/103,002 |
9958695 |
USA |
|
The Use of
the Cloud in 3D-Based Design and Collaboration |
14/085,272 |
890395 |
USA |
|
Systems and
Methods for Cloud Based 3D Design and Collaboration |
14/538,300 |
9153069 |
USA |
| 14/837,477 |
9342917 |
USA |
| 14/837,669 |
9286713 |
USA |
| Zero Parallax Drawing within a Three Dimensional Display |
14/257,623 |
10019130 |
USA |
| 16/003,165 |
10739936 |
USA |
| Non-Linear Navigation of a Three Dimensional Stereoscopic Display |
14/257,854 |
9380295 |
USA |
| 15/172,732 |
9554126 |
USA |
|
Enhancing the
Coupled Zone of a Stereoscopic Display |
14/257,105 |
9681122 |
USA |
| Enhancing the Coupled Zone of a Stereoscopic Display |
14/335,455 |
9123171 |
USA |
| 14/838,189 |
9467685 |
USA |
| User Input Device Camera |
14/792,844 |
10321126 |
USA |
| Continuation. |
16/394,406 |
|
USA |
|
A Head Tracked
Stereoscopic Display System that Utilizes Light Field Type Data |
14/882,989 |
9549174 |
USA |
| Continuation.
Stereoscopic Display System that Utilizes Light Field Type Data |
15/407,028 |
9848184 |
USA |
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
|
The
Configurations and Applications of a Virtual Interrogation Plane Graphical Surface when used in Association with a
Stylus-based Stereoscopic Display System |
14/880,007 |
9703400 |
USA |
| 3D User Interface |
15/355,240 |
|
USA |
|
3D User Interface
- 360- degree Visualization of 2D Webpage Content |
15/355,298 |
10271043 |
USA |
| 16/374,100 |
10587871 |
USA |
| 16/698,119 |
|
USA |
| 3D User Interface - Non- native Stereoscopic Image Conversion |
15/355,333 |
10127715 |
USA |
| 16/157,305 |
10623713 |
USA |
|
Personal Electronic
Device with a Display System |
15/223,952 |
10019849 |
USA |
|
Integration
of Selected Real World Conditions into the Imagery Presented by a 3D Display System |
15/298,956 |
10019831 |
USA |
|
Pi-cell Polarization
Switch for a Three Dimensional Display System |
15/650,117 |
10180614 |
USA |
| 16/203,048 |
10613405 |
USA |
| Stereoscopic
3D Webpage Overlay |
15/406,390 |
10257500 |
USA |
| TITLE |
APPLICATION
NUMBER |
PATENT NUMBER |
COUNTRY |
| Transitioning Between 2D and Stereoscopic 3D Webpage Presentation |
15/406,440 |
10324736 |
USA |
| 16/393,450 |
|
USA |
| Segmented Backlight for Dynamic Contrast |
15/872,188 |
10146004 |
USA |
| 16/159,853 |
10338303 |
USA |
| Replacing 2D Images with 3D Images |
15/947,140 |
10523921 |
USA |
| Replacing 2D Images with 3D Images |
PCT/US19/25937 |
10701346 |
USA |
| Identifying Replacement 3D Images for 2D images via Ranking Criteria |
15/947,180 |
10523922 |
USA |
|
Identifying
Replacement 3D Images for 2D images via Ranking Criteria |
PCT/US19/25939 |
10701347 |
USA |
|
Replacing 2D
objects with 3D objects in a web page |
PCT/US2019/025937 |
|
USA |
| IIE202473 |
|
China |
| 19782054.1 |
|
EPO |
| PCT/US2019/025939 |
|
USA |
| IIE202483 |
|
China |
| 19782055.8 |
|
EPO |
| Passive stylus with hand gestures |
16/683,717 |
|
USA |
| PCT/US20/43038 |
|
USA |
| Pi Cell Drive Waveform |
16/712,011 |
|
USA |
Annex
2.8(f)
EXHIBIT
D
FORM
OF AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
AMENDED
AND RESTATED VOTING AND RIGHTS AGREEMENT
This
Amended and Restated Voting and Rights Agreement (this “Agreement”) is made and entered into as of November_
, 2020 (the “Effective Date”) by and among zSpace, Inc., a Delaware Company (the “Company”),
the parties listed on Schedule A hereto (each a “Common Stockholder” and together the “Common
Stockholders”) and the parties listed on Schedule B hereto (each an “Investor”),
including dSpace Investments Limited (“dSpace”). Hereinafter, a Common Stockholder or an Investor may
be referred to as a “Holder”, or if plural, “Holders”.
RECITALS
A. Certain
of the Holders hold shares of the Company’s capital stock and are parties to that certain Amended and Restated Voting Agreement
with the Company dated May 9, 2019, as amended from time to time (the “Prior Agreement”, and such Holders,
the “Prior Holders”);
B. Certain
of the Investors and the Company are parties to that certain Series A Preferred Stock Purchase Agreement dated as of the date
hereof (the “Purchase Agreement”) relating to the issuance and sale of shares of the Company’s
Series A Preferred Stock (the “Series A Preferred Stock” or the “Preferred Stock”);
C. The
obligations of the Company and certain of the Investors under the Purchase Agreement are conditioned, among other things, upon
the execution and delivery of this Agreement, and the Company and the undersigned Prior Holders and the Company desire to amend
and restate the Prior Agreement as provided herein; and
D. The
Prior Agreement provides that any term thereof may be amended and the observance of any term thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, (ii)
the holders of at least a majority of all shares of Common Stock held by the Holders (as defined in the Prior Agreement), and
(iii) the holders of at least a majority of the Company’s Common Stock, issued or issuable upon conversion of the Preferred
Stock (as defined in the Prior Agreement), and the undersigned parties to this Agreement hold a sufficient number of shares to
meet these requirements.
NOW
THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:
1. SIZE
OF BOARD OF DIRECTORS. During the term of this Agreement, each Holder, in his/her/its capacity as a stockholder, agrees
to vote all Shares now or hereafter directly or indirectly owned (of record or beneficially) by such Holder to maintain the authorized
number of members of the Board of Directors of the Company (the “Board”) at (i) prior to December 15,
2020, four (4) directors, (ii) on and following December 15, 2020 if there is an Arowana Related Closing (as defined in the Purchase
Agreement) on or after December 15, 2020, seven (7) directors, or (iii) on and after December 15, 2020, if there is no Arowana
Funding (as defined in the Purchase Agreement), such number of directors as directed by dSpace. For purposes of this Agreement,
the term “Shares” shall mean and include any securities of the Company that the holders of which are entitled to vote
for members of the Board, including, without limitation, all shares of Common Stock and Preferred Stock, by whatever name called,
now owned or subsequently acquired by a Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications,
recapitalizations, similar events or otherwise.
| 2. | ELECTION
OF BOARD OF DIRECTORS. |
2.1 Voting;
Board Composition. During the term of this Agreement, each Holder agrees to vote all Shares now or hereafter directly
or indirectly owned (of record or beneficially) by such Holder, in such manner as may be necessary to elect (and maintain in office)
as members of the Board:
(a) Prior
to December 15, 2020, (i) the Company’s current serving Chief Executive Officer (the “CEO Designee”)
to serve as one of the Common Directors (as defined in the Company’s Amended and Restated Certificate of Incorporation);
(ii) one (1) individual designated by Artiman Ventures from time to time in a signed writing delivered to the Company to serve
as one of the Common Directors (the “Artiman Designee”); and (iii) two (2) individuals, if any, designated
by dSpace from time to time in a signed writing delivered to the Company to serve as Remaining Directors (as defined in the Company’s
Amended and Restated Certificate of Incorporation) (the “dSpace Initial Designees”). For purpose of
clarity, dSpace shall have the right but not obligation to designate the dSpace Initial Designees.
(b) On
and following December 15, 2020, if there is an Arowana Related Closing on or prior to such date, (i) the CEO Designee to
serve as one of the Common Directors; (ii) for so long as Artiman Ventures, Kalpendu Shastri and 44Zspace LLC, or their
respective affiliates, collectively continue to hold shares of the Company’s capital stock that represent at least
twenty-five percent (25%) of the Company’s total outstanding capital stock, the Artiman Designee to serve as one of the
Common Directors; (iii) three (3) individuals designated by dSpace from time to time in a signed writing delivered to the
Company to serve as Preferred Directors (as defined in the Company’s Amended and Restated Certificate of Incorporation)
(the “dSpace Preferred Designees”); provided , that dSpace shall, in its discretion, in a
signed writing delivered to the Company, designate one of such dSpace Preferred Designees to be a “Super-Voting
Preferred Designee” for purposes of the additional voting power conferred on such director in the Amended and
Restated Certificate of Incorporation; (iv) one (1) individual designated by the Board, who shall be independent and satisfy
the director qualification requirements of the Australia Corporations Act 2001 and the listing rules of the Australian
Securities Exchange or such other exchange as approved by the Board, to serve as a Remaining Director; and (v) one individual
nominated by dSpace who shall also be acceptable to the majority of the non dSpace Preferred Designees, such consent not to
be withheld unreasonably, who shall be independent and satisfy the director qualification requirements of the Australia
Corporations Act 2001 and the listing rules of the Australian Securities Exchange or such other applicable corporation codes
or rules of other exchanges as approved by the Board for so long as the Company expects to pursue any such listing,
such nominee to serve as a Remaining Director. For purpose of clarity, dSpace shall have the right but not obligation to
designate the dSpace Preferred Designees and shall have the right to nominate but not obligation to nominate a Remaining
Director as provided in Section 2.1(b)(v).
(c) On
and following December 15, 2020, if there is no Arowana Funding on or before December 15, 2020, any and all such individuals designated
from time to time in a writing delivered to the Company and signed by dSpace.
(d) For
purposes of this Agreement (i) any individual who is designated for election to the Board pursuant to this Section 2.1 is hereinafter
referred to as a “Board Designee”; and (ii) any individual, entity, or group of individuals and/or entities
who has the right to designate or nominate one (1) or more Board Designees for election to the Board pursuant to this Section
2.1 is hereinafter referred to as a “Designator” or as “Designators”, as applicable.
All Holders agree to execute any written consents required to perform the obligations of this Agreement and the Company agrees
at the request of any Designator to call a special meeting of stockholders for the purpose of electing directors
2.2 Initial
Board Members. As of the date of this Agreement and prior to the Initial Closing, the initial CEO Designee shall be Paul
Kellenberger, the initial Artiman Designee shall be Yatin Mundkur and the initial dSpace Initial Designees shall be undesignated.
2.3 Changes
in Board Designees. From time to time during the term of this Agreement, a Designator or Designators may, in their sole
discretion:
(a) elect
to remove from the Board any incumbent Board Designee who occupies a Board seat for which such Designator or Designators are entitled
to designate the Board Designee under Section 2.1, provided that such removal is effected in the manner allowed by applicable
law, the Company’s then-effective Certificate of Incorporation and Bylaws; and/or
(b) designate
a new Board Designee for election to a Board seat for which such Designator or Designators are entitled to designate the Board
Designee under Section 2.1 (whether to replace a prior Board Designee or to fill a vacancy in such Board seat); provided
such removal and/or designation of a Board Designee is approved in a writing signed by Designators who are entitled to designate
such Board Designee under Section 2.1, in which case such election to remove a Board Designee and/or elect a new Board Designee
will be binding on all such Designators. In the event of such a removal and/or designation of a Board Designee under this Section
2.3, the Holders shall vote their Shares as provided in Section 2.1 to cause: (a) the removal from the Board of the Board Designee
or Designees so designated for removal by the appropriate Designators or Designators; and (b) the election to the Company’s
Board Directors of any new Board Designee or Designees so designated for election to the Board by the appropriate Designator or
Designators.
2.4 No
“Bad Actor” Designees. Each Designator hereby represents and warrants to the Company that, to such
Designator’s knowledge, none of the “bad actor” disqualifying events described in Rule 506(d)(1)(i)-(viii)
promulgated under the Securities Act of 1933, as amended (the “Securities Act”) (each, a
“Disqualification Event”), is applicable to such Designator’s initial Board Designee named
above except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable.
Any Board Designee to whom any Disqualification Event is applicable, except for a Disqualification Event as to which Rule
506(d)(2)(ii) or (iii) or (d)(3) is applicable, is hereinafter referred to as a “Disqualified
Designee”. Each Designator hereby covenants and agrees (A) not to designate or participate in the designation
of any Board Designee who, to such Designator’s knowledge, is a Disqualified Designee and (B) that in the event such
Designator becomes aware that any individual previously designated by any such Designator is or has become a
Disqualified Designee, such Designator shall as promptly as practicable take such actions as are necessary to remove such
Disqualified Designee from the Board and designate a replacement designee who is not a Disqualified Designee.
2.5 Addition
of Parties to this Agreement. The Company agrees that until the termination of this Agreement, it will cause each holder
(including for purposes of this calculation all shares issuable to such holder upon exercise of options, warrants or other rights
to purchase capital stock of the Company or upon conversion of preferred Stock) of at least 1% of the shares of the Company’s
Common Stock outstanding to become party to this Agreement and have its, his or her name listed as such on Schedule A hereto
and thereby acquiring such person’s agreement to be bound by this Agreement, by the execution of an additional signature
page to this Agreement by the Company and such holder without the requirement to seek consent of the parties hereto.
2.6 Irrevocable
Proxy and Power of Attorney. Each party to this Agreement hereby constitutes and appoints as the proxies of the party
and hereby grants power of attorney to (x) a designee of dSpace for any action on or prior to the issuance of Series A Preferred
Stock, (y) a designee of the Board or (z) the President of the Company, and each of them, with full power of substitution, with
respect to the matters set forth herein, including, without limitation, votes regarding the size and composition of the Board
pursuant to Section 1 and Section 2, votes to increase authorized shares pursuant to Section 2 hereof, and votes regarding the
approval of any Acquisition of the Company as set forth herein and hereby authorizes each of them to represent and vote, if and
only if the party (i) fails to vote within five (5) business of a request by the Company or dSpace, or (ii) attempts to vote (whether
by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, all of such party’s
Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and
provisions of this Agreement or the increase of authorized shares pursuant to and in accordance with the terms and provisions
of this Agreement or in favor of any Acquisition of the Company as provided herein or to take any action reasonably necessary
to effect the terms of this Agreement. Each of the proxy and power of attorney granted pursuant to this Section 2.6 is given in
consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated
by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Agreement terminates
or expires pursuant to Section 7 hereof. Each party hereto hereby revokes any and all previous proxies or power of attorney with
respect to the Shares and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 7 hereof,
purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting
trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly,
to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any
of the matters set forth herein.
2.7 No
Liability for Election of Recommended Directors. No Holder, including dSpace nor any Affiliate thereof, shall have any
liability as a result of designating a person for election as a director for any act or omission by such designated person in
his or her capacity as a director of the Company, nor shall any Holder have any liability as a result of voting for any such designee
in accordance with the provisions of this Agreement.
2.8 Vote
to Increase Authorized Common Stock. Each Holder agrees to vote or cause to be voted all Shares owned by such Holder,
or over which such Holder has voting control, from time to time and at all times, in whatever manner as shall be necessary to
increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common
Stock available for conversion of all of the shares of Preferred Stock outstanding at any given time.
| 3. | DRAG
ALONG OBLIGATIONS. |
3.1 General.
If at any time during the term of this Agreement, the Board and dSpace approve a proposed Acquisition (as defined below), then,
in any such event, all Holders shall be obligated to (i) be present, in person or by proxy, as a holder of shares of voting securities,
at all meetings for the vote upon any such proposed Acquisition (so as to be counted for the purposes of determining the presence
of a quorum at such meetings); (ii) vote, or give his, her or its written consent with respect to, all Shares of capital stock
now or hereafter directly or indirectly owned (of record or beneficially) by him, her or it in favor of such proposed Acquisition
and all other matters that may be necessary to consummate or are related to the Acquisition, and in opposition of any proposal
that could reasonably be expected to delay or impair the consummation of any such proposed Acquisition; and (iii) refrain from
exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to or in connection
with such proposed acquisition.
For
purposes of this Agreement, an “Acquisition” shall mean either: (a) a transaction or series of related
transactions in which a Person, or a group of related Persons, acquires from stockholders of the Company shares representing more
than fifty percent (50%) of the out-standing voting power of the Company (a “Stock Sale”); or (b) a
transaction that qualifies as a “Deemed Liquidation Event” as defined in the Restated Certificate.
3.2 Further
Actions to be Taken. For purpose of clarity, in the event the Company and dSpace approve an Acquisition as provided in
Section 3.1, then, subject to satisfaction of each of the conditions set forth in below in Section 3.3, each Holder and the Company
hereby agree:
(a) if
such transaction requires stockholder approval, with respect to all Shares that such Holder owns or over which such Holder otherwise
exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of, and
adopt, such Sale of the Company (together with any related amendment or restatement to the Restated Certificate required to implement
such Sale of the Company) and to vote in opposition to any and all other proposals that could delay or impair the ability of the
Company to consummate such Sale of the Company;
(b) if
such transaction is a Stock Sale, to sell the same proportion of shares of capital stock of the Company beneficially held by such
Holder as is being sold by the dSpace to the Person to whom dSpace proposes to sell its Shares, and, except as permitted in Section
below, on the same terms and conditions as the other stockholders of the Company;
(c) to
execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably
be requested by the Company or dSpace in order to carry out the terms and provision of this Section 3.2, including, without limitation,
executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, any associated
indemnity agreement, or escrow agreement, any associated voting, support, or joinder agreement, consent, waiver, governmental
filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances), and any
similar or related documents;
(d) not
to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any Shares of the Company owned
by such party or Affiliate in a voting trust or subject any Shares to any arrangement or agreement with respect to the voting
of such Shares, unless specifically requested to do so by the acquirer in connection with the Sale of the Company;
(e) to
refrain from (i) exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect
to such Sale of the Company, or (ii); asserting any claim or commencing any suit (x) challenging the Sale of the Company or this
Agreement, or (y) alleging a breach of any fiduciary duty of the dSpace or any affiliate or associate thereof (including, without
limitation, aiding and abetting breach of fiduciary duty) in connection with the evaluation, negotiation or entry into the Sale
of the Company, or the consummation of the transactions contemplated thereby; provided that with respect to clause (y)
in the event the Arowana Funding has closed on or before December 15, 2020, subject to the condition that such Sale has been approved
by the Board of Directors, including at least two non dSpace Preferred Designees or if there is only one non-dSpace Preferred
Designees, by such non-dSpace Designee;
(f) if
the consideration to be paid in exchange for the Shares pursuant to this Section 1.2 includes any securities and due receipt thereof
by any Holder would require under applicable law (x) the registration or qualification of such securities or of any person as
a broker or dealer or agent with respect to such securities; or (y) the provision to any Holder of any information other than
such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors”
as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Holder in lieu thereof,
against surrender of the Shares which would have otherwise been sold by such Holder, an amount in cash equal to the fair value
(as determined in good faith by the Board) of the securities which such Holder would otherwise receive as of the date of the issuance
of such securities in exchange for the Shares; and
(g) in
the event that the dSpace, in connection with such Sale of the Company, appoint a stockholder representative (the “Stockholder
Representative”) with respect to matters affecting the Holders under the applicable definitive transaction agreements
following consummation of such Sale of the Company, (x) to consent to (i) the appointment of such Stockholder Representative,
(ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations,
and (iii) the payment of such Holder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any
and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s
services and duties in connection with such Sale of the Company and its related service as the representative of the Holders,
and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Holder with respect to
any action or inaction taken or failed to be taken by the Stockholder Representative, within the scope of the Stockholder Representative’s
authority, in connection with its service as the Stockholder Representative, absent fraud, bad faith, gross negligence or willful
misconduct.
3.3 Conditions.
Notwithstanding anything to the contrary set forth herein, a Holder will not be required to comply with Section 3.1 and 3.2 above
in connection with any proposed Acquisition of the Company (the “Proposed Sale”), unless:
(a) any
representations and warranties to be made by such Holder in connection with the Proposed Sale are limited to representations
and warranties related to authority, ownership and the ability to convey title to such Shares, including, but not limited to,
representations and warranties that (i) the Holder holds all right, title and interest in and to the Shares such Holder
purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Holder in connection with the
transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Holder have been duly
executed by the Holder and delivered to the acquirer and are enforceable (subject to customary limitations) against the
Holder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into
by the Holder in connection with the transaction, nor the performance of the Holder’s obligations thereunder, will
cause a breach or violation of the terms of any agreement to which the Holder is a party, or any law or judgment, order or
decree of any court or governmental agency that applies to the Holder;
(b) such
Holder is not required to agree (unless such Holder is a Company officer or employee) to any restrictive covenant in connection
with the Proposed Sale (including, without limitation, any covenant not to compete or covenant not to solicit customers, employees
or suppliers of any party to the Proposed Sale) or any release of claims other than a release in customary form of claims arising
solely in such Holder’s capacity as a stockholder of the Company;
(c) such
Holder and its Affiliates are not required to amend, extend or terminate any contractual or other relationship with the Company,
the acquirer or their respective Affiliates, except that the Holder may be required to agree to terminate the investment-related
documents between or among such Holder, the Company and/or other stockholders of the Company;
(d) the
Holder is not liable for the breach of any representation, warranty or covenant made by any other Person in connection with the
Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach
of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations,
warranties and covenants provided by all stockholders);
(e) liability
shall be limited to such Holder’s applicable share (determined based on the respective proceeds payable to each Holder in
connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification
amount that applies equally to all Holders but that in no event exceeds the amount of consideration otherwise payable to such
Holder in connection with such Proposed Sale, except with respect to claims related to fraud by such Holder, the liability for
which need not be limited as to such Holder;
(f) upon
the consummation of the Proposed Sale (i) each holder of each class or series of the capital stock of the Company will receive
the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares
of such same class or series of stock, and if any holders of any capital stock of the Company are given a choice as to the form
of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option,
(ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred
Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Common Stock will receive
the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common
Stock, and (iv) unless waived pursuant to the terms of the Restated Certificate and as may be required by law, the aggregate consideration
receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and
Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred
Stock and the holders of Common Stock are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed
Sale is a Deemed Liquidation Event) in accordance with the Company’s Restated Certificate in effect immediately prior to
the Proposed Sale; provided, however, that, notwithstanding the foregoing provisions of this Section 3.3(f), if the consideration
to be paid in exchange for the Shares held by Holder, as applicable, pursuant to this Section 3.3(e) includes any securities and
due receipt thereof by any Holder would require under applicable law (x) the registration or qualification of such securities
or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Holder of any information
other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors”
as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Holder in lieu thereof,
against surrender of the Shares held by such Holder, as applicable, which would have otherwise been sold by such Holder, an amount
in cash equal to the fair value (as determined in good faith by the Board) of the securities which such Holder would otherwise
receive as of the date of the issuance of such securities in exchange for the Shares held by Holder, as applicable;
(g) subject
to clause (f) above, requiring the same form of consideration to be available to the holders of any single class or series of
capital stock, if any holders of any capital stock of the Company are given an option as to the form and amount of consideration
to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option; provided, however,
that nothing in this Section 3.3(g) shall entitle any holder to receive any form of consideration that such holder would be ineligible
to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable
to the Company’s stockholders.
“Affiliate”
or “Affiliated” means, with respect to any specified Investor, any other Investor who directly or indirectly,
controls, is controlled by or is under common control with such Investor, including, without limitation, any general partner,
managing member, officer or director of such Investor, or any venture capital fund now or hereafter existing which is controlled
by one or more general partners or managing members of, or shares the same management company with, such Holder.
3.4 Restrictions
on Sales of Control of the Company. No Holder shall be a party to any Stock Sale unless (a) all holders of Preferred
Stock are allowed to participate in such transaction(s) and (b) the consideration received pursuant to such transaction is
allocated among the parties thereto in the manner specified in the Company’s Restated Certificate in effect immediately
prior to the Stock Sale (as if such transaction(s) were a Deemed Liquidation Event), unless the holders of at least the
requisite percentage required to waive treatment of the transaction(s) as a Deemed Liquidation Event pursuant to the terms of
the Restated Certificate, elect to allocate the consideration differently by written notice given to the Company at least
five (5) days prior to the effective date of any such transaction
or series of related transactions.
4.1 Tag-Along
Transaction. If at any time any one or more Investors (individually and collectively, the “Majority Stockholder”)
intends to transfer shares of the Company’s capital stock representing more than fifty percent (50%) of the then outstanding
capital stock of the Company or more than fifty percent (50%) of the then outstanding voting power of the capital stock of the
Company in a sale consummated in a single transfer or a series of related transfers to a prospective purchaser or group of prospective
purchasers as part of a single transaction or group of related transactions (the “Tag-Along Transaction”),
each other Holder holding more than 300,000 shares of capital stock of the Company besides any Holder listed on Schedule 1.4 to
the Purchase Agreement (each a “Major Stockholder”) will have the right, at such Holder’s discretion,
(the “Tag-Along Right”) to participate in such Tag-Along Transaction by selling up to the number of
shares equal to the number of shares offered to be sold in the Tag-Along Transaction (the “Offered Shares”
to be sold by the Majority Stockholder multiplied by a fraction, the numerator of which is the number of shares held by such Major
Holder (calculated on as converted basis), and the denominator of which is the total number of shares held by all Holders (without
giving effect to any sale of the shares subject to the Tag-Along Transaction). The Majority Stockholder or the Company shall provide
notice of the Tag-Along Transaction to each Major Stockholder (the “Offer Notice”). Each Major Stockholder
desiring to participate in the Tag-Along Transaction shall send notice of such election to the Company and the Majority Stockholder
within ten (10) business days after the date of the Offer Notice (the “Co-Sale Period”).
4.2 Closing.
The closing of the Tag-Along Transaction should not be more than thirty (30) business days after expiration of the Co-Sale Period.
Any sale of shares to the proposed transferee shall be made on the terms and conditions stated in the Offer Notice. Any offer
made by Majority Stockholder to the Major Stockholders Holders may be withdrawn by the Majority Stockholder.
4.3 Exceptions.
The provisions of this Section 5 shall not apply to a transfer of Shares to the following:
(i) any
pledge of Shares made by the Majority Stockholder pursuant to a bona fide loan transaction which creates a mere security
interest; or
(ii) any
sale or transfer of Shares between or among one or more of the Majority Stockholder or their Affiliates;
provided,
in each case, that (i) the transferring Majority Stockholder shall inform the Company, and (ii) the pledgee, transferee or donee
(each a “Permitted Transferee”) shall execute a Supplemental Signature Page and shall agree to be bound
by all of the terms of this Agreement.
4.4 Considerations.
The aggregate consideration payable to the participating selling Holders in a Tag-Along Transaction shall be allocated based on
the number of shares of Common Stock and Preferred Stock sold to the prospective transferee by each Holder as provided in Subsection
4.1, provided that if a Holder wishes to sell Preferred Stock, the price set forth in Offered Notice shall be appropriately
adjusted based on the conversion ratio of the Preferred Stock into Common Stock. In the event that the Tag-Along Transaction constitutes
an Acquisition, then the transaction documents shall provide that the aggregate consideration from such transfer shall be allocated
to the participating Holders in accordance with the Restated Certificate as if (A) such transfer were a Deemed Liquidation Event
(as defined in the Restated Certificate), and (B) the capital stock sold in accordance with the Tag-Along Transaction were the
only shares of capital stock outstanding.
4.5 Escrows.
In the event that a portion of the aggregate consideration payable to the participating Holders is placed into escrow, the terms
of the Tag-Along Transaction shall provide that (x) the portion of such consideration that is not placed in escrow (the “Initial
Consideration”) shall be allocated in accordance with the Restated Certificate as if the Initial Consideration
were the only consideration payable in connection with such transfer, and (y) any additional consideration which becomes payable
to the participating Holders upon release from escrow shall be allocated in accordance with the Restated Certificate after taking
into account the previous payment of the Initial Consideration as part of the same transfer. Notwithstanding the foregoing, in
the event that the Tag-Along Transaction constitutes an “Acquisition” (as defined above)), then the terms of
Section 3 of this Agreement shall control and apply in lieu of these provisions.
| 5. | INFORMATION
AND OBSERVER RIGHTS |
5.1 Delivery
of Financial Statements. The Company shall deliver to each Major Stockholder, upon request:
(a) as
soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company (i)
a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of
stockholders’ equity as of the end of such year, all prepared in accordance with generally accepted accounting principles
in the United States as in effect from time to time (“GAAP”) (except that such financial statements
need not contain all notes thereto that may be required in accordance with GAAP), and which statements shall be audited if available;
or
(b) as
soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet
as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements (i) may be subject
to normal year-end audit adjustments; and (ii) need not contain all notes thereto that may be required in accordance with GAAP).
(c) If,
for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such
period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial
statements of the Company and all such consolidated subsidiaries.
(d) Notwithstanding
anything else in this Subsection 5.1 to the contrary, the Company may cease providing the information set forth in this
Subsection 5.1 during the period starting with the date sixty (60) days before the Company’s good-faith estimate
of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the rules applicable
to such registration statement and related offering; provided that the Company’s covenants under this Subsection
5.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to
cause such registration statement to become effective.
5.2 Inspection.
The Company shall permit each Major Stockholder, at such Major Stockholder’s expense, to visit and inspect the Company’s
properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its
officers, during normal business hours of the Company as may be reasonably requested by the Major Stockholder; provided,
however, that the Company shall not be obligated pursuant to this Subsection 6.2 to provide access to any information
that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable
confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client
privilege between the Company and its counsel.
5.3 Confidentiality.
Each Holder agrees that such Holder will keep confidential and will not disclose, divulge, or use for any purpose (other
than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of
this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential
information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 5.3 by such Holder), (b) is or has been independently developed or conceived by such Holder without use of the Company’s
confidential information, or (c) is or has been made known or disclosed to such Holder by a third party without a breach of any
obligation of confidentiality such third party may have to the Company; provided, however, that an Holder may disclose
confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain
their services in connection with monitoring its investment in the Company; (ii) to any prospective assignee of an Holder’s
Common Stock or Preferred Stock, if such assignee agrees to be bound by the provisions of this Subsection 5.3 (iii) to
any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Holder in the ordinary course of business, provided
that such Holder informs such person that such information is confidential and directs such person to maintain the confidentiality
of such information; or (iv) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that
such Holder promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required
disclosure.
6. FURTHER
ASSURANCES. Each party hereto shall execute and deliver any further documents that may be reasonably necessary to
carry out the terms and provisions of this Agreement and agree not to vote any shares of Company’s capital stock, or to
take any other actions that would in any manner defeat, impair, be inconsistent with or adversely affect the stated
intentions of the parties as provided in this Agreement. The Company agrees to use its best efforts, within the requirements
of applicable law, to ensure that the rights granted under this Agreement are effective and that the parties enjoy the
benefits of this Agreement. Such actions include, without limitation, the use of the Company’s best efforts to cause
the nomination and election of the directors as provided in this Agreement.
| 7. | TRANSFEREES;
LEGENDS ON CERTIFICATES. |
7.1 Effect
on Transferees. Each and every transferee or assignee of any shares of capital stock of the Company from any Holder shall
be bound by and subject to the terms and conditions of this Agreement that are applicable to the transferor or assignor of such
shares, and the Company shall require, as a condition precedent to the transfer of any shares of capital stock of the Company
subject to this Agreement, that the transferee agrees in writing to be bound by, and subject to, all the terms and conditions
of this Agreement
7.2 Legend.
The Holders agree that all Company share certificates now or hereafter held by them that represent shares of capital stock of
the Company subject to this Agreement will be stamped or otherwise imprinted with a legend to read as follows:
“THE
SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS AND RESTRICTIONS WITH REGARD TO THE VOTING OF SUCH SHARES AND THEIR
TRANSFER, AS PROVIDED IN THE PROVISIONS OF A VOTING AGREEMENT, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE
COMPANY.”
8.1 Representation.
Each Holder that is a Covered Person with respect to the Company (as defined below) hereby represents that none of the
“bad actor” disqualifying events described in Rule 506(d)(1)(i)-(viii) promulgated under the Securities Act (a
“Disqualification Event”) is applicable to such Holder or any of its Rule 506(d) Related Parties,
except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. For
purposes of this Agreement, (i) “Covered Persons” are those persons or entities specified in the
first paragraph of Rule 506(d)(1) under the Act and (ii) “Rule 506(d) Related Party” shall mean
with respect to any Holder any individual, firm, corporation, partnership, association, limited liability company, trust or
any other entity that is a beneficial owner of such Holder’s securities for purposes of Rule 506(d) of the Securities
Act.
8.2 Covenant.
Each Holder that is or becomes a Covered Person with respect to the Company hereby agrees that it shall notify the Company
promptly in writing in the event a Disqualification Event becomes applicable to such Holder or any of its Rule 506(d) Related
Parties, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is
applicable.
9. ENFORCEMENT
OF AGREEMENT. Each of the Holders acknowledges and agrees that any breach by any of them of this Agreement shall cause
the other Holders irreparable harm which may not be adequately compensable by money damages. Accordingly, in the event of a breach
or threatened breach by a Holder of any provision of this Agreement, the Company and each other Holder shall each be entitled
to the remedies of specific performance, injunction or other preliminary or equitable relief, including the right to compel any
such breaching Holder, as appropriate, to vote such Holder’s shares of capital stock of the Company in accordance with the
provisions of this Agreement, in addition to such other rights remedies as may be available to the Company or any Holder for any
such breach or threatened breach, including but not limited to the recovery of money damages.
10. TERM.
This Agreement shall commence on the Effective Date and shall terminate upon the first to occur of the following:
(a) An
agreement in writing by the Company and dSpace and the Holders of at least a majority of the Series A Preferred Stock or Common
Stock issued or issuable upon conversion of the Series A Preferred Stock;
(b) Immediately
prior to the consummation of the closing of the sale of shares of Common Stock to the public in (i) a public offering which dSpace
informs the Company of the termination of this Agreement or (ii) a firm-commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended, and in connection with such offering the Common
Stock is listed for trading on the Nasdaq Stock Market’s National Market, the New York Stock Exchange or another exchange
or marketplace approved the Board, as amended; or
(c) Immediately
prior to the closing of a “Deemed Liquidation Event” as defined in the Company’s Restated Certificate of Incorporation.
11.1 Notices.
Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in
writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the
following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile or
electronic address, addressed to the other party at its facsimile number or electronic address number specified herein (or on
file with the Company), with confirmation of receipt made by printed confirmation sheet verifying successful transmission of
the facsimile or electronic transmission of confirmation verifying successful electronic transmission, as applicable; (iii)
one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days
after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv)
three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United
States deliveries. All notices for delivery outside the United States will be sent by facsimile or by express courier.
Notices by facsimile shall be machine verified as received. All notices not delivered personally or by facsimile will be sent
with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile
number as follows, or at such other address or facsimile number as such other party may designate by one of the indicated
means of notice herein to the other parties hereto as follows:
(a) if
to a Common Stockholder, at such Common Stockholder’s address on file with the Company;
(b) if
to an Investor, at such Investor’s address on file with the Company;
(c) if
to the Company, marked “Attention: CEO”, at zSpace, Inc., 2728 Orchard Pkwy, San Jose, California 95131 (with a copy,
which shall not constitute notice, to Sayre Stevick and Lara Foster, c/o Fenwick & West LLP, 801 California Street, Mountain
View, CA 94041); and
(d) to
dSpace, c/o Gulf Islamic Investments, LLC, P.P. Box 215931, Blvd Plaza II Fifth Floor (with a copy, which shall not constitute
notice, Larry Kane, c/o Orrick Herrington & Sutcliffe LLP, 405 Howard Street, San Francisco, CA 94105, lkane@orrick.com
11.2 Entire
Agreement. This Agreement and the documents referred to herein, together with all the Exhibits hereto, constitute the
entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede any and
all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific
subject matter hereof.
11.3 Governing
Law. This Agreement is to be construed in accordance with and governed by the internal laws of the State of Delaware without
giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal
laws of the State of Delaware to the rights and duties of the parties. All disputes and controversies arising out of or in connection
with this Agreement shall be subject to resolved exclusively by the state courts located in the State of Delaware, and each party
hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie exclusively with such courts.
11.4 Severability.
If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal
or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the
parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and
the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to
the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this
Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made
by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such
provision(s) through good faith negotiations.
11.5 Third
Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties
hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement
11.6 Successors
and Assigns. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators
and legal representatives.
11.7 Titles
and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be
disregarded in interpreting or construing this Agreement Unless otherwise specifically stated, all references herein to “sections”
and “exhibits” will mean “sections” and “exhibits” to this Agreement.
11.8 Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original,
and all of which together shall constitute one and the same agreement.
11.9 Costs
and Attorneys’ Fees. In the event that any action, suit or other proceeding is instituted concerning or arising
out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such party’s
costs and attorneys’ fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions
therefrom.
11.10 Adjustments
for Stock Splits, Etc. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock
or Preferred Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend
of such class or series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally
adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or
stock dividend.
11.11 Aggregation
of Stock. For purposes of this Agreement, all shares held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under this Agreement.
11.12 Further
Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may
be reasonably necessary to carry out the purposes and intent of this Agreement.
11.13 Facsimile
Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will
be deemed to have the same effect as if the original signature had been delivered to the other party.
11.14 Amendment
and Waivers. This Agreement may be amended only by a written agreement executed by (i) the Company, (ii) the Holders holding
at a majority of all outstanding shares of Series A Preferred Stock (calculated on as converted basis; and (iii) dSpace; provided,
however that any amendment adversely affecting the rights of the Common Stock under Section 5.1 and 5.2 and Section 4 shall
also require the consent a the Holders holding at least a majority of the outstanding shares of Common Stock. Any amendment effected
in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No
delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that
or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver
of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual
performance specifically waived. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares
of Preferred Stock after the date hereof pursuant to the Purchase Agreement (as may be amended from time to time), the purchaser
of such shares shall become a party to this Agreement by executing and delivering an additional counterpart signature page to
this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the
Investors or Common Stockholders shall be required for such joinder to this Agreement by such additional Investor.
11.15 Termination
of Prior Agreement. Effective and contingent upon the execution of the Agreement by (i) the Company, (ii) the holders
of at least a majority of all shares of Common Stock held by the Holders (as defined in the Prior Agreement), and (iii) the holders
of at least a majority of Common Stock, issued or issuable upon conversion of the Preferred Stock (as defined in the Prior Agreement),
the Prior Agreement is hereby amended and restated in its entirety to read as set forth in this Agreement, and the Company, the
Common Stockholders and the Investors hereby agree to be bound by the provisions hereof as the sole agreement of the Company,
the Common Stockholders and the Investors with respect to the rights and obligations set forth herein.
* * *
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| |
COMPANY: |
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ZSPACE, INC. |
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By: |
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Paul Kellenberger, President and CEO |
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|
| Address: |
zSpace, Inc. |
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2728 Orchard Pkwy |
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San Jose, CA 95131 |
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| Common Stockholder: |
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| |
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| By: |
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| Name: |
Paul Kellenberger |
|
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
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| INVESTORS: |
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| dSPACE Investment Limited |
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| By: |
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| Name: |
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| Title: |
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SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
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| COMMON STOCKHOLDERS: |
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| ARTIMAN VENTURES SPECIAL OPPORTUNITIES
FUND, L.P. |
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| By: |
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| Name: |
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| Title: |
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| ARTIMAN VENTURES II, L.P. |
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| By: |
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| Name: |
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| Title: |
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| ARTIMAN VENTURES II AFFILIATES
FUND, L.P. |
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| By: |
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| Name: |
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| Title: |
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| ARTIMAN VENTURES II PRINCIPALS
FUND, A DELAWARE MULTIPLE SERIES L.L.C. |
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| By: |
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| Name: |
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| Title: |
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SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
INVESTORS:
KUWAIT
INVESTMENT AUTHORITY, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in
the name and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait, and having its
registered office at Block No.3, Ministries Complex, City of Kuwait, Kuwait (KIA).
Address:
P.O Box 64, Safat 13001, Kuwait
Attn:
Khaled A. A. AlBader
Tel:
+965 22485838
Email:
Did_director@kia.gov.kw
SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| INVESTORS: |
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| |
|
| |
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| Kalpendu Shastri |
|
SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| |
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| INVESTORS: |
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| 44 ZSPACE LLC |
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| By: |
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| Name: |
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| Title: |
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SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| INVESTORS: |
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| |
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| GII zSpace Limited |
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Exempted
Company in Cayman
Directors:
Pankaj Gupta, Mohammed M. Al-Hassan
Administrator:
Harneys [www.harneys.com]
SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
| |
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| INVESTORS: |
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| Runway Growth Credit Fund, Inc. |
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| By: |
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| Name: |
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| Title: |
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SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
IN
WITNESS WHEREOF, the parties have executed this Amended and Restated Voting and Rights Agreement as of the date first above written.
INVESTORS:
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| SIGNATURE BLOCK FOR ENTITIES: |
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SIGNATURE BLOCK FOR INDIVIDUALS: |
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| (print/type
complete name of entity) |
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(signature) |
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| By: |
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(signature) |
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| Name: |
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Name: |
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(please
print or type full name) |
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(please print
or type full name) |
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| Title: |
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(please
print or type full title) |
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SIGNATURE
PAGE TO AMENDED AND RESTATED VOTING AND RIGHTS AGREEMENT
Exhibit
A
Common
Stockholders
| Investor |
| Artiman
Ventures Special Opportunities Fund, L.P. |
| Artiman
Ventures II, L.P. |
| Artiman
Ventures II Affiliates Fund, L.P. |
| Artiman
Ventures II Principals Fund, a Delaware Multiple Series L.L.C. |
| Kalpendu
Shastri |
| Harsh
Dalal |
| Shailesh
Joshi |
| Deepa
P. Kapadia |
| Soham
Pathak |
| Ankita
K Shastri 2012 GST Trust |
| Anujit
K Shastri 2012 GST Trust |
| Nishita
K Shastri 2012 GST Trust |
| Kaushik
Patel HUF |
| Pranav
Patel |
| Lori
Adam |
| Aljam
I, LLC |
| G.
Craig & Jan Z. Edgerton 2001 Rev Living Trust |
| Jeanne
Freeman |
| Warren
Hinds |
| In-Q-Tel,
Inc. |
| In-Q-Tel
Employee Fund, LLC |
| Paul
Kellenberger |
| Timothy
J. Lelko and Martha Z. Lelko |
| Burton
J. Litman Trust Dated February 26, 1998 |
| James
Kirk Marshall, Jr. |
| Richard
& Cynthia Schmidt, Trustees of the Schmidt Family Trust |
| Jerome
Tu |
| Bain
Family Trust |
| Black
Meadow Limited |
| Alan
Bornstein |
| Michael
& Ina Bornstein |
| Bornstein
Family Trust Established 6/30/05 |
| Robert
M. Brodbeck |
| Corniche
Capital Holdings Inc. |
| Scott
Harris |
| Kopercrest
Capital Holdings Inc. |
| Bruce
Kunkel |
| Michelle
Lagamba |
| Jesse
Dean Mayer |
| Travis
William Mayer |
| Elizabeth
Meyer |
| OB
Capital Ltd |
| John
J. Parente |
| April
M. Piercey |
| Ernst
Polo, Jr. |
| William
& Pamela Richter; The Richter Family Trust UDT DTD 2/4/05 |
| William
L. Richter ADP COS Custodian SEP IRA |
| William
Richter Pension Custodian FBO |
| Ronald
Schilling |
| Ronny
Soetarman |
| Stanhope
Investments |
| Udden
Ltd. |
| The
Wheeler Revocable Trust, William & Juliette Wheeler, Trustees |
| Elizabeth
Tacy Witter |
| Ronald
Woolworth |
| Teri
Woolworth |
| Kuwait
Investment Authority |
| 44
Zspace LLC |
| GII
zSpace Limited |
| Compal
Electronics, Inc. |
| Jiangxi
Kmax Industrial Ltd. |
| Runway
Growth Credit Fund, Inc. |
Exhibit
B
Investors
dSpace
Investments Limited
EXHIBIT
E
FORM
OF KIA WARRANT
THE
SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
| Warrant
No. 2020-1 |
Date of Issuance: _________ |
ZSPACE,
INC.
STOCK
PURCHASE WARRANT
Kuwait
Investment Authority
zSpace,
Inc., a Delaware corporation (the “Company”), for value received, hereby certifies that Kuwait Investment Authority,
a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name and for the account
of the Government of the State of Kuwait, the investments of the State of Kuwait, or its registered assigns (the “Registered
Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date
hereof and on or before the Expiration Date (as defined in Section 8) the number of shares of Common Stock of the Company as determined
as provided below in Section 1 at a purchase price of $0.001 per share (subject to adjustment as provided herein). The shares
of Common Stock purchasable upon exercise of this Warrant, and the purchase price per share, as adjusted from time to time pursuant
to the provisions of this Warrant, are hereinafter referred to as the “Warrant Stock” and the “Purchase
Price,” respectively.
The
Warrant is issued pursuant to, and is subject to the terms and conditions of, the Amended and Restated Promissory Note dated as
of the date hereof and issued to the Registered Holder (the “KIA Note”).
1. Number
of Shares. Subject to the terms and conditions hereinafter set forth, on or after the conversion of the Convertible
Note (the “GII Convertible Note”) issued as of the date hereof by the Company to dSpace Investments
Limited (“GII”) into Series A Preferred Stock of the Company pursuant to the terms of the Series A
Preferred Stock Purchase Agreement (the “Series A Purchase Agreement”), dated as of the date hereof by and
among the Company, GII and the investors named therein (the “Exercise Trigger Date”), Registered Holder is
entitled, upon surrender of this Warrant, to purchase from the Company the number of shares of Warrant Stock equivalent to
the product of (a) fifteen percent and (b) the Company’s Fully-Diluted Capitalization (as defined in the Series A
Purchase Agreement) as of December 15, 2020 (assuming conversion of the Convertible Note but excluding any equity issued in
connection with the Arowana Funding (as defined in the Series A Purchase Agreement)), less the number of shares of the
Company’s capital stock outstanding and held by the Registered Holder as of the Exercise Trigger Date. For the purpose
of clarity, the Registered Holder acknowledges that the number of shares of Common Stock subject to the Warrant depends on
the Arowana Funding (as defined in the Series A Purchase Agreement), and accordingly, if the Arowana Funding closes by
December 15, 2020, the number of shares of Common Stock subject to the Warrant is expected to equal 669,264 and if the
Arowana Funding does not close by December 15, 2020, then the number of shares of Common Stock subject to the Warrant is
expected to equal 67,269,913, in each case, less the number of shares of the Company’s capital stock outstanding
and held by the Registered Holder as of the Exercise Trigger Date.
(a) Manner
of Exercise. On or after the Exercise Trigger Date, this Warrant may be exercised by the Registered Holder, in whole or
in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such
Registered Holder or by such Registered Holder’s duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect
of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer,
or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder.
(b) Effective
Time of Exercise. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of
business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 2(a). At such time,
the person or persons in whose name or names any certificates (including in the electronic form via Carta or otherwise) for Warrant
Stock shall be issuable upon such exercise as provided in Section 2(d) shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
(c) Net
Issue Exercise.
(i) In
lieu of exercising this Warrant in the manner provided in Section 2(a), the Registered Holder may elect to receive shares of Warrant
Stock equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A
duly executed by such Registered Holder or such Registered Holder’s duly authorized attorney, in which event the Company
shall issue to such Registered Holder a number of shares of Warrant Stock computed using the following formula:
| Where |
X = |
The number
of shares of Warrant Stock to be issued to the Registered Holder. |
| |
|
|
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Y = |
The number of shares
of Warrant Stock purchasable under this Warrant (at the date of such calculation). |
| |
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|
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A = |
The fair market value
of one share of Warrant Stock (at the date of such calculation). |
| |
|
|
| |
B = |
The Purchase Price (as
adjusted to the date of such calculation). |
(ii) For
purposes of this Section 2(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each
share of Warrant Stock:
(A) if
the exercise is in connection with an initial public offering of the Company’s Common Stock, and if the Company’s
Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission,
then the fair market value shall be the initial “Price to Public” per share specified in the final prospectus with
respect to the offering;
(B) if
this Warrant is exercised after, and not in connection with, the Company’s initial public offering, and if the Company’s
Common Stock is traded on a securities exchange or actively traded over-the-counter:
(1) if
the Company’s Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of
the closing prices over a thirty (30) day period ending three days before date of calculation; or
(2) if
the Company’s Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the average
of the closing bid or sales price (whichever is applicable) over the thirty (30) day period ending three days before the date
of calculation; or
(C) if
neither (A) nor (B) is applicable, the fair market value of Warrant Stock shall be at the highest price per share which the Company
could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock
sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company
is at such time subject to an acquisition as described in Section 9(b), in which case the fair market value of Warrant Stock shall
be deemed to be the value received by the holders of such stock pursuant to such acquisition.
(d) Delivery
to Holder. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten
(10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct:
(i) a
certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in
case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate
on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Sections 2(a) or 2(c).
(a) Stock
Splits and Dividends. If the Company’s outstanding shares of the same class as the Warrant Stock shall be subdivided
into a greater number of shares or a dividend in the Company’s shares of the same class as the Warrant Stock shall be paid
in respect of the Company’s shares of the same class as the Warrant Stock, the Purchase Price in effect immediately prior
to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced. If the Company’s outstanding shares of the
same class as the Warrant Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment
is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of
this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification,
Etc. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization
of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this
Warrant) or any similar corporate reorganization on or after the date hereof, then and in each such case the Registered
Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall
be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation
if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to
the provisions of this Section 3.
(c) Adjustment
Certificate. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section
3, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring
such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property
into which this Warrant shall be exercisable after such adjustment.
(a) Unregistered
Security. Each holder of this Warrant acknowledges that none of the Company’s securities (including this Warrant
and the Warrant Stock) have been registered under the Securities Act of 1933, as amended (the “Securities Act”),
and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock
issued upon its exercise (or any securities issued by the Company upon conversion or exchange thereof) in the absence of (i) an
effective registration statement under the Securities Act as to the sale of any such securities and registration or qualification
of such securities under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, reasonably
satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant (and any securities issued by the Company upon conversion or exchange thereof)
shall bear a legend substantially to the foregoing effect.
(b) Transferability.
Subject to the provisions of Section 4(a) hereof and to the “Lockup” provisions in Section 7, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment
(in the form of Exhibit B hereto) at the principal office of the Company.
(c) Warrant
Register. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant
as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank,
the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary. Any Registered Holder may change such Registered Holder’s address as shown on the warrant register
by written notice to the Company requesting such change.
5. Representations
and Warranties of the Registered Holder. The Registered Holder hereby represents and warrants to the Company that:
(a) Authorization.
The Registered Holder has full power and authority to enter into this Warrant. The Warrant, when executed and delivered by
the Registered Holder, will constitute a valid and legally binding obligation of the Registered Holder, enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating
to the availability of specific performance, injunctive relief, or other equitable remedies.
(b) Purchase
Entirely for Own Account. This Warrant is issued to the Registered Holder in reliance upon the Registered Holder’s
representation to the Company, which by the Registered Holder’s acceptance of this Warrant, the Registered Holder hereby
confirms, that the Warrant to be acquired by the Registered Holder and the Warrant Stock (and any securities issued by the Company
upon conversion or exchange thereof) (collectively, the “Securities”) will be acquired for investment for the
Registered Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that the Registered Holder has no present intention of selling, granting any participation in, or otherwise distributing
the same. By accepting this Warrant, the Registered Holder further represents that the Registered Holder does not presently have
any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or
to any third person, with respect to any of the Securities. The Registered Holder has not been formed for the specific purpose
of acquiring the Securities.
(c) Disclosure
of Information. The Registered Holder has had an opportunity to discuss the Company’s business, management, financial
affairs and the terms and conditions of the offering of the Securities with the Company’s management and has had an opportunity
to review the Company’s facilities. The Registered Holder understands that such discussions, as well as any written information
delivered by the Company to the Registered Holder, were intended to describe the aspects of the Company’s business which
it believes to be material.
(d) Restricted
Securities. The Registered Holder understands that the Securities have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of the Registered Holder’s representations
as expressed herein. The Registered Holder understands that the Securities are “restricted securities” under applicable
U.S. federal and state securities laws and that, pursuant to these laws, the Registered Holder must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Registered Holder acknowledges that the Company has no obligation
to register or qualify the Securities for resale. The Registered Holder further acknowledges that if an exemption from registration
or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner
of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Registered
Holder’s control, and which the Company is under no obligation and may not be able to satisfy.
(e) No
Public Market. The Registered Holder understands that no public market now exists for any of the securities issued by
the Company, and that the Company has made no assurances that a public market will ever exist for the Securities.
(f) Accredited
or Sophisticated Investor. The Registered Holder is (i) an accredited investor as defined in Rule 501(a) of Regulation
D promulgated under the Securities Act or (ii) a sophisticated investor, experienced in investing in securities of emerging growth
companies and acknowledges that the Registered Holder is able to fend for itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of
the investment in the Securities.
6. Representations
of the Company. The Company hereby represents and warrants to the Registered Holder that all shares of Warrant Stock which
may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance in accordance with the
terms hereof, including payment of the Exercise Purchase Price, be duly authorized, validly issued, fully paid and nonassessable,
and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and
state securities laws.
(a) Lock-up
Period; Agreement. If so requested by the Company or the underwriters in connection with the initial public offering of
the Company’s securities registered under the Securities Act of 1933, as amended, Registered Holder shall not sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or
whenever acquired (except for those being registered) without the prior written consent of the Company or such underwriters, as
the case may be, for 180 days from the effective date of the registration statement, and Registered Holder shall execute an agreement
reflecting the foregoing as may be requested by the underwriters at the time of such offering, provided, that all stockholders
of the Company then holding at least 1% of the outstanding Common Stock (on an as-converted basis) and all officers and directors
of the Company enter into similar agreements.
(b) Stop-Transfer
Instructions. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of the Registered Holder (and the securities of every other person subject to the restrictions in
Section 7(a)).
(c) Transferees
Bound. The Registered Holder agrees that prior to the Company’s initial public offering it will not transfer securities
of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 7 and to be subject
to the waiver of statutory inspection rights in Section 7.
8. Termination.
This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the
following (the “Expiration Date”):
(a) December 31, 2020;
(b) the closing
of a public offering pursuant to a registration statement under the Securities Act; or
(c) the
sale, conveyance or disposal of all or substantially all of the Company’s property or business or the Company’s merger
with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction
or series of related transactions in which more than fifty percent (50%) of the voting securities of the Company is disposed of,
provided that this Section 8(c) shall not apply to a merger effected exclusively for the purpose of changing the domicile
of the Company or to an equity financing in which the Company is the surviving corporation.
| 9. | Notices
of Certain Transactions. In case: |
(a) the
Company shall take a record of the holders of its outstanding stock of the same class as the Warrant Stock (or other stock or
securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive
any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right,
(b) of
any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger
of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company,
(c) of
the voluntary or involuntary dissolution, liquidation or winding-up of
the
Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion
is to take place, and the time, if any is to be fixed, as of which the holders of record of the Company’s outstanding stock
of the same class as the Warrant Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice
shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice.
10. Reservation
of Stock. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise
of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable
upon the exercise of this Warrant.
11. Exchange
of Warrants. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company
at the principal office of the Company, the Company will issue and deliver to or upon the order of such Registered Holder, at
the Company’s expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered
Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Warrant Stock called for on the face or faces of the Warrant or Warrants so surrendered.
12. Replacement
of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably
required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation
of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor.
13. No
Rights as Stockholder. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise
any rights by virtue hereof as a stockholder of the Company.
14. No
Fractional Shares. No fractional shares of Warrant Stock will be issued in connection with any exercise hereunder. In
lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of Warrant Stock on the date of exercise, as determined in good faith by the
Company’s Board of Directors.
15. Survival
of Representations. Unless otherwise set forth in this Warrant, the representations, warranties and covenants contained
in or made pursuant to this Warrant shall survive the execution and delivery of this Warrant.
16. Attorney’s
Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any
of this Warrant, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
(a) Governing
Law. The validity, interpretation, construction and performance of this Warrant, and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the
laws of the state of California, without giving effect to principles of conflicts of law.
(b) Entire
Agreement; Cancellation of Prior Warrant. This Warrant sets forth the entire agreement and understanding of the parties
relating to the subject matter herein and supersedes all prior or contemporaneous discussions, understandings and agreements,
whether oral or written, between them relating to the subject matter hereof. The Warrant to Purchase Stock issued by the Company
to the Registered Holder dated May 9, 2019 is hereby cancelled and terminated in its entirety.
(c) Amendments
and Waivers. No modification of or amendment to this Warrant, nor any waiver of any rights under this Warrant, shall be
effective unless in writing signed by the Company and the Registered Holder. No delay or failure to require performance of any
provision of this Warrant shall constitute a waiver of that provision as to that or any other instance.
(d) Successors
and Assigns. The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
(e) Notices.
Any notice, demand or request required or permitted to be given under this Warrant shall be in writing and shall be deemed
sufficient when delivered personally or by overnight courier or sent by email, or 48 hours after being deposited in the U.S. mail
as certified or registered mail with postage prepaid, addressed to the party to be notified at such party’s address as set
forth on the signature page, as subsequently modified by written notice, or if no address is specified on the signature page,
at the most recent address set forth in the Company’s books and records.
(f) Severability.
If one or more provisions of this Warrant are held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this Warrant, (b) the balance of this Warrant shall be interpreted
as if such provision were so excluded and (c) the balance of this Warrant shall be enforceable in accordance with its terms.
(g) Construction.
This Warrant is the result of negotiations between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Warrant shall be deemed to be the product of all of the parties hereto, and no ambiguity shall
be construed in favor of or against any one of the parties hereto.
(h) Counterparts.
This Warrant may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the Company and the Registered Holder have executed this Warrant as of the date first set forth above.
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THE COMPANY: |
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ZSPACE, INC. |
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Title: |
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Address: |
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2728 Orchard Pkwy |
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San Jose, CA 95131 |
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United States |
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| ACCEPTED AND AGREED: |
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| THE REGISTERED HOLDER: |
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EXHIBIT
A
PURCHASE/EXERCISE
FORM
| To: |
zSpace, Inc. |
Dated:
_________ |
The
undersigned, pursuant to the provisions set forth in the attached Warrant No. ____, hereby irrevocably elects to (a) purchase
____________________ shares of the capital stock covered by such Warrant and herewith makes payment of $____________________,
representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such
Warrant for ____________________ shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section
2(c) of such Warrant.
The
undersigned acknowledges that it has reviewed the representations and warranties of the Registered Holder set forth in the Warrant
and by its signature below hereby makes such representations and warranties to the Company. Defined terms contained in such representations
and warranties shall have the meanings assigned to them in the Warrant.
The
undersigned further acknowledges that it has reviewed the “Lockup” provisions as well as the waiver of statutory information
rights set forth in the Warrant and agrees to be bound by such provisions.
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| ACKNOWLEDGED AND AGREED TO BY |
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| THE REGISTERED HOLDER: |
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(Signature) |
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EXHIBIT
B
ASSIGNMENT
FORM
FOR
VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned
under the attached Warrant with respect to the number of shares of capital stock covered thereby set forth below, unto:
| Name
of Assignee |
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Address/Facsimile
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No.
of Shares |
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| ACKNOWLEDGED AND AGREED TO BY |
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| By: |
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(Signature) |
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EXHIBIT
F
FORM
OF MANAGEMENT BONUS PLAN
ZSPACE,
INC. TRIGGERING EVENT BONUS PLAN
(ADOPTED NOVEMBER [ ], 2020)
1. Purpose. The
purpose of this Plan is to provide incentives to certain executive employees of zSpace, Inc. (including any successor entity,
parent company or subsidiary thereof, the “Company”) to incentivize and motivate them in the event
of a Triggering Event. The Company’s Board of Directors (the “Board”) has determined that the
adoption of the Plan is in the best interests of the Company and its stockholders. Terms not otherwise defined herein
are defined in Section 10 of this Plan.
2. Administration.
This Plan shall be administered by the Board, except as may be explicitly provided otherwise herein.
3. Eligibility
to Participate. An employee of the Company shall be eligible to participate in the Plan if he or she is a member of the
Company’s executive team as constituted on the Effective Date.. Plan terms will govern all benefits payable under the Plan.
| 4. | Bonus
Allocation and Payment. |
(a) Bonus
Pool. The Plan will operate through the establishment of a Bonus Pool, which shall be equal to $5,400,000.
(b) Allocation.
Interests in the Bonus Pool will be awarded at the discretion of the Chief Executive Officer subject to approval of the Board,
at any time following the adoption of the Plan, with the initial allocations shall be made no later than December 31, 2020; provided
that if dSpace Investments Limited (“dSpace”) does not have a designated director serving on the Board,
the consent of dSpace will be required in lieu of Board approval. Each Participant shall be notified of his or her allocation
of the Bonus Pool (the “Interest”) in a Triggering Event Bonus Agreement, if and when awarded hereunder
(the amount of the Bonus Pool representing such Interest, a “Bonus Amount”, which may be specified not
to exceed a certain dollar amount). The Interests, the Bonus Amounts and the applicable Triggering Event Bonus Agreements may
be modified or canceled at any time until the Closing in accordance with the provisions of Section 9(a)(ii), below.
(c) Forfeiture. Participants
who fail to satisfy any of the conditions set forth in Section
5 shall forfeit their Bonus Amounts and/or
Interest.
(d) Form
of Payment. Subject to the Board’s discretion to determine otherwise for any or all Participants (which
determination shall be deemed to have been made if the Board shall have approved a definitive agreement or plan in respect of
any Triggering Event that addresses the treatment of Bonus Amounts), the Bonus Pool (and any Bonus Amount actually payable to
any or all Participant) shall consist of cash and/or equity.
(e) Reduction
of Bonus Amount. The amounts which may otherwise be payable under this Plan to a Participant shall be reduced on a “dollar-for-dollar”
basis by any consideration paid or payable to a Participant, and such Participant’s Family (as defined below), separate
from the operation of this Plan in connection with the Triggering Event with respect to such Participant’s and such Participant’s
Family’s vested (or deemed vested) capital stock or vested (or deemed vested) Company options, other equity awards or warrants
(excluding any preference shares of the Company) (“Equity Awards”); excluding for such purposes any
merger proceeds in respect of vested (or deemed vested) Equity Awards which are subjected to new vesting conditions based on the
Participant’s continued service or achievement of performance milestones (which shall not be construed to mean an earn-out
condition of general applicability to stockholders, and which applies to holders of preferred stock), and including for such purposes
Equity Awards held by the Participant and such Participant’s Family that have become vested due to any applicable acceleration
upon the Closing of such Triggering Event (net of any exercise price, if applicable).
5. Conditions
to Payment of Bonus Amount. The obligation of the Company to pay any Bonus Amount to a Participant is subject to and contingent
upon the fulfillment of each of the conditions set forth below. A Participant shall not be entitled to receive any Bonus Amount,
nor shall any Bonus Amount vest or accrue (either in whole or in part), until all such conditions have been fulfilled.
(a) The
Triggering Event is consummated.
(b) The
Participant must be actively employed by the Company as of immediately prior to the Closing in order to be eligible to receive
the Bonus Amount, provided that if the Participant is terminated by the Company without Cause or the Participant resigns for Good
Reason within a period of one (1) month immediately prior to Closing, this employment condition in Section 5(b) will be deemed
to be satisfied.
(c) The
Participant shall have signed and returned a Triggering Event Bonus Agreement on or prior to the Closing Date.
(d) The
Participant shall not receive a Bonus Amount if the Board reasonably determines that such Participant has breached his or her
obligations under this Plan or any confidential information and invention assignment agreement between the Participant and the
Company or has materially breached any other contract between the Participant and the Company.
(e) The
Participant shall, upon request of the Company, have executed and delivered such other agreements or documents determined necessary
by the Company to bind Participant to any indemnification obligations set forth in the definitive agreement evidencing the Triggering
Event;
(f) Notwithstanding
any provisions in this Section 5 to the contrary, a Participant shall not be entitled to receive a Bonus Amount unless such Participant
has signed a general release (in a form prescribed by the Company) of all known and unknown claims that the Participant may then
have against the Company or persons affiliated with the Company, and its subsidiaries, parents, predecessors and successor corporations
and assigns (a “Release”), and not revoked such Release, on or before the sixtieth (60th)
day following the Closing Date.
(g) Notwithstanding
any provisions in this Section 5 to the contrary, a Participant shall not be entitled to receive a Bonus Amount unless such Participant
has voted any voting-eligible shares that the Participant owns, or with respect to which such Participant has discretionary voting
power, in favor of the Triggering Event, and executed (and not revoked) all agreements and documents requested by the Company
that are required to effect such vote by the applicable due dates. This Section 5(g) shall not be construed to require the Participant
to vote to approve any payments pursuant to Treasury Regulation section 1.280G-1, Q/A-7.
| 6. | Contingent
Amounts. The Bonus Amounts will not be reduced to fund any Contingent Amount. |
7. Reallocation
of Bonus Amounts. Except as may be specifically set forth in this Plan, and for the period until Closing only, any portion
of the Bonus Pool not allocated to a Participant under this Plan (whether because such portion corresponds to any portion of a
Bonus Amount forfeited by a Participant and available for reissuance under this Plan, because such portion corresponds to any
portion of the Bonus Pool never allocated under this Plan, because such portion represents a reduction for Equity Awards pursuant
to Section 4(e), or otherwise) may be allocated or reallocated to other Participants under this Plan as provided for in Section
4(b) above and/or distributed to stockholders of the Company.
8. Time
of Payments. Contingent upon satisfaction of the conditions set forth in Section 5 above and the provisions of Section
9 below, payment of the Bonus Amounts shall be made immediately following any payments with respect to the Senior Obligations
and prior to any other Company liabilities or payments in respect of capital stock in connection with the Triggering Event, but
in no event later than the fortieth (40th) day after the Closing Date.
| (a) | Interpretation,
Amendment, or Termination of Plan. |
(i) Subject
to Sections 4(b) and 9(a)(ii), this Plan shall be interpreted and construed by the Board and all benefit determinations, including,
but not limited to, amounts of benefits, eligibility, and the occurrence of Triggering Events shall be made by the Board, and
all determinations or interpretations shall be final and binding on all Participants.
(ii) This
Plan (including the Bonus Amounts) may be amended or terminated by prior written consent of the Board at any time prior to the
Closing, provided that no amendment or termination may adversely affect awards held by Participants that have been previously
awarded in writing by the Company without the written approval of both the Company’s Chief Executive Officer and Chief Financial
Officer. The granting of additional Interests shall not be subject to this Section 9(a)(ii).
(iii) The
Plan (and any Bonus Amounts and/or Triggering Event Bonus Agreements) will terminate automatically on December 31, 2021,
unless the Company has entered into a definitive agreement regarding a Triggering Event on or before such date or unless the
Plan is extended by the Board in its sole discretion.
(b) No
Right to Employment. This Plan does not constitute a contract of employment or impose on any employee or Participant any obligation
to remain as, or become, an employee, or impose on the Company any obligation (i) to retain any employee or a Participant as an
employee, (ii) to change the status of any employee or a Participant as an at-will employee, or (iii) to change the Company’s
policies regarding termination of employment.
(c) Tax
Consequences. The Company shall have the right to withhold from any payment or other consideration otherwise payable to a
Participant under this Plan as necessary to pay withholding and payroll taxes and other deductions required by law. Notwithstanding
the foregoing, each Participant shall be responsible for the payment of all individual tax liabilities relating to any payment
or benefit under this Plan. The Company makes no representations or warranties with respect to the tax consequences (including,
without limitation, under Section 409A of the Code) of any payment or any other consideration provided to Participant or made
on his/her behalf under the terms of the Triggering Event Bonus Agreement or this Plan, and the Participant shall be solely responsible
for the same. Notwithstanding anything to the contrary in this Plan, Participants acknowledge and agree that the Company is under
no express or implied duty or obligation to design or administer this Plan in a tax efficient manner.
(d) Notices.
Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective
upon the earlier of personal delivery (including personal delivery by email or facsimile) or the third day after mailing by first
class mail, to the Company at its primary office location and to a Participant at his or her address as listed in the Company’s
payroll records. Any payments made by the Company to a Participant under the terms of this Plan shall be delivered to such a Participant
either in person or at his address as listed in the Company’s payroll records.
(e) Severability.
Whenever possible, each provision of this Plan will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Plan is held to be invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other
jurisdiction, but this Plan will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable
provisions had never been contained herein.
(f) Complete
Agreement. Except to the extent expressly otherwise provided herein, this Plan, together with the respective Triggering
Event Bonus Agreement executed by each Participant, constitutes the entire agreement between each such Participant and the
Company and it is the complete, final, and exclusive embodiment of their agreement with regard to the subject matter herein.
It is entered into without reliance on any promise or representation other than those expressly contained herein.
Notwithstanding the foregoing, this Plan shall not supersede or affect any other agreements relating to any
Participant’s employment or severance, or the Triggering Event.
(g) Prior
Plans Superseded. By accepting awards under this Plan, each Participant acknowledges and agrees that any and all Company Liquidity
Event Bonus Plans and Company Liquidity Event Bonus Agreements dated on or about February 11, 2019 shall be entirely replaced
and superseded by this Plan and shall be of no further force or effect.
(h) Headings.
The headings of the Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof
nor to affect the meaning thereof.
(i) Successors
and Assigns. This Plan is intended to bind and inure to the benefit of and be enforceable by each Participant and the Company,
and their respective successors, assigns, heirs, executors, and administrators; provided, however, that a Participant may
not assign any of his or her duties hereunder and he or she may not assign any of his or her rights hereunder (including the right
to receive a Bonus Amount) without the express written consent of the Company.
(j) Section
409A. To the extent (a) any payments or benefits to which Participant becomes entitled under this Plan, or under any agreement
or plan referenced herein, in connection with Participant’s termination of employment with the Company constitute deferred
compensation subject to Section 409A of the Code and (b) Participant is deemed at the time of such termination of employment to
be a “specified employee” under Section 409A of the Code, then such payments shall not be made or commence until the
earliest of (i) the expiration of the six (6)-month period measured from the date of Participant’s “separation from
service” (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) from the Company;
or (ii) the date of Participant’s death following such separation from service; provided, however, that such deferral
shall only be effected to the extent required to avoid adverse tax treatment to Participant, including (without limitation) the
additional twenty percent (20%) tax for which Participant would otherwise be liable under Section 409A(a)(1)(B) of the Code in
the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been
made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to Participant
or Participant’s beneficiary in one lump sum (without interest). Any termination of Participant’s employment is intended
to constitute a “separation from service” as such term is defined in Treasury Regulation Section 1.409A-1. It is intended
that each installment of the payments provided hereunder constitute separate “payments” for purposes of Treasury Regulation
Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemption
from the application of Code Section 409A (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4)
(as a “short-term deferral”). The Company and each Participant will work together in good faith to consider amendments
to the Plan including with respect to the payment of any Bonus Amounts, which are necessary or appropriate to avoid imposition
of any additional tax or income recognition prior to the actual payment to the Participant under Section 409A of the Code and
any Treasury Regulations and Internal Revenue Service guidance thereunder. To the extent any nonqualified deferred compensation
subject to Section 409A payable to Participant hereunder could be paid in one or more taxable years depending upon Participant
completing certain employment-related actions (such as resigning after a failure to cure a Good Reason event and/or returning
an effective release), then any such payments will commence or occur in the later taxable year to the extent required by Code
Section 409A.
(k) Section
280G. If (1) any amounts payable to Participant under this Plan or otherwise are characterized as excess parachute
payments pursuant to Section 4999 of the Code, and (2) Participant thereby would be subject to any United States federal
excise tax due to that characterization, then Participant’s termination benefits hereunder and under any other
applicable agreements will be payable either in full or in a lesser amount, whichever would result, after taking into account
the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, in
Participant’s receipt on an after-tax basis of the greatest amount of termination and other benefits. The determination
of any reduction required pursuant to this section (including the determination as to which specific payments shall be
reduced) shall be made by one of the six largest accounting firms doing business in the U.S. which otherwise does not perform
services for the Company, as designated by the Company, and such determination shall be conclusive and binding upon the
Company or any related corporation for all purposes. If required, the payments and benefits under this Plan shall be reduced
in the following order: (A) a pro rata reduction of (i) cash payments that are subject to Section 409A of the Code as
deferred compensation and (ii) cash payments not subject to Section 409A of the Code; (B) a pro rata reduction of (i)
employee benefits that are subject to Section 409A of the Code as deferred compensation and (ii) employee benefits not
subject to Section 409A of the Code; and (C) a pro rata cancellation of (i) accelerated vesting of shares and other
equity-based awards that are subject to Section 409A of the Code as deferred compensation and (ii) shares and other
equity-based awards not subject to Section 409A of the Code. In the event that acceleration of vesting of shares and other
equity-based award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the
date of grant of Participant’s shares and other equity-based awards unless Participant elects in writing a
different order for cancellation.
(l) Choice
of Law. All questions concerning the construction, validity and interpretation of this Plan will be governed by the laws of
the State of California, exclusive of the conflict of laws provisions thereof.
(m) No
Prior Funding. No amounts payable under this Plan shall actually be funded, set aside or otherwise segregated from the general
assets of the Company prior to payment. The obligation to pay the benefits hereunder shall at all times be an unfunded and unsecured
obligation of the Company and be paid out of the general assets of the Company.
(n) No
Liability. To the fullest extent permitted by law, no member of the Board and no officer or employee of the Company shall
be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable
to such person’s own fraud or willful misconduct; nor shall the Company be liable to any person for any such action unless
attributable to fraud or willful misconduct on the part of a director, officer or employee of the Company.
(o) ERISA
Not Applicable. The Plan is a bonus program and not an “employee pension benefit plan” or “pension plan”
subject to the application of the federal Employee Retirement Income Security Act, as amended, as provided in U. S. Department
of Labor regulations, including in 29 C.F.R. Section 2510.3-2(c).
“Board”
means the Board of Directors of the Company, provided that if the Board of Directors has delegated authority under the Plan to
any committee thereof, the Board shall mean that committee.
“Bonus
Pool” means the maximum amount available for distribution to all Participants under Section 4 of the Plan upon the
consummation of a Triggering Event.
“Cause”
means termination because of a good faith determination by the Board that any of the following has occurred: (a) Participant’s
intentional unauthorized misuse of the Company or a parent or subsidiary of the Company’s trade secrets or confidential
information; (b) Participant’s conviction of or plea of guilty or no contest to a felony or a crime involving moral turpitude
under the laws of the United States or any state thereof; (c) a material failure by Participant to comply with any written agreement
between such Participant and the Company or the Company’s written policies or rules that causes harm to the Company, after
receiving written notice of such failure from the Board and an opportunity to cure (if curable) within 15 days after such written
notice; (d) Participant’s willful misconduct or act of fraud or dishonesty that causes harm to the Company; or (e) a continuing
failure by Participant to perform assigned duties after receiving written notice of such failure from the Board and an opportunity
to cure (if curable) within 15 days after such written notice.
“Closing”
means the consummation of the Triggering Event.
“Closing
Date” means the date on which the Closing occurs.
“Code”
means the Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code or regulation thereunder shall
include such Section or regulations, any valid regulation promulgated under such Section, and any comparable provision of any
future legislation or regulation amending, supplementing or superseding such Section or regulation.
“Contingent
Amount” means amounts to be allocated and set aside to fund any escrow, holdback, earn-out or similar arrangement
or other conditional payment or distribution (including with respect to the passage of time).
“Conversion
Event” means a Public Offering by the Company.
“Effective
Date” means November [ ], 2020
“Family”
will mean any affiliate of a Participant, a Participant’s spouse, Spousal Equivalent (as defined below), lineal descendant
or antecedent, uncle, aunt, nephew, niece, brother or sister or stepchild (whether or not adopted), and any trust for the benefit
of the Participant or such Participant’s Family. “Spousal Equivalent” means an individual who
is registered with any state governmental entity as a domestic partner of the relevant person to whom such individual may be a
Spousal Equivalent (a “Registered Domestic Partner”) or who (a) irrespective of whether or not the relevant
person to whom such individual may be a Spousal Equivalent and the Spousal Equivalent are the same sex, they are the sole spousal
equivalent of the other for the last twelve (12) months, (b) they intend to remain so indefinitely, (c) neither are married to
anyone else nor a Registered Domestic Partner with anyone else, (d) both are at least 18 years of age and mentally competent to
consent to contract, (e) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the
state in which they legally reside, (f) they are jointly responsible for each other’s common welfare and financial obligations,
and (g) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
“Good
Reason” means any of the following that has occurred without Participant’s consent: (i) a material reduction
in Participant’s title, status, responsibility or authority, provided that Good Reason will not exist solely as a result
of a mere change in title so long as there is no reduction in duties, responsibilities or authority following such change in title
and will not exist solely as a result of cessation of Board membership following the Change in Control; (ii) a reduction in Participant’s
annual base salary (but excluding any reduction of not more than 10% of Participant’s base salary which applies to substantially
all of the Company’s similarly situated employees); or (iii) a requirement that Participant relocate Participant’s
principal place of work to a location more than thirty-five (35) miles from Participant’s then-current work location.
“Lender”
means bSpace Investments Limited and its affiliates.
“Liquidity
Event” means the occurrence of a Deemed Liquidation Event as defined in the Company’s certificate of incorporation,
as may be amended from time to time, provided that, (A) a transaction shall not constitute a Liquidity Event if: (i) its
sole purpose is to change the country or state of the Company’s incorporation; or (ii) its sole purpose is to create a holding
company that shall be owned in substantially the same proportions by the persons who held the Company’s securities immediately
before such transaction, (B) a transaction that does not constitute a change in control event under U.S. Treasury Regulation 1.409A-3(i)(5)(v)
or (vii) will not be considered a Liquidity Event, and (C) the issuance of the Convertible Note and the Series A Preferred Stock
(as such terms are defined in the Series A Preferred Stock Purchase Agreement dated on or about the Effective Date) will not be
considered a Liquidity Event.
“Non-Qualified
Public Offering” means an initial listing or offering of the Company’s equity on a public stock exchange that
is not a Qualified Public Offering and resulting in aggregate cash proceeds to the Company of not less than $17,500,000. For the
avoidance of doubt, a Non-Qualified Public Offering also shall include a transaction that results in the Company (or any parent
company or successor in interest following an acquisition or restructuring of the Company that does not otherwise constitute a
Liquidity Event) receiving aggregate cash proceeds of not less than $17,500,000 and becoming subject to the periodic reporting
requirements of Sections 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended (e.g. a SPAC transaction).
SCHEDULE
1.4
SCHEDULE
OF RIGHTS OFFERING INVESTORS
| Stockholder Name | |
Number of
Existing
Shares (post
Stock Split) | | |
Percentage
Ownership | | |
Investment
Amount if
Arowana
Financing
occurs | | |
Shares
Purchased if
Arowana
Financing
occurs | | |
Investment
Amount if no
Arowana
Financing
occurs | | |
Shares
Purchased if no
Arowana
Financing
occurs | |
| Aljam I, LLC | |
| 15,673 | | |
| 0.242 | % | |
$ | 5,595.78 | | |
| 5,644 | | |
$ | 8,393.14 | | |
| 812,814 | |
| Ankita K Shastri 2012 GST Trust | |
| 40,364 | | |
| 0.622 | % | |
$ | 14,410.82 | | |
| 14,535 | | |
$ | 21,613.28 | | |
| 2,093,089 | |
| Anujit K Shastri 2012 GST Trust | |
| 40,364 | | |
| 0.622 | % | |
$ | 14,410.82 | | |
| 14,535 | | |
$ | 21,613.28 | | |
| 2,093,089 | |
| Compal Electronics, Inc. | |
| 55,555 | | |
| 0.856 | % | |
$ | 19,834.09 | | |
| 20,005 | | |
$ | 29,746.56 | | |
| 2,880,738 | |
| Deepa Kapadia | |
| 18,804 | | |
| 0.290 | % | |
$ | 6,713.15 | | |
| 6,771 | | |
$ | 10,068.55 | | |
| 975,065 | |
| Harash Dalal | |
| 74,917 | | |
| 1.154 | % | |
$ | 26,746.52 | | |
| 26,977 | | |
$ | 40,113.73 | | |
| 3,884,723 | |
| In-Q-Tel, Inc. | |
| 151,758 | | |
| 2.338 | % | |
$ | 54,180.11 | | |
| 54,647 | | |
$ | 81,258.40 | | |
| 7,869,285 | |
| Jiangxi Kmax Industrial Co., Ltd. | |
| 342,786 | | |
| 5.281 | % | |
$ | 122,380.40 | | |
| 123,435 | | |
$ | 183,541.50 | | |
| 17,774,660 | |
| Kaushik Patel HUF | |
| 3,744 | | |
| 0.058 | % | |
$ | 1,336.49 | | |
| 1,348 | | |
$ | 2,004.68 | | |
| 194,138 | |
| Nishita K Shastri 2012 GST Trust | |
| 40,364 | | |
| 0.622 | % | |
$ | 14,410.82 | | |
| 14,535 | | |
$ | 21,613.28 | | |
| 2,093,089 | |
| Paul Kellenberger | |
| 32,302 | | |
| 0.498 | % | |
$ | 11,532.62 | | |
| 11,632 | | |
$ | 17,296.89 | | |
| 1,675,078 | |
| Pranav Patel | |
| 9,362 | | |
| 0.144 | % | |
$ | 3,342.20 | | |
| 3,371 | | |
$ | 5,013.21 | | |
| 485,492 | |
| Shailesh Joshi | |
| 37,458 | | |
| 0.577 | % | |
$ | 13,372.77 | | |
| 13,488 | | |
$ | 20,056.86 | | |
| 1,942,361 | |
| Soham Pathak | |
| 22,475 | | |
| 0.346 | % | |
$ | 8,023.86 | | |
| 8,093 | | |
$ | 12,034.12 | | |
| 1,165,417 | |
| Total: | |
| 885,926 | | |
| | | |
$ | 316,290.45 | | |
| 319,016 | | |
$ | 474,367.48 | | |
| 45,939,038 | |
Exhibit
10.14
EXECUTION VERSION
ZSPACE, INC.
AMENDMENT AND CONVERSION
AGREEMENT
This Amendment and Conversion
Agreement (this “ Agreement”) is entered into effective as of May 16, 2022 (the “Effective
Date”), by and between zSpace, Inc., a Delaware corporation (the “Company”), and Kuwait
Investment Authority, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name
and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait, and having its registered office
at Block 1, Street 201, Sharq, P.O. Box 64, Safat, 13001, Kuwait City, Kuwait (“KIA”).
RECITALS
A. On
February 13, 2019, the Company issued that certain Promissory Note with an aggregate principal amount of Five Million Dollars ($5,000,000.00)
to KIA (the “Original KIA Note”).
B. On
December 4, 2020, the Original KIA Note was amended and restated by that certain Amended and Restated Promissory Note (the “KIA
Note”), which KIA Note (i) has a principal amount outstanding of $5,000,000.00 as of the Effective Date (the “Principal
Amount”), (ii) is subordinated to certain other Company
indebtedness, (iii) accrues interest at a rate of 2.75% per annum from the issue date of the Original KIA Note, and (iv) provides
for the payment of a Premium Amount (as defined therein) of $7,500,000 (the “Repayment Premium”) when repaid
in certain circumstances.
C. As
of March 15, 2023, the total balance outstanding under the KIA Note will be $13,061,678 (the “Balance”),
which amount includes the Principal Amount, the Repayment Premium and other interest thereunder.
D. On
or about the date hereof, the Company will enter into that certain Agreement and Plan of Reorganization (as amended from time to time,
the “Merger Agreement” with EdtechX Holdings Acquisition Corp. II. (a SPAC, as defined below) (“EdtechX”)
and EXHAC Merger Sub I, Inc. and EXHAC Merger Sub II, LLC, each a wholly-owned subsidiary of EdtechX (“Merger Subs”),
which Merger Agreement contemplates a SPAC Transaction (as defined below) pursuant to which Merger Sub I will, subsequent to the satisfaction
of the conditions set forth therein, merge with and into the Company and after which the Company will be the surviving company of such
merger and a wholly-owned subsidiary of EdtechX (the “First Merger”) and, subsequent to the First Merger, the
Company (as the surviving corporation of the First Merger), shall merge with and into Merger Sub II and after which Merger Sub II will
be the surviving entity of such merger and a wholly-owned subsidiary of EdtechX (the “Second Merger” and, together
with the First Merger, the “Mergers”).
E. In
connection with the Mergers, it is contemplated that KIA will purchase 492,610 shares of EdtechX’s Class A common stock (the
“EdtechX Shares”) at a purchase price of $10.15 per share of EdtechX and for an aggregate purchase price of
$4,999,991.50 (the “PIPE Investment Amount”)
in the form of a private investment in public equity as described in Section 3.11 of the Merger Agreement and on such other terms
as shall be reasonably agreed by the parties prior to such purchase (the “PIPE Investment”).
F. It
is a condition to the First Merger, that the Balance convert into fully paid and nonassessable shares of the Company’s capital
stock and/or shares of EdtechX, or otherwise be repaid or cancelled, as set forth in this Agreement, and the parties to the KIA Note
desire to support the consummation of the Mergers and desire to execute and deliver this Agreement in furtherance thereof.
G. The
KIA Note provides that none of its terms or provisions may be excluded, modified or amended except by a written instrument duly executed
on behalf of KIA, expressly referring to the KIA Note and setting forth the provision so excluded, modified or amended, and the Company
and KIA further agreed not to amend the terms of the KIA Note without the consent of bSpace Investments Limited (“bSpace”)
and dSpace Investments Limited (“dSpace”).
H. In
connection with entry into this Agreement, the parties desire for the Company to cause the interest included in the Balance and the Repayment
Premium to be fully paid and satisfied through issuance of the Preferred Shares, as set forth herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises and representations hereinafter set forth, the parties hereto agree as
follows:
1.
Definitions. The following definitions will apply for all purposes of this Agreement:
“Certificate
of Incorporation” means the Company’s Amended and Restated Certificate of Incorporation (as amended from time to
time).
“Preferred Shares”
means a newly-authorized class of the Company’s preferred stock, which class (i) shall be non-voting for all purposes (including
for clarity, no rights to vote for the election of the Company’s directors), (ii) shall be non-convertible, (iii) shall
receive non-cumulative dividends in an amount equal to five percent (5%) of the original issue price per share when and only if declared
by the Company’s Board of Directors (and, for the avoidance of doubt, with no participation rights with respect to any dividends
payable with respect to the Company’s Common Stock), (iv) shall have a senior (to all existing classes and/or series of the
Company), non-participating liquidation preference equal to the original issue price of $1,000.00 per share (which liquidation preference,
for the avoidance of doubt and with respect to the Preferred Shares to be issued to KIA, shall be equal to the Interest Payment Amount
(as defined below) in the aggregate) less any amounts paid in the form of dividends as contemplated by the preceding clause (iii),
and (iv) shall be redeemable at the option of the holders of a majority of the outstanding Preferred Shares on or after March 15,
2023.
“Securities Act” means the U.S.
Securities Act of 1933, as amended.
“SPAC” means a publicly traded
special purpose acquisition company or other similar entity.
“SPAC Transaction”
means a merger, acquisition or other business combination involving the Company and a SPAC following which the capital stock of the Company
or the SPAC are listed on a national securities exchange or market.
2.
Amendment of KIA Note. The Company and KIA hereby irrevocably agree, and each of bSpace and dSpace hereby agrees and
acknowledges, that the KIA Note will be amended, and hereby is amended in any and all ways necessary, to provide as follows:
(a) Payment
of Interest and Repayment Premium Through the Issuance of Preferred Shares. Notwithstanding the provisions of the KIA
Note, and without regard to the completion of the Mergers, within ninety (90) days following the Effective Date and provided that the
Merger Agreement has not been terminated in accordance with its terms prior to such time and the Extension Proposal has been approved
by the SEC and the stockholders of the Parent (as each such term is defined in the Merger Agreement), the Balance less the Principal
Amount (the “Interest Payment Amount”) will automatically be cancelled and converted into 8,062 Preferred Shares
(the “ Payment in Kind”). In connection with and prior to the Payment in Kind, the Company and KIA will take
all such further corporate and other actions as are reasonably necessary to authorize the issuance of and create such Preferred Shares
required for the Payment in Kind, including, without limitation, by authorizing, approving and effecting an amendment to the Certificate
of Incorporation. Furthermore, following the Payment in Kind, the Balance will be reduced automatically by the Interest Payment Amount
without any further action on the part of the Company, KIA, bSpace or dSpace. As soon as practicable following the Payment in Kind, the
Company will issue to KIA an electronic stock certificate for such Preferred Shares (with applicable legends as set forth below and as
may be required under applicable securities laws and/or agreements between KIA and the Company) and such Preferred Shares issued in connection
with the Payment in Kind will be validly issued, fully paid and nonassessable.
(b) PIPE
Investment. Notwithstanding the provisions of the KIA Note, effective immediately prior to the Closing and subject to
and contingent upon such Closing, as long as it occurs prior to March 15, 2023 (the “Expiration Date”),
the remaining Balance (after reduction by the Interest Payment Amount) (the “Remaining Balance”) under the
KIA Note will be reduced to $0 and the Remaining Balance amount instead will be credited and applied towards the payment of the PIPE
Investment Amount on KIA’s behalf in connection with KIA’s PIPE Investment, which PIPE Investment KIA hereby irrevocable
agrees to consummate subject to the contemporaneous occurrence of the Closing. In furtherance of and in connection with the consummation
of the PIPE Investment, KIA agrees to execute a customary form of share purchase agreement with EdtechX and take any and all such further
actions as may be reasonably necessary or advisable in connection therewith.
(c) Amendment
of Interest and Repayment Premium. KIA and the Company hereby acknowledge that the Balance contemplates interest calculated
through the Expiration Date. Notwithstanding the provisions of the KIA Note, provided that the Closing and PIPE Investment (with the
allocation of credit per Section 2(b) above) occur prior to the Expiration Date, no further interest shall accrue under the
KIA Note following the Effective Date other than as stipulated in the preceding sentence. Shall the Closing and PIPE Investment not have
occurred by the Expiration Date, the Balance (as reduced by the Payment in Kind if it has occurred) shall remain in place and interest
shall be accrued on the Principal Amount in accordance with the terms of the KIA Note, effective as of the Expiration Date. Furthermore,
upon the effectiveness of the Payment in Kind, the Company will be deemed to have satisfied its obligations with respect to the Repayment
Premium in full and shall have no further obligations with respect thereto irrespective of any future event that may occur that otherwise
would have triggered an obligation to pay the Repayment Premium.
(d) Adjustments
to the Shares. The number of Preferred Shares will be automatically and proportionally adjusted, and without any requirement
of consideration therefor, to reflect any stock dividend, stock split, reverse stock split, conversion or other similar event affecting
the Preferred Shares before the Payment in Kind. The number of EdtechX Shares will be automatically and proportionally adjusted, and
without any requirement of consideration therefor, to reflect any stock dividend, stock split, reverse stock split, conversion or other
similar event affecting the EdtechX Shares before the consummation of the PIPE Investment, and the purchase price therefor will be proportionately
adjusted.
(e) Acknowledgments;
Waiver; Consent. Upon the completion of the Payment in Kind and the PIPE Investment as contemplated hereby, (i) all
of the Company’s obligations and liabilities under the KIA Note will be discharged and released in full without any further action
on the part of the Company, KIA, bSpace or dSpace; (ii) KIA will not be entitled to any further consideration in respect of the
KIA Note; (iii) the KIA Note will be cancelled and extinguished and of no further force or effect; (iv) any security interest
granted to KIA under the KIA Note will terminate automatically without any further action on the part of the Company or KIA, (v) the
Company is authorized to take any and all actions to evidence the termination of the security interest described in clause (iv) hereof;
and (vi) KIA will execute and deliver, or cause to be executed and delivered all such documents and/or instruments, and will take
or cause to be taken such further or other action as is reasonably necessary or desirable in order to carry out the intent and purpose
of clause (iv) hereof. The representations, warranties, covenants and acknowledgements made in this Agreement are made with the
intention that they may be relied upon by the Company in determining KIA’s eligibility to purchase the Preferred Shares under applicable
securities laws. KIA further agrees that by accepting the Preferred Shares it will be representing and warranting that such representations,
warranties, acknowledgements and covenants are true as of the date of the Payment in Kind with the same force and effect as if they had
been made by KIA on the date of such Payment in Kind. Furthermore, upon the completion of the Payment in Kind and PIPE Investment, the
Company and KIA will each be deemed to have waived, and released the other party from obligations with respect to, any and all rights
to notice, consent, deliverables or other procedural requirements under the KIA Note whether related to the Payment in Kind and PIPE
Investment or otherwise. To the extent the KIA Note calls for consent to any of the transactions contemplated by this Agreement, the
Merger Agreement, and any and all other agreements referenced or contemplated herein or therein, such consent is hereby delivered, or
the consent requirement waived and relinquished, by KIA upon the effectiveness of this Agreement.
(f) Securities
Law Representations. KIA represents, as of the Effective Date and also at the time of the Payment in Kind, that:
(i) Purchase
for Own Account. The Preferred Shares are being or will be acquired for investment for KIA’s own account, not as a nominee
or agent, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act, and KIA has no present
intent to sell, grant any participation in, or otherwise distribute the same.
(ii) Investment
Experience. KIA understands that the purchase of the Preferred Shares involves substantial risk. KIA (i) has experience as an
investor in securities of private companies that are similar to the Company and acknowledges that KIA is able to fend for itself, can
bear the economic risk of KIA’s investment in the Preferred Shares and has such knowledge and experience in financial or business
matters that KIA is capable of evaluating the merits and risks of this investment in the Preferred Shares and protecting its own interests
in connection with this investment, and (ii) has a preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that enables KIA to be aware of the character, business acumen
and financial circumstances of such persons.
(iii) Accredited
Investor Status. KIA is an “accredited investor” within the meaning of Regulation D promulgated under the Securities
Act.
(iv) Restricted
Securities. KIA understands that the Preferred Shares are characterized as “restricted securities” under the Securities
Act, and Rule 144 promulgated thereunder inasmuch as they will be acquired from the Company in a transaction not involving a public
offering, and that under the Securities Act and applicable regulations thereunder, the Preferred Shares may be resold without registration
under the Securities Act only in certain limited circumstances. KIA is familiar with Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. KIA understands that the Company is under no obligation to register
any of the Preferred Shares, except as explicitly contemplated by the Merger Agreement. KIA understands that no public market now exists
for any of the Preferred Shares and that it is uncertain whether a public market will ever exist for the Preferred Shares.
(v) No
Solicitation. At no time was KIA presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television
or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Preferred Shares.
(vi) Foreign
Investors. KIA has satisfied itself as to the full observance of the laws of its jurisdiction in connection with the offer, sale
and purchase of the Preferred Shares and the transactions contemplated by this Agreement, including (i) the legal requirements within
its jurisdiction for the purchase of the Preferred Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may
be relevant to the purchase, holding, redemption, sale, or transfer of the Preferred Shares. KIA’s purchase of and continued beneficial
ownership of the Preferred Shares will not violate any applicable securities or other laws of KIA’s jurisdiction.
(vii) Foreign
Investment Regulations. KIA represents that any consideration to be transferred for Preferred Shares pursuant to this Agreement
does not derive from activity that is or was contrary to law or from a person or location that is or was the subject of a United States
embargo or other economic sanction and that no consideration to be paid for the Preferred Shares in accordance with this Agreement will
provide the basis for liability for any person under United States anti-money laundering laws or economic sanctions laws. KIA further
represents that neither KIA nor any of its nominees or affiliates is on the specially designated OFAC list or similar European Union
watch list.
(viii) Legends.
KIA understands and agrees that the certificates evidencing the Preferred Shares will bear legends substantially similar to those set
forth below in addition to any other legend that may be required by applicable law, by the Certificate of Incorporation or the Company’s
bylaws, or by any agreement between the Company and KIA:
THE SHARES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
The legend set forth above shall be removed by
the Company from any certificate evidencing the Preferred Shares upon delivery to the Company of an opinion of counsel, reasonably satisfactory
to the Company, that a registration statement under the Securities Act is at that time in effect with respect to the Preferred Shares
or that such security can be freely transferred in a public sale (other than pursuant to Rule 144 or Rule 145 under the Securities
Act) without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from
registration pursuant to which the Company issued the Preferred Shares. The Company may impose stop-transfer instructions on the Preferred
Shares in accordance with the foregoing restrictions.
(g) Authority;
Binding Effect. By signing below, both parties agree and acknowledge that such party (i) has all requisite power,
right and authority to enter into this Agreement and to consummate each of the transactions contemplated hereby, (ii) has duly taken,
or will take at the applicable time, all corporate or other entity actions necessary to authorize the transactions contemplated by this
Agreement, and (iii) the persons executing and delivering this Agreement on behalf of each party are duly authorized to do so. Other
than as expressly contemplated hereby, neither KIA nor the Company has assigned any of its rights or obligations under the KIA Note,
including with respect to payment of the Balance.
(a) Consent
to Amendment of the Merger Agreement. The Company shall not amend, and shall not permit any amendment, to the Merger Agreement
in a manner inconsistent with this Agreement or detrimental to KIA without KIA’s prior written consent (not to be unreasonably
withheld or delayed).
3. Taxes.
(a) Withholding.
KIA acknowledges that the Payment in Kind will constitute a payment of interest for U.S. federal income tax purposes that
is potentially subject to withholding tax and, as such, KIA has delivered to the Company, on or prior to the Effective Date, IRS
Form W-8EXP and any other forms reasonably requested by the Company to demonstrate an adequate exemption from such withholding requirement.
In reliance on such forms, the Company agrees not to withhold any taxes in relation to the Payment in Kind or the PIPE Investment and
the other transactions contemplated hereby except as otherwise required by applicable law, and the Company agrees to provide KIA with
prior written notice should the Company conclude that any such tax is required to be withheld under applicable law.
(b) Other
Consequences. KIA has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. KIA has relied solely on such advisors and (except with regard to withholding
taxes, as provided in Section 3(a)) KIA has not relied on any statements or representations of the Company, the Company’s
counsel, or any of the Company’s agents regarding the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. KIA understands that it (and not the Company) will be responsible for its own tax liability
that may arise as a result of this investment or the transactions contemplated by this Agreement.
4. Condition
to Performance of Obligations. Unless waived by the applicable party to which such condition
is owed, the obligations of the parties under this Agreement are subject to (i) each
of the representations and warranties made by each party hereto in Section 2 being true and complete on and as of the date of Payment
in Kind with the same effect as though such representations and warranties had been made at the time of such Payment in Kind, (ii) execution
and delivery by KIA of any consents and agreement(s) reasonably requested in order to effect the Payment in Kind and PIPE Investment,
and (iii) delivery by KIA and the Company, as applicable, of the forms referenced in Section 3 hereof and confirmation that
such forms remain true and correct at the time of the Payment in Kind and PIPE Investment. Promptly following the Payment in Kind and
PIPE Investment, KIA shall authorize, execute and deliver, or cause to be executed and delivered, in each case at the sole expense of
the Company, releases, termination statements, certificates, instruments, notices, filings, registrations or other documents, as the
Company or its designees may from time to time reasonably request, to effectuate, or reflect on public record, the termination of the
KIA Note and the release and discharge of any liens, security interests and other rights in favor of the KIA in connection therewith.
5. Consent
of bSpace and dSpace. By its signature below, each of bSpace and dSpace hereby acknowledges
and consents and agrees to the transactions contemplated hereby for all purposes, including, without limitation, for the purpose of satisfying
the consent requirement in the KIA Note and waiving any restrictions imposed by the Subordination Agreement dated December 4, 2020.
6. General
Provisions.
(a) Successors
and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations
of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators
and legal representatives. This Agreement is not assignable by KIA without the prior written consent of the Company.
(b) Governing
Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving
effect to that body of laws pertaining to conflict of laws.
(c) Further
Assurances. KIA, the Company, bSpace and dSpace will execute and deliver, or cause to be executed and delivered all such
documents and/or instruments, and will take or cause to be taken such further or other action as is reasonably necessary or desirable
in order to carry out the intent and purpose of this Agreement.
(d) Enforceability.
In case any provision of this Agreement is declared invalid, illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions will not in any way be affected or impaired thereby.
(e) Titles
and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be
disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections”
will mean “sections” in this Agreement
(f) Entire
Agreement. This Agreement, and the documents referred to herein, constitute the entire agreement and understanding of
the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral
or written, between or among the parties hereto with respect to the specific subject matter hereof.
(g) Amendment
and Waivers. This Agreement may be amended only by a written agreement executed by each of the Company and KIA and acknowledged
by bSpace and dSpace. No amendment or waiver of, or modification of any obligation under this Agreement will be enforceable unless set
forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this Subsection
will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance
of any provision of this Agreement will constitute a waiver of that provision as to that or any other instance. No waiver granted under
this Agreement as to any one provision herein will constitute a subsequent waiver of such provision or of any other provision herein,
nor will it constitute the waiver of any performance other than the actual performance specifically waived.
(h) Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed
an original, and all of which together will constitute one and the same agreement.
(i) Electronic
Signatures. Signature pages may be delivered via facsimile, electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any signature page so
delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
(j) RELEASE
OF CLAIMS. FOR AND IN CONSIDERATION OF KIA’S AGREEMENTS CONTAINED HEREIN, THE COMPANY, TOGETHER WITH ITS, SUCCESSORS
AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND
DISCHARGES KIA AND EACH OF ITS RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS,
SUCCESSORS, AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS,
AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE
“RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES
AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL,
OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE EFFECTIVE DATE THAT ANY OF THE RELEASORS
MAY NOW HAVE AGAINST THE RELEASED PARTIES, IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE KIA NOTE, ANY
PRIOR OR EXISTING LOANS BETWEEN RELEASORS ANY RELEASED PARTIES, THE KIA NOTE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER ANY OF THE
LOAN DOCUMENTS, AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE
BENEFITS OF ANY LAW INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE
DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.”
[Signature Page Follows]
In
Witness Whereof, the undersigned have executed this Amendment and Conversion Agreement as of the date and year first written
above.
COMPANY:
zSpace, Inc.
| By: |
/s/ Paul Kellenberger |
|
| Name: |
Paul Kellenberger |
|
| Title: |
Chief Executive Officer |
|
KIA:
KUWAIT INVESTMENT
AUTHORITY, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name
and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait, and having its registered office
at Block 1, Street 201, Sharq, P.O. Box 64, Safat, 13001 Kuwait City, Kuwait.
| By: |
/s/ Aliah F. Al-Tammemi |
|
| Name: |
Aliah F. Al-Tammemi |
|
| Title: |
Executive Director |
|
Signature
Page to zSpace, Inc. Amendment and Conversion Agreement
AGREED
AND ACKNOWLEDGED BY:
| dSpace Investments Limited |
|
| |
|
|
| By: |
/s/ Pankaj Gupta |
|
| Name: |
Pankaj Gupta |
|
| Title: |
Authorized Signatory |
|
| bSpace Investments Limited |
|
| |
|
|
| By: |
/s/ Mohammed Al Hassan |
|
| Name: |
Mohammed Al
Hassan |
|
| Title: |
Authorized Signatory |
|
| |
|
|
| By: |
/s/ Siddharth
Sanghi |
|
| Name: |
Siddharth Sanghi |
|
| Title: |
Authorized Signatory |
|
Signature
Page to zSpace, Inc. Amendment and Conversion Agreement
Exhibit 10.15
CONVERSION AGREEMENT
This Conversion
Agreement (this “Agreement”) is entered into as of August 12, 2022 (the “Effective Date”),
by and between zSpace, Inc., a Delaware corporation (the “Company”), and bSpace Investments Limited (“bSpace”).
RECITALS
A.
On December 4, 2020, the parties entered into that certain Amended and Restated Loan and Security Agreement (as amended to
date, the “bSpace Loan Agreement”), which bSpace Loan Agreement, among other things, (i) has a principal amount
outstanding of $31,500,000.00 as of May 16, 2022 (the “Principal Amount”), (ii) is subordinated to certain
other Company indebtedness, (iii) is secured by Collateral (as defined therein), and (iv) provides for the payment of interest
and certain fees and other amounts, including a Repayment Premium (as defined therein) of $47,250,000.00 when repaid in certain circumstances.
B. Pursuant
to that certain Closing Fee Letter Agreement entered into in connection with the bSpace Loan Agreement dated December 4, 2020, between
Gulf Islamic Investments LLC (“GII”) and the Company (the “Fee Letter”), the Company will owe GII
an advisory fee, the right to which GII has assigned to bSpace.
C. As
of March 15, 2023, and assuming accrual of interest at five percent (5%) for the period from January 1 to March 15, 2023,
the total balance outstanding under the bSpace Loan Agreement and Fee Letter will be $90,471,944 (the “Balance”),
which amount includes the Principal Amount, the Repayment Premium and other interest and fees thereunder.
D. On
May 16, 2022, the Company and bSpace entered into an Amendment and Conversion Agreement, dated as of May 16, 2022 (the “Amendment
and Conversion Agreement”), under which pursuant to Section 2(b) thereof, (i) within ninety (90) days following
May 16, 2022 (the “Amendment and Conversion Agreement Effective Date”), provided that the Merger Agreement (as
defined in the Amendment and Conversion Agreement) has not been terminated in accordance with its terms prior to such time and the Extension
Proposal has been approved by the SEC and the stockholders of the Parent (as each such term is defined in the Amendment and Conversion
Agreement), the Balance less the Principal Amount (the “Interest Payment Amount”) will automatically be cancelled
and converted into 58,972 Preferred Shares of the Company (the “Payment In Kind” and such shares issued thereunder,
the “Payment-In-Kind Shares”), and (ii) in connection with the Payment In Kind, the Company and bSpace will take
all such further corporate and other actions as are reasonably necessary to authorize the issuance of and create such preferred shares
required for the issuance of the Payment-In-Kind Shares, and (iii) as soon as practicable following the issuance of the Payment-In-Kind
Shares, the Company will issue to bSpace an electronic stock certificate for such Payment-In-Kind Shares (with applicable legends as
set forth in the Amendment and Conversion Agreement and as may be required under applicable securities laws and/or agreements between
bSpace and the Company) and such Payment-In-Kind Shares issued in connection with the Payment In Kind will be validly issued, fully paid
and nonassessable
NOW, THEREFORE, for the avoidance of
doubt, to evidence the Payment in Kind and the issuance of the Payment-In-Kind Shares, and in consideration of the terms and
provisions of this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by
the execution and delivery hereof, the parties hereto, constituting the parties necessary to take the actions contemplated herein,
agree as follows:
1. Conversion.
Effective as of the date of this Agreement, the undersigned hereby agree that the Interest Payment Amount is hereby converted and exchanged
into the Payment-In-Kind Shares.
2. Acknowledgements.
bSpace acknowledges that the receipt of the Payment-In-Kind Shares at the Effective Time shall fully satisfy and discharge the Company’s
obligations to the Interest Payment Amount.
3. Representations,
Warranties and Covenants of the Company. The Company hereby represents and warrants to bSpace as follows:
| 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 and has all requisite corporate power and authority to carry on
its business as now conducted and as proposed to be conducted. |
| 3.2 | Authorization. All corporate action on the part of the Company, its officers, directors and holders
of capital stock necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the
Company thereunder and the authorization, issuance and delivery of the Payment-in-Kind Shares has been taken or will be taken prior to
the Effective Time, and this Agreement, when executed and delivered by the Company, shall constitute a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms. |
| 3.3 | Valid Issuance of Payment-In-Kind Shares. The Payment-In-Kind Shares sold and delivered in accordance
with the terms hereof for the consideration expressed herein, are duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under the Amendment and Conversion Agreement and the Bylaws of the Company, applicable
state and federal securities laws and liens or encumbrances created by or imposed by bSpace. Based in part upon the representations of
bSpace in Section 4 of this Agreement, the Payment-In-Kind Shares are issued in compliance with all applicable federal and state
securities laws. |
4. Representations
and Warranties of bSpace. bSpace hereby represents and warrants to the Company that the representations and warranties made by bSpace
in section 2(h) of the Amendment and Conversion Agreement remain true and correct as of the Effective Date.
5. Entire
Agreement. This Agreement contains the sole and entire understanding of the parties with respect to its subject matter and supersedes
all prior negotiations, commitments, agreements and understandings heretofore had among them with respect thereto.
6. Counterparts.
This Agreement may be executed in more than one counterpart, each of which shall be deemed to be an original and which, together, shall
constitute one and the same instrument. Any such counterpart may contain one or more signature pages. This Agreement may be executed by
electronic signatures.
7. Severability.
If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision
in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were
so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.
8. Governing
Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware (without regard to conflict
of laws provisions that would result in the application of laws other than the laws of the State of Delaware). Section 5 of
the Amendment and Conversion Agreement are incorporated by reference herein as if such Section appeared herein, mutatis mutandis.
The validity, interpretation, construction and performance of this Agreement, and all acts and transactions pursuant hereto and the rights
and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the same laws as that of the Amendment
and Conversion Agreement, without giving effect to principles of conflicts of law.
9. Amendments
and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and bSpace.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties have
executed this Conversion Agreement as of the date first written above.
COMPANY:
zSpace, Inc.
| By: |
|
|
| Name: |
Paul Kellenberger |
|
| Title: |
Chief Executive Officer |
|
BSPACE:
| bSpace Investments Limited |
|
| |
|
|
| By: |
/s/ Mohammed Al Hassan |
|
| Name: |
Mohammed Al Hassan |
|
| Title: |
Authorized Signatory |
|
| |
|
|
| By: |
/s/ Siddharth
Sanghi |
|
| Name: |
Siddharth Sanghi |
|
| Title: |
Authorized Signatory |
|
SIGNATURE PAGE TO CONVERSION AGREEMENT OF ZSPACE, INC.
Exhibit 10.16
LOAN
AND SECURITY
AGREEMENT
| BORROWER: ZSPACE,
INC., a Delaware Corporation |
DATE:
NOVEMBER 3,
2022 |
This
LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of the date set forth above
(the “Effective Date”) by and between Fiza Investments Limited, an entity organized under the
laws of the Cayman Islands (together with its assigns, “Lender”), and the borrower(s) named above (each
and collectively, “Borrower”).
Capitalized
terms used but not otherwise defined herein shall have the meanings given them on Schedule C.
WHEREAS,
Borrower is need of funds for an amount of up to $5,000,000 (“Loan Amount”) to be used for the purposes
set out in this Agreement;
WHEREAS,
the Lender has agreed to provide the Loan Amount as a secured loan on the terms and conditions set out in this Agreement;
and
WHEREAS,
the Lender and the Borrower are entering into this Agreement to record the terms and conditions in respect of the provision
and repayment of the Loan Amount.
The
parties agree as follows:
1. Loan. Lender will make extensions of credit or other financial accommodations for Borrower’s benefit in multiple
tranches up to the Loan Amount as set out in Schedule A (collectively, the “Loans”) for general corporate
purposes and to meet working capital requirements of the Borrower that are not prohibited by this Agreement, and Borrower promises
to pay Lender the amount of the Loan and other debts, principal, interest, Lender Expenses and other amounts Borrower owes Lender
now or later, including interest, premiums and fees accruing after any Insolvency Proceedings begins, and debts, liabilities,
or obligations of Borrower assigned to Lender pursuant to the terms and conditions of this Agreement or any Loan Document and
as set forth on Schedule A. Lender’s obligation to make the Loans is subject to its receipt of the agreements, documents
and fees it reasonably requires, including without limitation the agreements, documents and fees set forth on Schedule A.
2. Security Interest. As security for all present and future Obligations and for Borrower’s performance for each of
its duties hereunder, Borrower grants Lender a continuing security interest in all of Borrower’s interest in the Collateral.
In the event there is more than one Borrower, each and every Borrower entity’s obligations hereunder shall be joint and
several with the obligations of the other Borrower entities.
3. Representations, Warranties and Covenants of Borrower. Borrower represents, warrants and covenants to Lender as follows,
as of the Effective Date and with respect to covenants, for so long as this Agreement is in effect or any Obligations (other than
inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement)
remain outstanding:
3.1
Corporate Existence; Authority. Each of Borrower and its Subsidiaries is and will continue to be, duly existing and in
good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state where
such qualification or licensing is necessary, except for jurisdictions in which failure to do so would not have a Material Adverse
Effect on Borrower. The execution, delivery and performance by Borrower of this Agreement and all other related documents have
been duly and validly authorized, do not conflict with Borrower’s charter documents, corporate governance documents and/or
shareholder agreements, third party loan agreement or other material contractual obligation of the Company (or any similar equivalents),
and do not constitute an event of default under any material agreement by which Borrower is bound.
3.2 Collateral.
Lender has and will at all times continue to have a perfected security interest in all of the Collateral (including, but not
limited to, all Intellectual Property) except for Permitted Liens, on a senior basis to the obligations in respect of and
under the Pre-Existing Agreements. Borrower has, and will continue to have, good title to the Collateral, free of any
liens except Permitted Liens. Borrower will immediately advise Lender in writing of any material loss or damage to the
Collateral. If, at any time, Borrower has knowledge that it shall have acquired a material commercial tort claim, Borrower
shall promptly provide written notice thereof to Lender and grant to Lender in writing a security interest therein and in the
proceeds thereof. Borrower represents that all of its Intellectual Property, comprising (i) copyrights, copyright
applications, copyright registrations and mask works and (ii) patents, patent applications, patent registrations, and (iii)
trademarks, trademark applications, trademark registrations, service marks and service mark applications.
3.3
Financial Matters. All financial statements (including notes and schedules) now or in the future delivered to Lender, (i)
have presented, and will present, fairly in all material respects Borrower’s financial condition and its results of operations,
and (ii) have been, and will be, prepared in conformity with generally accepted accounting principles (“GAAP”)
(except for the absence of footnotes in unaudited financial statements and subject to year-end audit adjustments). Since the last
date covered by any such statement delivered to Lender, there has been no further material impairment in the financial condition
or business of Borrower. Borrower will provide Lender with all financial reports as set forth on Schedule A attached hereto,
as well as any other financial information reasonably requested by Lender from time to time, including budgets, projections and
plans.
3.4
Statement of Borrower’s Information. All of Borrower’s information provided to the Lender is true and correct
as of the Effective Date in all material respects, and Borrower shall provide written notice to Lender of any material changes
within the prescribed periods of time set forth therein.
3.5
Taxes; Legal Compliance. Borrower has filed, and will file, when due (subject to any applicable extensions), all tax returns
and reports required by applicable law. Borrower has paid, and will pay when due, all taxes, assessments, deposits and contributions
now or in the future owed (except for (a) taxes and assessments being contested in good faith with adequate reserves under GAAP
and (b) those taxes and assessments that do not, individually or in the aggregate, exceed One Hundred Thousand Dollars ($100,000)).
Borrower has complied, and will comply, in all material respects, with all applicable laws, rules and regulations.
3.6
Insurance. Borrower shall at all times insure, at its own cost and expense, all of the tangible personal property Collateral
and carry such other business insurance as is customary for companies similarly situated to Borrower. All property policies will
have a lender’s loss payable endorsement showing Lender as a lender loss payee and all liability policies will show Lender
as an additional insured and provide that the insurer must give Lender at least twenty (20) days’ (ten (10) days’
for nonpayment of premium) notice before canceling its policy.
3.7
Access. Upon three (3) Business Days’ prior notice, Lender or its agents shall have the right to inspect the Collateral
where such Collateral is located from time to time and to audit and copy Borrower’s books and records during Borrower’s
regular business hours. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, Lender shall not
be required to provide written notice to Borrower of any inspection or audit.
3.8 Insolvency. Borrower is able, and will continue to be able, to pay its debts (including trade debts) as they mature.
3.9
Additional Agreements. Borrower will not, and will not permit any of its Subsidiaries to, without Lender’s prior
written consent (which may be by email), do any of the following:
(i)
(A) convey, sell, lease, transfer or otherwise dispose of (“Transfer”) any property other than Permitted Transfers,
or (B) any Change of Control;
(ii)
engage in any business other than the business currently engaged in by Borrower or reasonably related thereto;
(iii) fail to provide notice to Lender of any Key Person departing from or ceasing to be employed by Borrower within five (5) Business
Days after his or her departure from Borrower;
(iv) increase the authorized number of shares of Preferred Stock or any additional class or series of capital stock of Borrower or
permit or suffer to exist a change in its ownership existing as of the Effective Date, except for equity issuances to service
providers pursuant to the Company’s 2017 Equity Incentive Plan that are approved by the Board of Directors, including the
Series A Director, if any;
(v) merge or consolidate with any party, or acquire all or substantially all of the capital stock or assets of another party (provided,
however, that a Subsidiary may merge or consolidate into another Subsidiary or into Borrower);
(vi)
incur or become liable for any indebtedness other than Permitted Indebtedness;
(vii) assign or convey any rights to income or incur or allow any lien, security interest or other encumbrance on any of its property
other than Permitted Liens;
(viii)
make any investments except for Permitted Investments;
(ix)
pay or declare any dividends on Borrower’s stock other than dividends paid solely in Borrower’s stock;
(x)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock, options or warrants other
than (a) stock, options and warrants repurchased in connection with the termination of employment or service as an employee, consultant,
officer or director at cost, (b) purchases of fractional shares of stock arising out of stock dividends, splits, combinations
or business combinations, (c) , repurchases of stock, options and warrants to the extent deemed to occur upon exercise of stock
options or warrants if (x) such repurchased stock, options, or warrants represent a portion of the exercise price of such options
or warrants and (y) such repurchase is in the form of non-cash consideration or in the form of a cashless net exercise;
(xi) directly or indirectly enter into any material transaction with any affiliate except (a) those that are entered into in the
ordinary course of business upon reasonable terms no less favorable than those in an arm’s-length transaction with a
non-affiliate, (b) transactions of the type described in and permitted pursuant to Sections 4.9(ix)-(x), (c) Investments
permitted under sub-clauses (e) and (h) of the definition of “Permitted Investments”, and (d) reasonable and
customary director, officer and employee compensation and other customary benefits including retirement, health, stock option
and other benefit plans and indemnification arrangements approved by Borrower’s Board of Directors; and if excess of
25% such persons existing compensation, then with Lender’s consent;
(xii)
make any payment on, or materially change any term relating to, any Subordinated Debt, except under the terms of the subordination,
intercreditor or other similar agreement to which such subordination agreement is subject;
(xiii) without at least thirty (30) days’ prior written notice (or such shorter period as approved by Lender) to Lender, relocate
its principal offices from Borrower’s address set forth on the signature page hereof or change its state of formation or
name;
(xiv) directly or indirectly list any of its equity on any exchange; or
(xv) until the redemption of the New Preferred Stock, any of the following:
(a)
enter or amend any material agreement of Borrower, including any amendment of any agreement with KIA or affiliates thereof, other
than in the ordinary course of business; incur any aggregate indebtedness in excess of $100,000 that is not incurred in the ordinary
course of business, other than trade credit incurred in the ordinary course of business;
(b)
hire, terminate, or materially change the compensation of the executive officers, including approving any option grants or stock
awards to executive officers;
(c)
sell, assign, license, pledge, or encumber material technology or Intellectual Property, other than licenses granted in the ordinary
course of business;
(d) liquidate, dissolve or wind-up the business and affairs of Borrower, effect any merger or consolidation or any other Deemed Liquidation
Event (as defined in the Amended and Restated Certificate of Incorporation);
(e)
amend, alter or repeal any provision of the Amended and Restated Certificate of Incorporation or Bylaws of Borrower;
(f)
create, or authorize the creation of, or issue or obligate itself to issue shares of, or reclassify, any capital stock other than
equity issuances to non-executive service providers pursuant to the Company’s 2017 Equity Incentive Plan that are approved
by the Board of Directors, including the Series A Director, if any;
(g)
increase the authorized number of shares of Preferred Stock or any additional class or series of capital stock of Borrower;
(h)
purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on,
any shares of capital stock of Borrower;
(i)
create, adopt, amend, terminate or repeal any equity (or equity-linked) compensation plan;
(j)
create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security
interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other
similar persons arising or incurred in the ordinary course of business);
(k)
incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees,
or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness
for borrowed money;
(l) create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one (1) or more other subsidiaries)
by Borrower, or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue, any shares
of any class or series of capital stock, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect
subsidiary of Borrower or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise
dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;
or
(m)
increase or decrease the authorized number of directors constituting Borrower’s Board of Directors, change the number of
votes entitled to be cast by any director or directors on any matter.
Notwithstanding
anything to the contrary set forth in this Section 3.9, Lender’s consent will not be required under any circumstance (A)
to initiate an Insolvency Proceeding (including for the avoidance of doubt a filing under Chapter 7 or Chapter 11 of the United
States Bankruptcy Code), (B) to pursue or consummate a Qualified Public Offering, (C) to consummate the transactions and issuances
contemplated by the Conversion Agreements, and/or (D) to consummate the transactions contemplated by the Business Combination
agreement.
3.10
Further Actions. Borrower shall take or authorize any further actions (including Lender’s filing of financing statements
to perfect Lender’s security interest in the Collateral) and execute any further instruments as Lender reasonably requests
to perfect or continue Lender’s security interests or to effect the purposes of this Agreement.
3.11
Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or other written
statement submitted to Lender, as of the date such representation, warranty or other statement was made, in the aggregate, contains
any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in such certificates
or other written statements not misleading (it being recognized by Lender that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions as of the time made are not viewed as facts and that actual results during
the period or periods covered by such projections and forecasts may differ from projected or forecasted results).
4. Term.
This Agreement shall continue in effect until the maturity date as more fully set forth in Schedule A
(the “Maturity Date”). On the Maturity Date or on any earlier effective date of termination of this
Agreement, Borrower shall pay in cash all Obligations in full, whether or not such Obligations are otherwise then due and
payable. No termination shall in any way affect or impair any security interest or other right or remedy of Lender, nor shall
any such termination relieve Borrower of any obligation to Lender, until all of the Obligations have been paid and performed
in full. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations and any other
obligations which by their terms, are to survive termination of this Agreement, but, for the avoidance of doubt, including
the Repayment provisions of Schedule A), this Agreement may be terminated prior to the Maturity Date by Borrower,
effective three (3) Business Days after written notice of termination is given to Lender. Those obligations that are
expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive
notwithstanding this Agreement’s termination. Upon payment in full in cash of the Obligations (other than inchoate
indemnity obligations), Lender’s liens in the Collateral and all rights therein shall automatically revert to Borrower
and upon Borrower’s request, Lender shall, at the sole cost and expense of Borrower, promptly take such steps to
evidence the release of its liens in the Collateral as Borrower shall reasonably request.
5.
Conditions Precedent
5.1
Conditions Precedent to Effectiveness of this Agreement. The effectiveness of this Agreement is subject to the fulfillment
of the following conditions and to the receipt by Lender of the documents described below, duly executed and in form and substance
reasonably satisfactory to Lender and its counsel:
(i) a Corporate Borrowing Certificate, substantially in the form attached hereto as Schedule E, duly executed and delivered
by Borrower, together with (a) copies of the organizational and charter documents of Borrower (e.g., Articles or Certificate of
Incorporation and Bylaws), as amended through the Effective Date, and (b) a copy of the resolutions of the Board of Directors
of Borrower authorizing the execution, delivery and performance by Borrower of the Loan Documents;
(ii) executed counterparts of this Agreement and the other Loan Documents ((including, without limitation, the Subordination Agreement
)in form acceptable to Lender in its sole discretion);
(iii) a certificate of status or good standing of Borrower as of a date acceptable to Lender from the jurisdiction of Borrower’s
organization and any foreign jurisdictions where Borrower is qualified to do business and the failure to be so qualified could
reasonably be expected to have a Material Adverse Change;
(v) filing copies (or other evidence of filing satisfactory to Lender and its counsel) of such UCC financing statements, collateral
assignments, and termination statements, with respect to the Collateral as Lender shall reasonably request; and
(vi) such other documents and instruments as Lender may reasonably request (including any requested Intellectual Property security
agreements and the like) to effectuate the intents and purposes of this Agreement and the other Loan Documents.
Notwithstanding
the above, Lender may waive any conditions precedent listed in Section 5.1 in its sole discretion.
5.2
Conditions Precedent to Obligation to advance any Loan. The obligation of Lender to make any Loan hereunder is subject
to the following conditions and to the receipt by Lender of the documents described below, duly executed and in form and substance
reasonably satisfactory to Lender and its counsel: (i) a Note in the form attached hereto as Schedule G (the “Note”),
and (ii) that no Event of Default has occurred and is continuing.
Notwithstanding
the preceding sentence, Lender may waive any conditions precedent listed in the preceding sentence in its sole discretion.
6. Events
of Default. The occurrence of any of the following events shall constitute an “Event of
Default” hereunder; provided however that there shall be no Event of Default as a result of an event, condition or
circumstance in existence on the Effective Date that is disclosed in writing to the Lender under a disclosure letter: (i)
Borrower fails to deliver the financial statements and other information pursuant to Section 3.3 above within the
prescribed period of time; (ii) Borrower violates any of the covenants set forth in Sections 3.4 or 3.9 above
or the Additional Agreements and Limitations section of Schedule A below; (iii) Borrower fails to pay when due the
Loan or other monetary Obligation within three (3) Business Days after the due date; (iv) Borrower fails to perform any
obligation (other than payment of the Loan or other Obligations or those pursuant to Sections 3.3 and 3.9
above) or covenant hereunder, which, if such default can be reasonably cured, is not cured within twenty (20) days after the
date due (or a later date, as approved in writing by Lender); (v) the occurrence or existence of any circumstance that would
reasonably be expected to have a Material Adverse Change; provided, that notwithstanding anything to the contrary herein, no
Material Adverse Change shall be deemed to arise solely as a result of: (A) Borrower’s investors declining to further
financially support the Borrower; (B) resignations by members of the Borrower’s Board of Directors; and/or (C) the
occurrence or existence of any circumstances prior to the Effective Date as otherwise disclosed to Lender or Lender’s
representatives; (vi) there is a material impairment in the perfection or priority of Lender’s security interest in the
Collateral or in the value of such Collateral (other than normal depreciation) which is not covered by adequate insurance;
(vii) any representation, or written statement given to Lender by or on behalf of Borrower, now or in the future, is untrue
or misleading in a material respect; (viii) a default, after the Effective Date, in any agreement between Borrower and a
third party that gives the third party the right to accelerate any indebtedness exceeding the Threshold Amount or that
could reasonably be expected to cause any material impairment in Borrower’s business, operations or financial condition
of Borrower, save and except any recall of the indebtedness availed by the Borrower from East West Bank pursuant to the EWB
Loan Documents; (ix) one or more fines, penalties or final judgments, orders or decrees for the payment of money in an
amount, individually or in the aggregate, of at least the Threshold Amount (not covered by independent third-party insurance
as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any governmental
authority, and the same are not, within twenty (20) days after the entry, assessment or issuance thereof, discharged,
satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior
to the expiration of any such stay; (x) the attachment, seizure, levy or possession by a trustee or receiver of any material
portion of Borrower’s assets which is not removed within twenty (20) days from its occurrence; (xi) the enjoinment,
restraint or prevention by court order from conducting a material part of Borrower’s business, which is not terminated
within twenty (20) days of its occurrence; (xii) the dissolution, winding up or insolvency of Borrower; (xiii) the failure of
Paul Kellenberger to serve as Chief Executive Officer for any reason for a period of greater than 60 days before the Maturity
Date, provided that shall the Board of Directors of Borrower replace Paul Kellenberger with an equivalently qualified Chief
Executive Officer acceptable to Lender (such approval not to be unreasonably withheld) within 120 days of such failure of
Paul Kellenberger to serve, such action and such replacement shall not constitute an Event of Default hereunder; (xiv) the
appointment of a receiver, trustee or custodian, for all or part of the property of, assignment for the benefit of creditors
by Borrower, Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed
or stayed within forty-five (45) days, (xv) failure of Borrower to provide an executed Note in the form attached hereto as Schedule
G within 5 business days of Lender’s advance of the first Loan, (xvi) a default by the Borrower (payment default or
otherwise) in respect of any Pre-Existing Agreement.
7.
Rights and Remedies. If an Event of Default occurs and continues, Lender may during the continuance of such Event of Default,
without notice or demand do any or all of the following: (i) accelerate and declare all of the Loan and other Obligations to be
immediately due and payable (but if an Event of Default described in Sections 6(xi) or 6(xii) occurs, all Obligations are
immediately due and payable without any action by Lender); (ii) stop advancing money or extending credit for Borrower’s
benefit under this Agreement or any other agreement between Borrower and Lender; (iii) settle or adjust disputes and claims directly
with account debtors for amounts, on terms and in any order that Lender considers advisable; (iv) make any payments and do any
acts it considers necessary or reasonable to protect its security interest in the Collateral (and Borrower will reasonably cooperate
with Lender accordingly); (v) apply to the Obligations any balances and deposits of Borrower that Lender holds or any amount held
by Lender owing to or for the credit or the account of Borrower; (vi) impose the Default Rate (as defined in Schedule A);
(vii) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell or otherwise dispose
the Collateral; (viii) deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant
to any control agreement or similar agreements providing control of any Collateral on a senior basis to the obligations outstanding
under the Pre-Existing Agreements; and/or (ix) exercise any other rights and remedies permitted by applicable law. Effective only
when an Event of Default occurs and continues, Borrower irrevocably appoints Lender as its lawful attorney to: (a) endorse Borrower’s
name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for
any account or drafts against account debtors, (c) make, settle, and adjust all claims under Borrower’s insurance policies;
(d) settle and adjust disputes and claims about the accounts directly with account debtors for amounts and on terms Lender determines
reasonable; and (e) transfer the Collateral into the name of Lender or a third party as the applicable UCC permits. Lender may
exercise the power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred. Lender’s appointment as Borrower’s
attorney in fact, and all of Lender’s rights and powers, coupled with an interest, are irrevocable until all Obligations
(other than inchoate indemnity obligations and any obligations which, by their terms, are to survive the termination of this Agreement)
have been fully repaid and performed. All of Lender’s rights and remedies under this Agreement or any other agreement between
Lender and Borrower are cumulative. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees held by Lender on which Borrower is liable. In the event there is more than one Borrower, the Obligations
of each Borrower entity hereunder shall be independent of the Obligations of any other Borrower entities or any security for the
Obligations, and Lender may proceed in the enforcement hereof independently of any other right or remedy that Lender may at any
time hold with respect to the Obligations or any security or other guarantee therefor. In the event there is more than one Borrower,
Lender may file a separate action or actions against any Borrower entity hereunder, whether action is brought and prosecuted with
respect to any security or against any Borrower entity or any other Person.
8.
General.
8.1
No Waivers; Amendments. The failure of Lender at any time to require Borrower to comply strictly with any of the provisions
of this Agreement shall not waive Lender’s right to later demand and receive strict compliance. Any waiver of a default
shall not waive any other default. None of the provisions of this Agreement may be waived except by a specific written waiver
signed by Lender and delivered to Borrower. The provisions of this Agreement may not be amended except in a writing signed by
Borrower and Lender.
8.2 Indemnification.
Borrower will indemnify, defend and hold harmless Lender and its affiliates, and each of their officers, directors,
employees, attorneys, accountants and agents against: (i) all obligations, demands, claims, and liabilities asserted by any
other party in connection with the transactions contemplated hereunder; and (ii) all losses and expenses incurred, or paid by
Lender arising from transactions between Lender and Borrower contemplated by the Loan Documents (including reasonable
attorneys’ fees and expenses), except, as to both “(i)” and “(ii)” in this Section 8.2,
for losses caused by Lender’s gross negligence or willful misconduct. This Section 8.2 shall survive termination
of this Agreement.
8.3
Lender Expenses; Attorneys’ Fees. Borrower shall reimburse Lender for all reasonable and documented out-of-pocket
audit fees and expenses and reasonable and documented out-of-pocket costs and expenses (including, but not limited to the reasonable
and documented attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing this Agreement
and the other loan documents with Lender (including appeals or insolvency proceedings) (collectively, “Lender Expenses”).
Nothwithstanding the prior sentence, the maximum amount of reimburseable fees for preparation and negotiation of this Agreement
shall be $25,000. If, subject to the foregoing, Lender or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees from the non-prevailing
party.
8.4
Binding Effect; Assignment. This Agreement is binding upon and for the benefit of the successors and permitted assignees
of each party. Borrower may not assign any rights under this Agreement without Lender’s prior written consent. The Lender,
acting solely for this purpose as an agent of the Borrower, shall maintain a register for the recordation of the names and addresses
of the Lenders, and the principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof
from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the
Borrower and the Lenders shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
8.5
Notices. All notices by any party required or permitted under this Agreement or any other related agreement must be in
writing and be personally delivered or sent by overnight delivery, certified mail (postage prepaid and return receipt requested),
or facsimile to the addresses and numbers below.
8.6
Governing Law; Jurisdiction. This Agreement shall be governed by the laws of the State of New York without regard to principles
of conflicts of law. Borrower and Lender each submit to the exclusive jurisdiction of the federal and state courts in the County
of New York, the City of New York.
8.7
Other. If any provision hereof is unenforceable, the remainder of this Agreement shall continue in full force and effect.
This Agreement (including the schedules attached hereto) and any other written agreements and, documents executed in connection
herewith are the complete agreement between Borrower and Lender and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated herein. This Agreement may be executed in one or more counterparts,
all of which when taken together will constitute one agreement.
9. Confidentiality. In handling any confidential information (including Borrower’s financial statements and all information
and data therein), Lender will exercise the same degree of care that it exercises for its own proprietary information, but disclosure
of information may be made: (i) to Lender’s Subsidiaries or affiliates; (ii) to prospective transferees or purchasers of
any interest in the Loan (provided that Lender shall use commercially reasonable efforts to obtain such transferee’s or
purchaser’s agreement of the terms of this provision); (iii) as required by law, regulation, subpoena, or other order; (iv)
as required in connection with Lender’s examinations and audits; (v) as Lender considers appropriate in exercising remedies
under this Agreement; or (vi) to third-party service providers of Lender so long as such service providers have executed a confidentiality
agreement with Lender with terms no less restrictive than those contained herein. Confidential information does not include information
that is either: (a) in the public domain or in Lender’s possession when disclosed to Lender or becomes part of the public
domain (other than as a result of its disclosure by Lender in violation of this Agreement) after disclosure to Lender; or (b)
disclosed to Lender by a third party, if Lender does not know that the third party is prohibited from disclosing the information.
10.
Taxes.
10.1 Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower under any Loan Document
shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law requires
the deduction or withholding of any Tax from any such payment by the Borrower, then the Borrower shall be entitled to make such
deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant governmental authority in accordance
with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary
so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional
sums payable under this Section) the applicable Lender receives an amount equal to the sum it would have received had no such
deduction or withholding been made.
10.2 Payment of Other Taxes by Borrower. The Borrower shall timely pay to the relevant governmental authority in accordance
with applicable law, or at the option of the applicable Lender timely reimburse it for the payment of, any Other Taxes.
10.3 Indemnification by Borrower. The Borrower shall indemnify the Lender, promptly after demand therefor, for the full amount
of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section)
payable or paid by such Lender or required to be withheld or deducted from a payment to the Lender and any reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted
by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to the Borrower
by a Lender, shall be conclusive absent manifest error.
10.4 Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower to a governmental authority pursuant
to this Section, the Borrower shall deliver to the applicable recipient the original or a certified copy of a receipt issued by
such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to such Lender.
10.5 Status
of Lenders. The Borrower shall provide the Lender (or any transferee of a Lender) with written notice of any payments to
be made under any Loan Document potentially subject to withholding Tax as soon as reasonably practicable but in all cases at
least fifteen (15) days in advance thereof. The Lender (or any transferee of a Lender) that is entitled to an exemption from
or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower, at the
time or times reasonably requested by the Borrower, such properly completed and executed documentation (including IRS Form
W-9 or an applicable IRS Form W-8) reasonably requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, the Lender (or transferee of a Lender), if reasonably requested
by the Borrower, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower
as will enable the Borrower to determine whether or not the Lender is subject to backup withholding or information reporting
requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and
submission of such documentation (other than the documentation described in clauses (i) through (iv) of the following
sentence) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would
subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial
position of the Lender. The Lender (or any transferee of a Lender) that is not a “U.S. Person” as defined in
Section 7701(a)(30) of the Code (a “Non-U.S. Lender”) shall, to the extent it is legally entitled to do
so, deliver to Borrower two copies of whichever of the following is applicable: (i) in the case of a Non-U.S. Lender claiming
the benefits of an income tax treaty to which the United States is a party, duly completed copies of IRS Form W-8BEN or
W-8BEN-E (or any subsequent versions thereof or successors thereto), as applicable, claiming eligibility for benefits of an
income tax treaty to which the United States of America is a party; (ii) duly completed copies of IRS Form W-8ECI (or
any subsequent versions thereof or successors thereto); (iii) in the case of a Non-U.S. Lender claiming the benefits of the
exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate in substantially the form of Schedule J
to the effect that such Non-U.S. Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the
Code, (B) a “10 percent shareholder” of Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a
“controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of
IRS Form W-8BEN or W-8BEN-E (or any subsequent versions thereof or successors thereto); (iv) to the extent a Non-U.S. Lender
is not the beneficial owner, duly completed copies of IRS Form W-8IMY, together with forms and certificates described in
clauses (i) through (iii) above with respect to the beneficial owner (and additional IRS Form W-8IMYs) as applicable or (v)
any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States federal
withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to
permit Borrower to determine the withholding or deduction required to be made. For the avoidance of doubt, if a Lender
provides documentation described in clause (iii) above in advance of amounts payable to or for the account of such Lender,
any U.S. withholding Taxes imposed on such amounts shall not be Excluded Taxes, regardless of whether such documentation is
sufficient to eliminate U.S. withholding Taxes, unless the Borrower has knowledge or reason to know of any facts that would
render such documentation unreliable for purposes of Section 1441(c)(9) of the Code. If the Borrower determines it has
knowledge or reason to know of any facts that would render such documentation unreliable, the Borrower shall, prior to
deducting or withholding any Excluded Taxes from any amounts payable to or for the account of such Lender, notify such Lender
in writing of such determination, specifying the specific factual basis therefor. The Borrower and such Lender shall
negotiate in good faith and use their reasonable best efforts (including sharing information relevant to the
Lender’s statements in the documentation described in clause (iii)) to resolve any such matter in a manner that permits
such payments to be made without deduction for, or withholding of, any such Taxes. If the Borrower and such Lender are unable
to so resolve such matter, the parties shall engage an independent third-party tax counsel mutually acceptable to the parties
to determine whether the Borrower has knowledge of or reason to know that such documentation described in clause (iii) is
unreliable or whether the Borrower may on any basis make such payments without deduction for, or withholding of, any such
Taxes, and such determination by tax counsel shall be final. The costs, fees and expenses of tax counsel shall be borne by
the non-prevailing party.
10.6
FATCA. If a payment made to the Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed
by FATCA if the Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in
Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower at the time or times prescribed
by law and at such time or times reasonably requested by the Borrower Agent such documentation prescribed by applicable law (including
as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower
as may be necessary for the Borrower to comply with its obligations under FATCA and to determine that such Lender has complied
with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment.
Solely for purposes of this clause (d), “FATCA” shall include any amendments made to FATCA after the date of this
Agreement.
11. Mutual Waiver of Jury Trial. BORROWER AND LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF THIS AGREEMENT OR ANY RELATED DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY, INCLUDING CONTRACT, TORT,
BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH
PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. FOR AND IN CONSIDERATION OF LENDER’S AGREEMENTS CONTAINED HEREIN, BORROWER, TOGETHER WITH ITS, SUCCESSORS AND ASSIGNS
(INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND
DISCHARGES LENDER AND EACH OF ITS RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS,
SUCCESSORS, AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS,
PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY,
THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED,
FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE EFFECTIVE
DATE THAT ANY OF THE RELEASORS MAY NOW HAVE AGAINST THE RELEASED PARTIES, IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE
OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY
FROM THE LOAN, ANY PRIOR OR EXISTING LOANS BETWEEN RELEASORS ANY RELEASED PARTIES, ANY OF THE LOAN DOCUMENTS, THE EXERCISE OF
ANY RIGHTS AND REMEDIES UNDER ANY OF THE LOAN DOCUMENTS, AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL
RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, WHICH
MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST
IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE
DEBTOR.”
By
entering into this release, Borrower recognizes that no facts or representations are ever absolutely certain and it may hereafter
discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention
of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected
or unsuspected; accordingly, if Borrower should subsequently discover that any fact that it relied upon in entering into this
release was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release
by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges
that it is not relying upon and has not relied upon any representation or statement made by Lender with respect to the facts underlying
this release or with regard to any of such party’s rights or asserted rights.
This
release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or
other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release
contained herein constitutes a material inducement to Lender to enter into this Agreement, and that Lender would not have done
so but for Lender’s expectation that such release is valid and enforceable in all events.
Borrower
hereby represents and warrants to Lender, and Lender is relying thereon, as follows:
(a)
Except as expressly stated in this Agreement, neither Lender nor any agent, employee or representative of Lender has made any
statement or representation to Borrower regarding any fact relied upon by Borrower in entering into this Agreement.
(b)
Borrower has made such investigation of the facts pertaining to this Agreement and all of the matters appertaining thereto, as
it deems necessary.
(c)
The terms of this Agreement are contractual and not a mere recital.
(d)
This Agreement has been carefully read by Borrower, the contents hereof are known and understood by Borrower, and this
Agreement is signed freely, and without duress, by Borrower.
(e)
Borrower represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and
every other matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or
transfer, to any person, firm or entity any claims or other matters herein released. Borrower shall indemnify Lender, defend and
hold it harmless from and against all claims based upon or arising in connection with prior assignments or purported assignments
or transfers of any claims or matters released herein.
13.
Mutual Waiver of Jury Trial. This Agreement amends, restates, replaces and supersedes in its entirety that certain Preexisting
Agreement and does not constitute a novation, payment and reborrowing or termination of the obligations under the Preexisting
Agreement, which obligations remain in full force and effect in all respects
[Signature
page follows.]
IN
WITNESS
WHEREOF,
the parties hereto have executed this Agreement as of the date
initially set forth above.
BORROWER:
ZSPACE,
INC.
| Title: |
Chief Financial Officer |
|
| Address: |
2050 Gateway Place, Ste.
100-302 |
| |
San
Jose, CA 95110
Attention:
Chief Financial Officer
Email:
contracts@zspace.com
|
| |
|
| |
With
a copy (which shall not constitute notice) to:
Fenwick
& West LLP
801
California Street
Mountain View, CA 94041
Attn: Lara Foster
Facsimile:
(650) 938-5200
|
| SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT –
ZSPACE, INC. |
|
LENDER:
FIZA
INVESTMENTS
LIMITED
| Address: |
c/o Gulf Islamic Investments
LLC |
PO
Box 215931, Emaar Square 4, 7th Floor
Downtown
Dubai, United Arab Emirates
Email: pgupta@gii.ae
With
a copy (which shall not constitute notice) to:
Orrick,
Herrington & Sutcliffe LLP
405
Howard Street
San
Francisco, CA 94105
Attn: Dolph Hellman
Email:
dolphhellman@orrick.com
| SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT –
ZSPACE, INC. |
|
SCHEDULE
A
LOAN
TERMS
BORROWER: ZSPACE,
INC., a Delaware corporation
| |
|
| Total
Commitment: |
Up
to $5,000,000, with (i) $2,500,000 (net of any closing, funding or other fees or Lender Expenses) which has already been disbursed
under the short form agreement dated September 12, 2022 (the “Tranche I Loan”), and (ii) an additional
$2,500,000 on or prior to November 10, 2022 (the “Tranche II Loan”). |
| |
|
| Maturity
Date: |
On
the date of expiry of 12 calendar months from the Closing Date (the “Maturity Date”). |
| |
| ADDITIONAL
AGREEMENTS AND LIMITATIONS |
| |
| Financial
Covenants: |
As
of the last day of each month, Borrower shall have in a U.S. deposit account at least $500,000 in cash or cash equivalents. |
| |
|
| Further
Assurances: |
Borrower
shall execute and deliver such other documents and instruments as Lender may reasonably request (including any requested Intellectual
Property security agreements, pledge agreements or affirmations, account control agreements and the like) to effectuate the
intents and purposes of this Agreement and the other Loan Documents and Lender’s rights thereunder. If any of Borrower’s
Subsidiaries hold material assets (other than cash amounts permitted to be held in non-United States bank accounts above),
taken as a whole, such Subsidiary shall execute a Joinder in form reasonably satisfactory to Lender to this Agreement causing
such Subsidiary to become a Borrower hereunder. As of the Effective Date, no Subsidiaries hold any material assets
(other than cash amounts permitted to be held in non-United States bank accounts above), taken as a whole with Borrower. |
| |
|
| Insurance: |
Borrower
shall provide insurance certificates showing Lender as loss payee or additional insured on Borrower’s commercial general liability and business personal property insurance
policies in form reasonably satisfactory to Lender within 20 days of the Closing Date. |
| |
|
| REPAYMENT
AND INTEREST |
|
| |
|
| Repayment/Prepayment: |
Mandatory
payment of each Loan shall be due upon the earlier of (i) the Maturity Date, (ii) an Event of Default, (iii) the consummation
of the business combination pursuant to the Business Combination Agreement or any other listing of the securities
of the Borrower; and (iv) any Change of Control or other liquidation event, in each case, including without limitation, any
voluntary pre-payments, or payments after the Maturity Date shall include all outstanding principal, all accrued and unpaid
interest, all unpaid Lender Expenses. For purposes of clarity, all Loans may be voluntarily prepaid in full (or part) within
three (3) Business Days’ notice to Lender on the same terms of the mandatory prepayment listed in the preceding sentence
provided that any prepayment of any portion of the Loan Amount shall also include payment of the pro-rated portion of the
interest (calculated for the entire period of 12 months) accrued on such portion of the Loan Amount. |
| |
|
| |
|
| |
|
| |
Notwithstanding the above, Lender shall have
the option, (but not the obligation), in its sole discretion, to convert any portion of the outstanding principal amount of
the Loans, accrued and unpaid interest thereon and any other amounts due under this Agreement (or the other Loan Documents)
(i) in the event of a public offering, at the listing price of such offering (other than a listing contemplated by the Business
Combination Agreement), (ii) in the case of any equity financing by Borrower, into New Preferred Stock on the same terms of
such equity offering, (iii) at any time, into a number of New Preferred Stock at per share price obtained by dividing (x)
the equity value of the Company arrived from the enterprise value of the company which is the greater of (a) $110,000,000
or (b) four (4) times the Company’s trailing twelve month revenue calculated from the end of the month prior to the
conversion date by (y) the sum of (1) the total number of shares of Common Stock outstanding (assuming full conversion and
exercise of all convertible or exercisable securities other than (i) the amounts being converted under this Agreement, (ii)
any other outstanding convertible instruments or notes and (2) shares of Common Stock reserved for issuance to employees,
consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board
of Directors of Borrower, and (iv) (a) if the business combination pursuant to the merger agreement dated May 16, 2022 (“Business
Combination Agreement”) is being consummated at any time on or before June 21, 2023, then securities being issued
in the listed entity on the same terms and conditions as other investors investing into private investment in public equity
of such listed entity for the entire amount of the Loan Amount outstanding at the relevant time together with accrued interest
on such outstanding Loan Amount; or (b) if the Business Combination Agreement is terminated at any time on or before June
21, 2023 or if the Business Combination is not consummated on or before June 21, 2023, then at any time after June 21, 2023,
into New Preferred Stock for the such portion of the Loan Amount as may be directed by the Lender together with accrued interest
on such portion plus an amount equivalent to 1.5
times such converted amount (“Repayment Premium”). This right of the Lender can be exercised multiple times
in tranches till the entire Loan Amount plus interest thereon plus the Repayment Premium stated above are fully converted
by the Lender. |
| |
|
| Interest: |
On and after the Effective Date and through to the Maturity Date, each Loan shall accrue interest on the outstanding principal balance of such Loan at a per annum interest rate of 13% and such interest shall be due on the Maturity Date (or earlier date of repayment, conversion or termination of this agreement, as applicable). Interest shall be computed on a 360 day year for the actual number of days elapsed.
Any amounts outstanding during the continuance of an Event of Default shall bear an additional interest at the rate of 3% per annum (the “Default Rate”). |
| |
|
| Application
of Payments: |
Payments
received after 12:00 noon Pacific Time are considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional interest, if applicable,
shall accrue. |
| |
|
| FEES |
|
| |
|
| Legal
Fee: |
Borrower
will pay reasonable and documented attorneys’ fees and expenses actually incurred, including fees for the
documentation and negotiation of this Agreement through the Effective Date, and any additional reasonable and documented out-of-pocket
attorney’s fees and expenses incurred thereafter, including with respect to any amendment thereto up to a maximum of
$25,000. |
| |
| FINANCIAL
REPORTING AND SALES PROCESS REQUIREMENTS |
| |
|
| Financial
Reports: |
Borrower
shall provide Lender:
■ Monthly Financial Statements. Within 30 days after the end of each month, monthly financial statements prepared
by Borrower in accordance with GAAP.
■
Annual Audited/Reviewed Financial Statements. If Borrower’s Board of Directors requires CPA-audited or reviewed
annual financial statements, then, as soon as available, and in any event within 210 days following the end of Borrower’s
2021 fiscal year beginning with the 2020 fiscal year, annual, audited or reviewed, consolidated financial statements prepared
under GAAP, consistently applied, together with (i) an unqualified opinion (other than with respect to a “going
concern” qualification typical for venture backed companies) in the financial statements from independent public
accountants reasonably acceptable to Lender, in the case of CPA-audited financial statements, or (ii) a report on the
financial statements from independent public accountants reasonably acceptable to Lender, in the case of CPA-reviewed
financial statements.
|
| |
|
| |
■ Annual Company-Prepared Financial
Statements. If Borrower’s Board of Directors does not require CPA-audited or reviewed annual financial statements
for any period, then, as soon as available, and in any event within 60 days after the end of Borrower’s fiscal year
beginning with the 2020 fiscal year, company-prepared consolidated financial statements for such fiscal year certified by
a Responsible Officer. |
| |
|
| |
■ Annual Financial Projections. As soon as available, but no later than 60 days after fiscal year-end, annual Board-approved
financial projections and operating budgets for the following fiscal year commensurate in form and substance with those provided
to Borrower’s venture capital investors. |
| |
|
| |
■ Additional Financial Information. Borrower shall provide Lender a copy of all 409A valuation approved by the Borrower’s
Board of Directors after the Effective Date promptly after approval by the Board of Directors. |
| |
|
| |
■
Board Materials and Observer. Borrower shall provide Lender copies of all materials that Borrower provides to its Board
of Directors in connection with meetings, including any reports with respect to Borrower’s operation or performance;
provided, that the foregoing may be subject to such exclusions and redactions as Borrower deems reasonably necessary in the
exercise of its good faith judgment in order to (a) preserve the confidentiality of highly sensitive proprietary information,
or (b) prevent impairment of the attorney-client privilege. Following the Effective Date, Borrower grants Lender the right
to designate a Board of Directors representative (the “Observer Representative”) to be present (whether in person or by
telephone) in a nonvoting observer capacity at all meetings of the Board of Directors of Borrower or any committees of the
Board of Directors of Borrower, unless exclusion of such Observer Representative is necessary to preserve the attorney-client
privilege or to protect highly confidential or proprietary information or trade secrets or other similar reasons. Borrower
shall deliver, or cause to be delivered, to the Observer Representative copies of all notices, minutes, consents, and other
materials that it provides to its directors at the same time and in the same manner as provided to such directors, unless
withholding such materials is necessary to preserve the attorney-client privilege or to protect
highly confidential or proprietary information or trade secrets or other similar reasons. |
| |
|
| |
|
| |
■
Sales Process. Upon Lender’s reasonable request, Borrower shall (i) update the Lender on any and all sale or
listing process of the Company and (ii) provide Lender copies of any summary written materials relating to the sales process
promptly after being provided to Borrower’s Board of Directors; provided, that the foregoing may be subject to such
exclusions and redactions as Borrower deems reasonably necessary in the exercise of its good faith judgment in order to (a)
preserve the confidentiality of highly sensitive proprietary information, or (b) prevent impairment of the attorney-client
privilege. Without additional request being required by Lender, Borrower shall provide a high-level summary of any material
updates or changes in any and all sales process not less than monthly. |
| |
|
| |
■
Bank Statements. Borrower shall provide Lender with monthly statements to all of its deposit and securities accounts
on a monthly basis. |
| |
|
| |
■
Other Information. Other financial, business or sales information as may reasonably be requested by Lender. |
| |
|
SCHEDULE
B
COLLATERAL
The
Collateral consists of all of Borrower’s right, title and interest in and to the following personal property as such terms
are defined under the UCC:
All
goods, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements,
general intangibles (including payment intangibles), accounts (including health-care receivables), documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights
(whether or not the letter of credit is evidenced by a writing), Intellectual Property, securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and
all
Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions
for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds
of any or all of the foregoing.
Notwithstanding
the foregoing, the Collateral does not include: (a) more than 65% of the presently existing and hereafter arising issued and outstanding
shares of capital stock owned by Borrower of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors
or any other matter, provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding non-voting
capital stock of such Subsidiary, (b) any interest of Borrower as a lessee or sublessee under a real property lease; (c) rights
held under a license or sublicense that are not assignable by their terms without the consent of the licensor thereof (but only
to the extent and for so long as such restriction on assignment is enforceable under applicable law and such consent has not been
obtained); or (d) any interest of Borrower as a lessee under an equipment lease if Borrower is prohibited by the terms of such
lease from granting a security interest in such lease or under which such an assignment or lien would cause a default to occur
under such lease; provided, however, that upon termination of such prohibition, such interest shall immediately become Collateral
without any action by Borrower or Lender.
For
purposes hereof, the following terms have the following meanings:
“Borrower’s
Books” means all Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities,
the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the
information.
SCHEDULE
C
DEFINITIONS
As
used in this Agreement, the following words shall have the following meanings:
“$”,
“Dollars” or “USD” each mean United States Dollars.
“Amended
and Restated Certificate of Incorporation” means Borrower’s Amended and Restated certificate of Incorporation dated
as of August 12, 2022.
“Business
Day” means any day that is not a Saturday, Sunday or a day on which Lender is closed.
“Change
of Control” means (a) the acquisition of the Borrower by another corporation or entity, (b) the sale, transfer or lease
of substantially all of the Borrower’s assets, (c) any other transaction where there is an acquisition of the Borrower’s
capital stock representing more than 50.0% of the outstanding voting power of Borrower, (d) any “Deemed Liquidation Event”
as such term is used in the Borrower’s Certificate of Incorporation, as amended from time to time, or (e) a Public Offering;
provided, however, that a merger effected exclusively for the purpose of changing the domicile of the Borrower shall
not constitute a Change of Control.
“Closing
Date” shall mean the date of disbursal of the Tranche I Loan.
“Collateral”
has the meaning given to such term on Schedule B.
“Conversion
Agreements” mean the Conversion Agreement entered into by and between the Borrower and bSpace Investments Limited dated
May 16, 2022 and the Conversion Agreement entered into by and between the Borrower and KIA dated May 16, 2022 (and any further
conversion ageements executed in furtherance of the foregoing agreements, including on August 12, 2022).
“Default”
means an event which with the giving of notice, passage of time, or both would constitute an Event of Default.
“Equipment”
has the meaning given to such term in the UCC.
“Event
of Default” has the meaning given to such term in Section 6.
“EWB
Loan Documents” means (i) the Loan and Security Agreement dated September 8, 2021 executed by and between the Borrower
and East West Bank and all other documents executed pursuant to such agreement, and as amended by that certain Waiver and First
Amendment to Loan and Security Agreement to be executed by and between the Borrower and East West Bank.
“Excluded
Taxes” means any of the following Taxes imposed on or with respect to a Lender or required to be withheld or
deducted from a payment to a Lender: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes,
and branch profits Taxes, in each case, (i) imposed as a result of such Lender being organized under the laws of, or having
its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such
Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. withholding Taxes imposed on
amounts payable to or for the account of a Lender attributable to such Lender’s failure or inability to deliver, prior
to the payment of such amounts, either (x) the forms described in clause (iii) of Section 10.5 or (y) documentation
otherwise necessary to establish an exemption or reduction of U.S. withholding tax under Section 10.5 or
Borrower’s knowledge or reason to know of any facts that would render any such forms unreliable, and (c) any U.S.
federal withholding Taxes imposed under FATCA. “FATCA” means Sections 1471 through 1474 of the Code, as of
the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more
onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into
pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to
any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the
Code.
“Foreign
Subsidiary” means a Subsidiary not organized under the laws of the United States or any state or territory thereof or
the District of Columbia.
“Indemnified
Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of
any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Insolvency
Proceeding” means any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy
or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors,
or proceedings seeking reorganization, arrangement, or other relief.
“Intellectual
Property” means any copyright rights, copyright applications, copyright registrations and like protections in each work
of authorship and derivative work, whether published or unpublished, any patents, patent applications, patent registrations and
like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part
of the same, trademarks, service marks and applications therefor, whether registered or not, and like protections, and the goodwill
of the business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing.
“IRS” means the U.S. Internal Revenue Service.
“Key
Person” means Borrower’s Chief Executive Officer, who is Paul Kellenberger, Chief Financial Officer, who is Joe
Powers, as of the Effective Date.
“Loan
Documents” means, collectively, this Agreement, any subordination agreement, any note, or notes or guaranties executed
by Borrower or any guarantor, the Pledge Agreement, and any other present or future agreement between Borrower and/or for the
benefit of Lender in connection with this Agreement, all as amended, extended or restated.
“Material
Adverse Change” means the occurrence of (a) any material impairment in the business, operations, or financial condition
of Borrower, (b) a material impairment of the prospect of repayment of any portion of the Obligations; or (c) a material impairment
in the perfection or priority of Lender’s security interest in the Collateral or in the value of such Collateral (other
than normal depreciation) which is not covered by adequate insurance.
“New
Preferred Stock” means the Borrower’s senior most class of Non-Convertible Non-Voting Preferred Stock existing
at the time of the conversion of the Loan Amount;
“Non-Qualified
Public Offering” means an initial listing or offering of Borrower’s equity on a public stock exchange that is
not a Qualified Public Offering
“Note”
means any promissory note delivered in connection with this Agreement.
“Obligations”
means Borrower’s obligation to pay when due any debts, principal, interest, premiums, Lender Expenses, and other amounts
Borrower owes Lender now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation,
any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Lender,
and the performance of Borrower’s duties under the Loan Documents.
“Other
Connection Taxes” means, with respect to any Lender, Taxes imposed as a result of a present or former connection between
such Lender and the jurisdiction imposing such Tax (other than connections arising from such Lender having executed, delivered,
become a party to, performed its obligations under, received payments under, received or perfected a security interest under,
engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan
Document).
“Other
Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that
arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt
or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other
Connection Taxes imposed with respect to an Assignment.
“Permitted
Indebtedness” means (a) Borrower’s indebtedness to Lender, indebtedness under the Pre-Existing Agreements, and
indebtedness under the EWB Loan Documents; (b) indebtedness existing on the Effective Date and informed to the Lender in writing
prior to the Effective Date; (c) the indebtedness owed under the Amended and Restated Promissory Note by Borrower in the aggregate
principal amount of $5,000,000 for the benefit of KIA Kuwait Investment Authority (“KIA”) dated as on December
4, 2020; (d) indebtedness to trade creditors incurred in the ordinary course of business; (e) indebtedness secured by Permitted
Liens; (f) indebtedness arising from the endorsement of instruments in the ordinary course of business; (g) Subordinated Debt;
(h) Indebtedness that constitutes a Permitted Investment; (i) Indebtedness consisting of reimbursement obligations pursuant to
letters of credit; (j) Indebtedness incurred in connection with cash management services, including treasury, depository, overdraft,
credit or debit card, purchasing cards, electronic funds transfer, automatic clearing house arrangements, cash pooling arrangements,
netting services, merchant services, foreign exchange contracts and other similar arrangements, in each case in the ordinary course
of business; (k) Indebtedness (other than for borrowed money) incurred under performance, surety, bid, statutory and appeal bonds,
completion guarantees and other similar obligations incurred in the ordinary course of business; (l) Indebtedness owed to any
Person providing worker’s compensation, health, disability or other employee benefits or property, casualty, liability,
or other insurance, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall
be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness
is outstanding only during such year; and (m) extensions, refinancings, modifications, amendments and restatements of any items
of Permitted Indebtedness described in (a) through (l) above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose materially more burdensome terms upon Borrower or its Subsidiaries, as the case may be.
“Permitted
Investments” means (a) investments informed to the Lender in writing prior the Effective Date and existing on the
Effective Date; (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency
or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor’s Ratings Service or Moody’s Investors
Service, Inc., (iii) certificates of deposit issued maturing no more than 1 year from the date of investment therein, (iv)
money market funds at least ninety-five percent (95%) of the assets of which constitute Permitted Investments of the kinds
described in clauses (b)(i) through b(iii) of this definition; (v) [reserved]; (c) investments consisting of the endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (d)
investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the
ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of
Directors; (e) deposit and investment accounts of Borrower in which Lender has a lien prior to any other lien (other than
liens securing customary fees and expenses (but no credit/debt relationship or margin account) of the depository or
investment intermediary); (f) investments accepted in connection with Permitted Transfers; (g) investments by Borrower in its
Subsidiaries of up to $250,000 per year in the aggregate and by Subsidiaries in other Subsidiaries or in the Borrower; (g)
investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of Borrowers’ business; (h) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, (i)
repurchases of Borrower’s equity interests from employees, officers and directors to the extent permitted under Section
3.9; (j) deposits of cash made in the ordinary course of business to secure performance of operating leases or appeal
bonds or to secure performance of letters of credit issued in connection with such operating leases or appeal bonds; (k)
investments not otherwise permitted in an aggregate amount of not more than $100,000 in each fiscal year; and (l) the license
of Borrower’s Intellectual Property in conjunction with joint ventures and corporate collaborations and similar
business arrangements made in the ordinary course of business on an arms’-length basis provided Borrower’s
contributions hereunder shall not exceed $250,000 in the aggregate.
“Permitted
Liens” means (a) liens existing on the Effective Date and informed to the Lender in writing prior to the Effective
Date or that are in favor of Lender; (b) liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its books in accordance
with GAAP, if they have no priority over any of Lender’s security interests; (c) purchase money liens (i) on equipment
and related software acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the equipment
and related software, if any, including the financing of the costs of shipping, taxes and installation, or (ii) existing on
equipment and related software when acquired, if the lien is confined to such property, improvements thereon, and proceeds
thereof; (d) liens in favor of other financial institutions arising in connection with Borrower’s deposit or investment
accounts held at such institutions to secure customary fees and charges for deposit services and other and other cash
management services, including treasury, depository, overdraft, credit or debit card, purchasing cards, electronic funds
transfer, automatic clearing house arrangements, cash pooling arrangements, netting services, merchant services, foreign
exchange contracts and other similar arrangements, provided that Lender has a perfected security interest in the amounts held
in such deposit accounts to the extent required hereunder; (e) statutory liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties, provided, they have no
priority over any of Lender’s security interests; (f) liens arising from the filing of any financing statement on
operating leases, to the extent such operating leases are permitted under this Agreement; (g) liens on cash collateral
securing reimbursement obligations to Lender under letters of credit; (h) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not
likely to result in a Material Adverse Change; (i) licenses and sublicenses granted by Borrower in the ordinary course of its
business and not otherwise prohibited by this Agreement; (j) liens to secure payment of workers’ compensation,
employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of
business; (k) leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if
referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive
licenses or sublicenses of personal property granted in the ordinary course of Borrower’s business (or, if referring to
another Person, in the ordinary course of such Person’s business); (l) liens arising from attachments or judgments,
orders, or decrees in circumstances not constituting an Event of Default; (m) Liens on deposits of cash made to secure bids,
tenders, contracts (other than contracts for the payment of money), leases, surety, and appeal bonds and other obligations of
a like nature arising in the ordinary course of business; (n) licenses of Intellectual Property which constitute a Permitted
Transfer; and (o) liens incurred in the extension, renewal, or refinancing of indebtedness secured by liens described in
clauses (a) through (d) hereof of this definition, but any extension, renewal or replacement lien must be limited to the
property encumbered by the existing lien and the principal amount of the indebtedness may not increase.
“Permitted
Transfer” means Transfers of (a) Inventory in the ordinary course of business; (b) non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and other non-perpetual
licenses that may be exclusive in some respects, such as, by way of example, with respect to field of use or geographic territory,
but that do not result, under applicable law, in a sale of all of Borrower’s interest in the property that is the subject
of the license; (c) worn-out, surplus or obsolete equipment in the ordinary course of business that is, in the reasonable judgment
of Borrower, no longer economically practicable to maintain or useful; (d) assets consisting of Permitted Liens and Permitted
Investments; and (e) other Transfers of assets having a fair market value of not more than One Hundred Thousand Dollars ($100,000)
in the aggregate in any fiscal year.
“Person”
means any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust,
unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.
“Pre-Existing
Agreements” means (i) that Amended and Restated Loan and Security Agreement, dated as of December 4, 2020, as amended
by the applicable Conversion Agreements and as may be further amended from time to time, executed by and between the Borrower
and bSpace Investments Limited.
“Preferred
Stock” has the meaning given to it in the Amended and Restated Certificate of Incorporation.
“Public
Offering” means a Qualified Public Offering or a Non-Qualified Public Offering.
“Qualified
Public Offering” means a firm commitment underwritten public offering (i) pursuant to a registration statement under
the Securities Act of 1933, as amended, the listing of which results in aggregate cash proceeds to Borrower of not less than $30,000,000,
net of underwriting discounts and commissions, or (ii) pursuant to a similar regulatory framework applicable to a non-U.S. public
offering the listing of which results in aggregate cash proceeds to Borrower of not less than $10,000,000, net of underwriting
discounts and commissions, in either case, with such offering resulting in the Common Stock of Borrower being listed for trading
on an exchange or marketplace approved by the Borrower’s Board of Directors and a pre-money valuation for such offering
at which GII receives equity in exchange for the entire principal and interest payable under each Loan as provided herein.
“Responsible
Officer” means each of the Chief Executive Officer, the President, the Chief Financial Officer, Secretary, Treasurer
and the Controller of Borrower.
“Series
A Director” has the meaning given to it in the Amended and Restated Certificate of Incorporation.
“Series
A Preferred Stock” has the meaning given to it in the Amended and Restated Certificate of Incorporation.
“Subsidiaries”
means any entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly,
by Borrower.
“Subordination
Agreement” means that certain Subordination Agreement to be executed to provide that the Loan Amount is subordinate
to the indebtedness availed under the EWB Loan Documents but senior to the indebtedness under the Pre-Existing Agreements.
“Subordinated
Debt” means indebtedness (a) approved by Borrower in its sole discretion and subject to a subordination agreement for
both liens and payments with Lender, or (b) convertible subordinated debt on terms reasonably acceptable to Lender and subject
to a subordination agreement for both liens and payment (but not for conversion).
“Taxes”
means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments,
fees or other charges imposed by any governmental authority, including any interest, additions to tax or penalties applicable
thereto.
“Threshold
Amount” means Two Hundred Fifty Thousand Dollars ($250,000).
“Total
Commitment” has the meaning given to such term on Schedule A.
“UCC”
means the Uniform Commercial Code as in effect in the State of New York; provided, that if, by applicable law, the perfection
or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform
Commercial Code as in effect on or after the date of this Agreement in any other jurisdiction, “UCC” means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such perfection
or the effect of perfection or non-perfection.
SCHEDULE
D
[Intentionally
Not Used]
ANNEX
1
IRS
Form W-9
[see
attached]
SCHEDULE
E
CORPORATE
BORROWING CERTIFICATE
| BORROWER: |
ZSPACE,
INC. |
DATE: |
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| LENDER
: |
[____] |
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I
hereby certify, in my capacity as an officer of the Borrower and not in any personal capacity, as follows, as of the date set forth above:
1.
I am the Secretary, Assistant Secretary or other officer of Borrower.
My title is as set forth below.
2.
Borrower’s exact legal name is set forth above. Borrower
is a corporation existing under the laws of the State of Delaware.
3.
Attached hereto as Annex I are true, correct and complete
copies of Borrower’s Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in
which Borrower is incorporated as set forth above. Such Certificate of Incorporation have not been amended, annulled, rescinded, revoked
or supplemented, and remain in full force and effect as of the date hereof.
4.
Attached hereto as Annex II are true, correct and complete copies
of Borrower’s Bylaws (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated
as set forth above. Such Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain
in full force and effect as of the date hereof.
5.
The following resolutions were duly and validly adopted by Borrower’s
Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate
action). Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded,
amended or revoked, and [__] (“Lender”) may rely on them until Lender receives written notice of revocation from Borrower.
RESOLVED,
that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act
on behalf of Borrower:
Name |
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Title |
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Signature |
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Authorized
to
Add
or
Remove
Signatories |
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☐ |
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☐ |
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☐ |
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☐ |
RESOLVED
FURTHER,
that any one of the persons designated above with a checked
box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized
to act on behalf of Borrower.
RESOLVED
FURTHER,
that such individuals may, on behalf of Borrower:
Borrow
Money. Borrow money from Lender.
Execute
Loan Documents. Execute any loan documents Lender requires.
Grant Security. Grant Lender a security interest in any
of Borrower’s assets.
Negotiate
Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has
an interest and receive cash or otherwise use the proceeds.
Issue
Warrants. Issue warrants for Borrower’s capital stock.
Further
Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including
documents or agreement that waive Borrower’s right to a jury trial) they believe to be necessary to effect these resolutions.
RESOLVED
FURTHER,
that all acts authorized by the above resolutions and any prior
acts relating thereto are ratified.
[Signature
page follows.]
The
persons listed above are Borrower’s officers or employees with their titles and signatures shown next to their names.
***
If the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in
paragraph 4 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or
director of Borrower.
I,
the __________________________ of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.
ANNEX
I
CHARTER
DOCUMENTS
[see
attached]
ANNEX
II
BYLAWS
[see
attached]
SCHEDULE
F
LOAN
REQUEST FORM
DEADLINE
FOR [FIVE
(5) BUSINESS
DAY]
PROCESSING IS
12:00 PM NEW
YORK
| Fax
To: [__________] |
Date: |
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☐ LOAN:
| [To Account
# |
][See
attached Flow of Funds showing amounts and accounts] |
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(Deposit
Account #) |
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Amount
of Loan $___________
All
Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects up to and including the date of the transfer request for an advance, but those representations and warranties expressly
referring to another date shall be true, correct and complete in all material respects as of that date:
| Authorized Signature: ___________________________ |
|
Phone Number: _________________________________ |
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☐ OUTGOING
WIRE
REQUEST
Complete
only if all or a portion of funds from the loan advance above are to be wired.
Deadline
for same day processing is 12:00 pm, New York Time
| Beneficiary Name: |
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Amount
of Wire: $ |
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| Beneficiary Bank: |
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Account
Number: |
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| Beneficiary Lender Transit (ABA) #: |
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Beneficiary Lender Code (Swift, Sort, Chip, etc.): |
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(For International Wire Only) |
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| Intermediary Bank: |
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Transit (ABA) #: |
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By
signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject
to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously
received and executed by me (us).
| Authorized Signature: |
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2nd
Signature (If Required): |
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| Print Name/Title: |
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Print
Name/Title: |
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SCHEDULE
G
FORM
OF PROMISSORY NOTE FOR LOANS
[Note
No. X-XXX]
| US$[__] [NTD: To be broken
out by tranche, as appropriate]] |
____________________, 20__ |
[San
Francisco, California]
The
undersigned (“Borrower”) promises to pay to [__], an entity organized under the laws of the Cayman islands or its
registered assigns (“Lender”), at its office at c/o Gulf Islamic Investments LLC, PO Box 215931, Emaar Square 4, 7th
Floor, Downtown Dubai, United Arab Emirates, or at such other place as Lender may designate in writing, in lawful money of the
United States of America, the principal sum of [__], with interest thereon from the date hereof until maturity, whether scheduled or
accelerated, at a fixed rate per annum of thirteen percentage points (13%) (the “Designated Rate”), plus the Default
Rate (if applicable), plus all other amounts according to the payment schedule described herein.
This
Promissory Note (this “Promissory Note”) is one of the Promissory Notes referred to in, and is entitled to
all the benefits of, the Loan and Security Agreement dated as of [_________ __], 20[__], between Borrower and Lender (as amended,
restated or supplemented from time to time, the “Agreement”). Each capitalized term not otherwise defined herein
shall have the meaning set forth in the Agreement. The Agreement contains provisions for the acceleration of the maturity of this
Promissory Note upon the happening of certain stated events.
This
Promissory Note shall be payable as follows:
Any
and all unpaid expenses, fees, any accrued and unpaid interest (including default interest) and principal, shall be due and payable
on the earlier of the (i) the Maturity Date, (ii) an Event of Default, (iii) the consummation of the business combination in accordance
with and pursuant to the Business Combination Agreement; and (iv) any Change of Control or other liquidation event, or other repayment,
prepayment or termination date of this Note.
This
Promissory Note may be prepaid only as permitted in the Agreement. In the event there is more than one Borrower, each and every
Borrower entity’s obligations hereunder shall be joint and several with the obligations of the other Borrower entities.
Any
unpaid payments of principal or interest on this Promissory Note shall bear interest from their respective maturities, whether
scheduled or accelerated, at a rate per annum equal to the three percent (3%) above the Designated Rate, or such lesser amount
designated by Lender in its sole discretion. Borrower shall pay such interest on demand.
Interest,
charges and fees shall be calculated for actual days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments than if a 365-day year were used. In no event shall Borrower be obligated to pay interest, charges or fees
at a rate in excess of the highest rate permitted by applicable law from time to time in effect.
If
Borrower is late in making any payment under this Promissory Note by more than five (5) Business Days, Borrower agrees to
pay, if required by Lender in its sole discretion, a “late charge” of two percent (2%) of the installment due,
but not less than fifty dollars ($50) for any one such delinquent payment. This late charge may be charged by Lender for the
purpose of defraying the expenses incidental to the handling of such delinquent amounts. Borrower acknowledges that such late
charge represents a reasonable sum considering all of the circumstances existing on the date of this Promissory Note and
represents a fair and reasonable estimate of the costs that will be sustained by Lender due to the failure of Borrower to
make timely payments. Borrower further agrees that proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the right of Lender to collect any other amounts provided to be paid or to declare a
default under this Promissory Note or any of the other Loan Documents or from exercising any other rights and remedies of
Lender.
This
Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York without reference to
its conflict of laws principles.
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ZSPACE, INC. |
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By: |
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Name: |
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SCHEDULE
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SCHEDULE
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INTELLECTUAL
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FORM
OF U.S. TAX COMPLIANCE CERTIFICATE
U.S.
TAX COMPLIANCE CERTIFICATE
(For
Non-U.S. Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference
is hereby made to the Amended and Restated Loan and Security Agreement, dated as of __________ __, 2019 (as amended, supplemented
or otherwise modified from time to time, the “Loan Agreement”) by and between zSpace, Inc., a Delaware corporation
(the “Borrower”), and [__], an entity organized under the laws of the Cayman Islands (the “Lender”).
Pursuant
to the provisions of Section 10.5 of the Loan Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial
owner of the Loan (as well as any Note(s) evidencing such Loan) in respect of which it is providing this certificate, (ii) it is not
a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a “10 percent shareholder” of any Borrower
within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as
described in Section 881(c)(3)(C) of the Code.
The
undersigned has furnished the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN or W-8BEN-E, as applicable.
By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned
shall promptly so inform the Borrower, and (2) the undersigned shall have at all times furnished the Borrower with a properly completed
and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either
of the two calendar years preceding such payments.
Unless
otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement.
[__]
Date:
________ __, 20__
Exhibit 10.17
SHORT FORM AGREEMENT
This short form agreement (Agreement) is being executed on this September 12, 2022 between:
| 1. |
zSpace,
Inc., a Delaware corporation, having its address at 2050 Gateway Place, Ste. 100-302, San Jose, Ca 95110 (Borrower);
and |
| |
|
| 2. |
Fiza
Investments Limited, a limited liability company incorporated in Cayman Islands, having its address at 2nd Floor,
Regatta Office Park, West Bay Road P.O Box 10655, Grand Cayman KY1 – 1006, Cayman Islands (Lender). |
The Borrower and
the Lender are collectively referred to as “Parties” and individually as “Party”.
RECITALS
| A. |
The
Borrower has a requirement of funds for an amount of up to $5,000,000 (Loan Amount). |
| |
|
| B. |
The
Borrower has approached the Lender to lend the Loan Amount to the Borrower. The Borrower and the Lender are in the process
of executing definitive agreements for the disbursal of the Loan Amount and all other agreements pursuant thereto (including
but not limited to security documents). |
| |
|
| C. |
The
Parties agree and acknowledge that the Borrower is in immediate requirement of funds for an amount of USD 2,500,000 (Advance
Loan Amount), being part of the Loan Amount. The Lender has agreed to advance the Advance Loan Amount, on the basis of
the terms and conditions set out in this Agreement. |
OPERATIVE TERMS
| 1. |
The
Lender has agreed to advance the Advance Loan Amount to the Borrower on the following terms: |
| |
1.1. |
The
Advance Loan Amount shall be disbursed to the Borrower within 2 business days from the date of execution of this Agreement. |
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|
|
| |
1.2. |
The
Advance Loan Amount shall form part of the aggregate Loan Amount. In the event that the Loan Amount is agreed to be provided
in tranches, then the Advance Loan Amount will be regarded as the first tranche (or part thereof if the first tranche is greater
than the Advance Loan Amount) of the Loan Amount. The key commercial terms for the advancement of the Loan Amount are as set
out in Annexure A, which the Borrower acknowledges to be acceptable to it. The Parties agree that the Definitive Agreements
shall be executed on the basis of the terms set out in Annexure A. |
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1.3. |
The
maturity date for the Advance Loan Amount shall be 15 business days from the date of advancement of the Advance Loan Amount
(Maturity Date). Notwithstanding the above, in the event that (a) the definitive agreements for the entire Loan Amount
together with all documents pursuant thereto (in such form as may be acceptable to the Lender) (Definitive Agreements)
are executed on or prior to the Maturity Date; and (b) all approvals needed to be obtained by the Borrower from all relevant
third parties (including but not limited to East West Bank, Kuwait Investment Authority and EdTechX), are obtained (to the
satisfaction of the Lender) on or prior to the Maturity Date (conditions (a) and (b) collectively, the “Conditions”),
then the Maturity Date for the Advance Loan Amount shall stand extended to the maturity date of the first tranche as set out
in the Definitive Agreements. |
| |
1.4. |
In
the event that the Conditions are complied with on or prior to the Maturity Date, then Advance Loan Amount will be subject
to the terms and conditions set out in the Definitive Agreements (including but not limited to payment of interest, repayment
and prepayment terms). Provided however that the interest on the Advance Loan Amount shall be calculated on and from the date
of disbursal of the Advance Loan Amount under this Agreement. |
| |
|
|
| |
1.5. |
In
the event the Conditions are not complied with on or prior to the Maturity Date, then the entire Advance Loan Amount shall
be repaid in full to the Lender on the day immediately succeeding the Maturity Date. If the Advance Loan Amount is not so
repaid, then the Lender will have the right to take such actions, at the sole cost and expense of the Borrower, as it may
desire to enforce its recovery rights in respect of the Advance Loan Amount at law, under contract or in equity. |
| For
and on behalf of Borrower |
|
| zSpace,
Inc. |
|
| |
|
| /s/ Joseph B. Powers |
|
| Joseph
B. Powers |
|
| Chief
Financial Officer |
|
| |
|
| For
and on behalf of Lender |
|
| Fiza
Investments Limited |
|
| |
|
| /s/ Husain Zariwala |
/s/ Imran |
|
| Authorized
Signatories |
|
ANNEXURE
A
Key
Commercial Terms
| KEY TERMS |
| Company |
zSpace
Inc. (a Delaware, USA registered company) |
| Investor |
Entity
controlled/advised by Gulf Islamic Investments LLC (“GII”) or its investors or its affiliates. |
| Investment
Amount and Tranches |
Provision
of up to USD 5,000,000 in form of convertible secured debt in suggested tranches as below:
- Within
5 business days of closing of the short form agreement: USD 2,500,000
- 30th
September: USD 1,000,000
-
31st October: USD 1,500,000
Provision
of second and third tranches will be dependent on Company requirement to meet EastWest Bank (“EWB”) liquidity
covenants and subject to closing of transaction documents and required third party approvals. |
| Use
of proceeds |
To
be utilized primarily for business operations and also meet provision towards coverage of EWB liquidity covenants. |
| Maturity
Date |
12
months from date of provision of first tranche |
| Security/lnstrument |
Investment
will be in form of secured debt convertible into the Company’s equity as described below
in the Conversion Premium and PIPE Funding Participation sections.
Security
and collateral for investment will be senior to existing bSpace Investments Ltd. secured debt investment aggregated to
USD 31,500,000.
Investment
will be subordinated to existing EWB credit facility however repayment can be extracted prior to repayment of the EWB credit facility
as highlighted below in Repayment clause. |
| Interest
Rate |
13%
fixed rate per annum, which shall accrue on the outstanding principle balance and shall be due on the Maturity Date. |
| Repayment |
Investment
can be repaid from
i) closing proceeds of SPAC listing and/or
ii) any
excess cash amount above that required by the EWB credit facility to meet the financial covenants therein can also be
redeemed which could also result from other liquidity events and/or business operations. |
| |
Any
repayment amount will also include component of full pro-rata amount of first 12 months
interest.
For
example, USD 1,000,000 repayment, within first 12 months, will include USD 130,000 interest = total repayment of USD 1,130,000
Repayment/redemption
can only be done as long as company meets EWB financial covenants including aggregate total liquidity covenant. |
| Conversion
Premium |
In
the instance that the Investment has not been fully repaid by 30th April 2023,
Investor will have the option to convert any portion of principal and/or interest into
2.5 times such amount (“Conversion Amount”) into Company’s existing
senior most Non-convertible Non-voting class of preferred shares.
Example:
Conversion of USD 1,000,000 will result in attaining USD 2,500,000 worth of senior most preferred shares. |
| Refinancing
of investment |
In
the instance that Investment has not been fully repaid by 30th April 2023, Company will use best efforts and work
towards attaining refinancing of investment such that investment can be repaid. |
Transaction Documents
|
The
final understanding between the Parties in relation to the potential transaction contemplated
by this Term Sheet, pursuant to discussions, negotiations and diligence will be set out
in certain definitive documents (“Transaction Documents”) including
but not limited to:
(i) A Loan and Security agreement between the Investor and the Company; and
(ii) A Subordination Agreement between Investor, the Company, bSpace Investment Ltd, and EWB; and
(iii) A
Subordination Agreement between Investor and Kuwait Investment Authority (“KIA”) governing their
respective rights and obligations.
The
Parties agree and acknowledge that the Investor may specify other documents to be executed which would classify as “Transaction
Documents” based on the outcome of discussions. |
| PIPE
Funding Participation |
Investor
will have the option to participate in the PIPE financing associated with the SPAC listing via conversion of any portion of
the Investment and its corresponding interest into the respective PIPE financing securities. |
| Confidentiality |
This
document and its contents are being delivered to the Company by the Investor and are accepted by the Company and the Investor
on the express condition that the Company and the Investor maintain its confidentiality. |
Exhibit
10.18
TERM
LOAN SUMMARY
Case ID: 1290836
This Term Loan Summary
forms a part of and is incorporated by reference into the Business Loan and Security Agreement that follows.
| Effective
Date: |
January 31,
2023, which may be different than the Funding Date |
| Borrower: |
ZSPACE, INC.,
A Delaware Corporation |
| Lender: |
Itria
Ventures LLC |
| Loan
Amount: |
$4,000,000.00 |
| Origination
Fee: (Deducted from Loan Amount) |
$80,000.00 |
| Underwriting
Fee: (Deducted from Loan Amount) |
$499.00 |
Net
Loan Amount:
(Loan Amount less Origination Fee and Underwriting Fee) |
$3,919,501.00 |
Funded
Amount:
(Net Loan Amount less other debt amounts due to Lender, including first Periodic Payment) |
$3,787,557.00
paid to Borrower at funding of the Loan |
| Monthly
Periodic Payment: |
$131,944.00
once a month*
*actual Periodic Payment amount may vary. See Section 1(e)(ii) |
| Payment
Schedule: |
36
equal monthly payments of $131,944.00 (each a “Periodic Payment”), (“Periodic Payment Date(s)”) (See
Section 1(e)) |
| Term: |
36
calendar Months from the Funding Date (“Term”) |
| Interest
Rate: |
1
2 . 9 6 %, subject to adjustment, including a Default Interest Rate (See Section 3) |
| Business
Purpose Loan: |
The
Loan proceeds funded to Borrower must be used solely and exclusively for working capital and other business purposes in Borrower’s
business, including repayment of existing debt (or as provided in Section 8(a)(ii)); and must never be used for personal, consumer,
family or household purposes. |
| Other
Fees: |
■
Returned Payment Fee: $25.00
■ Late Fee: 3% of each missed Periodic
Payment
■ Administrative Fee: up to 5% of the unpaid principal balance if there is an Event of Default (See
Section 4) |
| Collateral: |
The
Loan is secured by Borrower’s specified business assets (See Section 5) |
| Guarantors: |
The
Loan is guaranteed by:
zSpace Technologies (Shanghai) Ltd. and zSpace KKK
(See Section 14) |
| Servicer: |
Itria
Ventures LLC (See Section 1(f)) |
| Prepayment: |
n
may be prepaid by Borrower subject to payment of a Prepayment Fee (See Section 3(d)) |
| Borrower
Loan Dashboard: |
Operated
by the Servicer (See Section 1(e)(i)) |
BUSINESS
LOAN AND SECURITY AGREEMENT
This
BUSINESS LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into by and among Itria Ventures LLC,
a Delaware limited liability company, as lender (including its successors and assigns, “Lender”, “we”,
“us” or “our”), the Borrower identified in the Term Loan Summary (“Borrower”,
“you” or “your”) and each Guarantor identified in the Term Loan Summary (each, a “Guarantor”
and, collectively, the “Guarantors”). This Agreement sets out the legal terms and conditions of the business loan
being made by Lender to Borrower (“Loan”). Capitalized terms used below may also be defined in the Term Loan Summary
on the prior page.
(a) Term
Loan Summary. The Term Loan Summary contains some of the terms applicable to your Loan. The Term Loan Summary forms a part of and
is incorporated by reference into this Agreement. You agree to repay the Loan to Lender as provided in the Term Loan Summary and this
Agreement.
(b) Effective
Date. This Agreement shall become effective upon the execution and delivery of this Agreement by Borrower, each Guarantor and Lender
(“Effective Date”). The date on which the Funded Amount is received by the Borrower shall be termed “Funding
Date”.
(c) Loan
Proceeds Disbursed to Borrower. On the Funding Date, the amount of Loan proceeds disbursed to Borrower shall be the Funded Amount
specified in the Term Loan Summary.
(d) Business
Purpose Loan. The proceeds of the Loan must be used solely for working capital or other use in Borrower’s business (including
but not limited to repayment of any existing debt, to the extent provided herein, or to satisfy any other obligations or expenses of
Borrower) and not for any other purpose. Further, the proceeds of the Loan shall not be used for personal, consumer, family or household
purposes. Borrower agrees that a breach of this provision will not affect Lender’s right to enforce this Agreement.
| (e) | Loan
and Payment Information. |
(i) Borrower
will have access to relevant Loan information, including: (A) Loan balance, (B) Periodic Payment amount (payable either every
business day (“Daily Periodic Payment”), or four (4) times a month (“Weekly Periodic Payment”)
or two (2) times a month (“Bi-monthly Periodic Payment”), or once a month (“Monthly Periodic Payment”),
as specified on the Term Loan Summary), (C) the Interest Amount (as defined in Section 3(e)), (D) Periodic Payment Dates,
(E) total Repayment Amount,(F) total amount of Periodic Payments made to date, (G) the amount of payments in arrears and
(H) any other fees or payments specified in this Agreement, in each case via: (1) the “Borrower Loan Dashboard”
referenced in the Term Loan Summary; or (2) other electronic communication sent to Borrower by Lender that contain the above information.
Borrower will receive a unique dashboard ID and must set up a unique password in order to access the Borrower Loan Dashboard. The Borrower
Loan Dashboard will be operated by the Servicer (as defined). You can also access the above information by contacting your Lender case
manager or Servicer, whose contact information will be displayed on the Borrower Loan Dashboard or provided to you via email. Servicer
may also send Borrower an email payment reminder or prepayment confirmation from time to time (“Email Alert”). All
such payments will be made on the first business day of the relevant payment period. The first payment has been deducted from the Loan
Amount.
(ii) The
actual Monthly Periodic Payment amount and the Interest Amount may be (x) slightly lower than the dollar amount set forth in the
Term Loan Summary, depending on the date that the Loan is funded or (y) higher than the dollar amount set forth in the Term Loan
Summary, if any payments are missed. The actual Monthly Periodic Payment amount and/or Interest Amount can be found on the Borrower Loan
Dashboard.
(f) Servicer.
Lender may designate a servicer of the Loan from time to time with no less than five (5) business days written notice without approval
of Borrower. Lender shall initially service the Loan (in such capacity, including its successors (including backup servicers) and assigns,
“Servicer”). Servicer shall administer this Agreement on Lender’s behalf, including receipt of payments and
other fees on behalf of Lender. Borrower hereby authorizes Servicer to administer this Loan in all respects on Lender’s behalf,
including without limitation the authorization to ACH payments and fees from Borrower’s account(s) as provided in Section 2.
Accordingly, all references to “Lender” in connection with Loan administration shall also be deemed to refer to “Servicer”
in all cases, as fully as if set forth here in addition to or in lieu of Lender.
(g) Notices
to Lender. Except as expressly otherwise provided herein, all notices to Lender under this Agreement shall be given to Servicer.
Borrower shall give all such notices to Servicer in writing either via the Borrower Loan Dashboard or email, where Servicer’s contact
information including email shall be displayed, it being understood that no further notice to Lender shall be required. The email of
the current Servicer is: notices@itriaventures.com.
(a) Designated
Account(s). Please specify below: (i) all of Borrower’s and each Guarantor’s business bank accounts (each, a “Designated
Account” and collectively, “Designated Accounts”) and (ii) the Designated Account into which Lender
should disburse the proceeds of the Loan. If no account is so designated, Lender will disburse the Loan proceeds into the first account
listed below. By submitting the information below, you certify to Lender that each such account was established only for business purposes
and not for personal, consumer, family or household purposes. As specified in Section 2(c) below, Lender will be authorized
to withdraw funds from Borrower’s Designated Accounts as and when payments are due under this Agreement. As specified in Section 14,
Lender will be authorized to withdraw funds from any Guarantor’s Designated Accounts following the occurrence of an Event of Default
or as authorized by Borrower and/or Guarantor at a later date. Borrower and each Guarantor confirms to Lender that the Designated Accounts
listed below are business accounts and not consumer accounts. Upon an Event of Default, “Designated Accounts” includes
any other business bank or merchant processing account of Borrower and each Guarantor.
| Account
1 |
Account
2 |
Account
3 |
| Deposit
Funds / Withdrawls |
Deposit
Funds / Withdrawls |
Deposit
Funds / Withdrawls |
| Account
Holder: |
Account
Holder: |
Account
Holder: |
| zSpace, Inc. |
zSpace
Technologies (Shanghai) Co. Ltd. |
zSpace
KK |
| Bank
Name: |
Bank
Name: |
Bank
Name: |
| East
West Bank |
China
Merchants Bank |
Mizuho
Bank - Yebisu Branch |
| San
Jose, Ca |
Shanghai,
PRC |
Tokyo,
Japan |
| Routing:
322070381 |
Routing:
SWIFT CMBCCNBS051 |
Routing:
SWIFT MHCBJPJT |
| Account:
003188789 |
Account:
121926902310901 |
Account:
1625047 |
[rest of page intentionally
left blank]
(b) Maintenance
of Designated Account(s). You agree to keep all Designated Account(s) referenced above open until all of your Obligations under
this Agreement have been repaid in full to Lender. You further agree to promptly notify Lender in writing if (i) there are any changes
to the account and routing numbers of the Designated Account(s) or (ii) you open any new business account (including all details
related such account), which new account(s) will be considered Designated Accounts for all purposes under this Agreement.
(c) ACH
Authorization. You hereby authorize Lender to debit via Automatic Clearing House (“ACH”) your Designated Accounts
on the periodic basis and in the amounts specified herein as required for repayment of the Loan, including all fees and payments specified
in this Agreement. You acknowledge that Lender shall have full read-only access to all Designated Accounts. This authorization shall
remain in full force and effect until all of the Obligations (as defined in Section 5(b) below) have been paid in full.
Unless otherwise agreed to by Lender and Borrower in writing, Lender will withdraw the applicable Periodic Payment specified in the Term
Loan Summary (“Periodic Amount”), by initiating a debit via ACH from the Designated Account(s). You hereby authorize
Lender to debit this Periodic Amount from your Designated Accounts in accordance with the Payment Schedule, until all Obligations have
been paid in full. You understand and acknowledge that, due to the timing of the receipt of data by Lender and the operations and rules of
the ACH system as determined by the National Automated Clearing House Association, Lender will not be able to confirm receipt of funds
until after the actual debit. You agree to promptly provide any assistance requested by Lender and/or another financial institution to
confirm that you have authorized Lender to initiate ACH debits of your Designated Accounts. You agree to be bound by the NACHA Operating
Rules in effect when any ACH entry is submitted.
(d) Bank
Fees. Borrower understands that only Borrower, and not Lender (or Servicer) is responsible for any fees charged by Borrower’s
bank as the result of credits or debits initiated under this Agreement.
(a) Repayment
of Loan. You agree to pay Lender both (i) the Loan Amount and (ii) the Interest Amount (the sum of such amounts, the “Repayment
Amount”), in each case as specified herein. The Repayment Amount will be repaid to Lender via periodic ACH withdrawals of the
Periodic Amount on each Periodic Payment Date in accordance with the Payment Schedule. If you decide to prepay the Loan, it will be subject
to a Prepayment Fee as provided in Section 3(d) below, so in this case your total payment will be different. At the
end of the Term or upon prepayment, you must also pay Lender any other Obligations then due and payable to Lender. You agree to pay Lender
all amounts due under this Agreement in U.S. dollars. Time is of the essence regarding all such payment obligations, meaning that all
such amounts are due and payable to Lender strictly in accordance with this Agreement. If a Periodic Payment Date falls on Saturday,
Sunday or Federal Reserve holiday, the Periodic Amount will be due on the next business day.
(b) Manner
of Repayment. The Loan shall be repaid by ACH withdrawals of the Periodic Amount from Borrower’s Designated Account(s) on
the Periodic Payment Dates. If Borrower knows that for any reason Lender will be unable to process a payment via ACH, then Borrower shall
immediately deposit sufficient funds into the Designated Account(s) so that the missed payment can be collected as provided above.
(c) Application
of Payments. Payments received on the Loan will be applied by the Lender as follows: (i) first, to interest accrued on
the Loan, (ii) second, to any fees, expenses and other Obligations that are then due and payable under this Agreement and (iii) third,
to the Loan Amount (as a reduction of the principal balance of the Loan).
(i) Prepayment
Fee. You have the option to prepay the Loan in full by giving Lender prior written notice in the manner specified in clause
(ii) below and paying, on the date of such prepayment, an amount equal to (1) (x) the Loan balance and the accrued
Interest Amount which is outstanding and unpaid on such date, if the Loan is to be prepaid in full or (y) the principal amount of
the Loan you wish to repay, as specified to the Lender in the Prepayment Notice under subparagraph (ii) below, plus
(2) the applicable Prepayment Fee, plus (3) without duplication on interest payments, any fees, expenses and other Obligations
that may then be due and payable under this Agreement (collectively, the “Prepayment Amount”). As used herein, the
“Prepayment Fee” means the following amounts (as summarized in the chart below):
(A) for
Loans with a Term of 25 to 36 months, (1) 2.5% of the principal balance of the Loan being prepaid if you prepay the Loan on or before
the 12th month of the Term, (2) 1.5% of the principal balance of the Loan being prepaid if you prepay the Loan after the 12th month
of the Term but before the 25th month of the Term. For clarification, no Prepayment Fee is payable if the prepayment is after the 24th
month of the Term.
| Prepayment
Fee* Summary |
| |
Month
of Prepayment |
| Term |
2-12 |
13-24 |
25
- 36 |
| 25
to 36 months |
2.5% |
1.5% |
N/A |
| *Percent
(%) of principal amount to be paid as of the Prepayment Date. |
(ii) Prepayment
Notice. If you wish to prepay your Loan, you must give the Servicer prior written notice via the Borrower Loan Dashboard or by
email (“Prepayment Notice”), as provided in Section 1(g), that you intend to prepay the Loan in full or in part
as of a specified date. The initial Servicer’s email is: notices@itriaventures.com. If you want to prepay the Loan in part
only, you must specify the principal amount to be repaid as of the Prepayment Date in the Prepayment Notice. The prepayment date (the
“Prepayment Date”) specified in the Prepayment Notice must be a business day that is no earlier than five (5) business
days after the date of the Prepayment Notice and no later than the next scheduled Periodic Payment Date. Lender will notify you in writing
of the Prepayment Amount due and payable on the Prepayment Date via Email Alert or the Borrower Dashboard not later than one (1) business
days prior to the Prepayment Date.
(e) Interest;
Maximum Permitted Interest Rate. Prior to the occurrence of an Event of Default, the Loan will accrue at the Interest Rate specified
in the Term Loan Summary, calculated on the basis of a 365-day year (“Interest Rate”). The total interest expense
you will pay on the Loan (assuming there is no prepayment and no Event of Default) is the “Interest Amount”. From
and after the date 30 days following the occurrence of an Event of Default until such time as the Event of Default continues, the entire
unpaid principal balance of the Loan will bear interest at a rate 5% higher than the Interest Rate specified in the Term Loan Summary,
unless waived by the Lender at its sole discretion, but shall not in any event exceed maximum legal rate of interest permitted under
New York law (“Default Interest Rate”). Interest accrued at the Default Interest Rate will result in a higher total
Repayment Amount payable by you. In the event that a court of competent jurisdiction determines that Lender has charged or received interest
in excess of the maximum permitted rate, then (i) the applicable interest rate, inclusive of any fees or charges payable under this
Agreement that are determined by such court to constitute interest, shall be automatically reduced to the maximum rate permitted by law
and (ii) if required by law, any sums already collected from Borrower that exceed the maximum permitted rate will be refunded or
credited to Borrower.
| (a) | Fees.
Borrower shall pay the following fees to Lender or Servicer on behalf of Lender: |
(i) Origination
Fee: A one-time Origination Fee in the amount set forth in the Term Loan Summary (“Origination Fee”). The Origination
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(ii) Underwriting
Fee: A one-time Underwriting Fee in the amount set forth in the Term Loan Summary (“Underwriting Fee”). The Underwriting
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(iii) Returned
Payment Fee: A returned payment fee in the amount set forth in the Term Loan Summary that is due and payable to Lender each time
any electronic payment processed on Borrower’s Loan is returned unpaid or dishonored for any reason other than reasons beyond the
control of the Borrower (“Returned Payment Fee”).
(iv) Late
Fee: A late fee in the amount of 3% of each scheduled Periodic Payment on the Loan that is not received by Lender in full on a timely
basis in accordance with the Payment Schedule on a cumulative basis (including shortfalls and missed payments from prior periods) for
any reason other than reasons beyond the control of the Borrower (“Late Fee”).
(v) Administrative
Fee. Upon the occurrence of an Event of Default, a fee of up to 5% of the unpaid principal balance of the Loan (“Administrative
Fee”, and together with the Prepayment Fee, Origination Fee, Underwriting Fee, Returned Payment Fee, Late Fee and Administrative
Fee, the “Fees”), for in-house collections enforcement costs, including in-house counsel time, legal filings, mailings,
levies, and other expenses.
(b) Attorneys’
Fees and Collection Costs. In addition to the above Fees, Borrower shall pay to Lender on demand any and all third party collection
costs, attorneys’ fees and expenses, and any other expenses reasonably incurred by Lender to obtain or enforce payment of Borrower’s
Obligations or any Guarantor’s obligation to pay the Repayment Amount (collectively, “Enforcement Expenses”),
including, without limitation, expenses incurred in connection with: (i) any bankruptcy or insolvency proceedings of Borrower or
any Guarantor; (ii) the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection
therewith; and (iii) the perfection or protection of Lender’s rights in and to the Collateral. All such Enforcement Expenses
will become a part of the Obligations.
| 5. | SECURITY
INTEREST AND COLLATERAL |
(a) Secured
Loan. This Loan is secured by certain business assets of Borrower, which business assets are pledged as collateral to Lender as provided
below.
(b) Security
Interest. Borrower hereby grants to Lender a first priority security interest in and to any and all Collateral (as defined below)
(the “Security Interest”) to secure the prompt and complete payment when due of all debts, liabilities and obligations
of any kind whatsoever of Borrower to Lender as set out in this Agreement or any other agreement in respect of the Repayment Amount,
whether fixed, contingent or otherwise, including, without limitation, the Repayment Amount and all other Fees and Enforcement Expenses
payable to Lender under this Agreement (collectively, “Obligations”) and the performance by Borrower of all of the
covenants and obligations to be performed by it in accordance with this Agreement. “Collateral” means, collectively,
all of Borrower’s right, title and interest in, to and under the following property, whether tangible or intangible and whether
now owned or existing or hereafter arising or acquired and wherever located: (i) all Receivables (as defined); and (ii) all
proceeds from Receivables and/or rights to payment and collection of all debts, obligations and liabilities owed to Borrower, including,
without limitation, amounts due from merchant processors from credit or debit card transactions. As used herein, “Receivables”
means any and all: (i) funds that Merchant receives from its customers using credit cards, charge cards, debit cards, prepaid cards,
benefit cards, or similar cards to purchase Merchant’s products and/or services (including without limitation any such funds that
are processed by Merchant’s card processor(s)); (ii) funds that Merchant receives from its customers in any manner of payment
to purchase Merchant’s products and/or services; (iii) accounts, future accounts, contract rights, choses in action, checks,
notes, negotiable instruments and any other rights to receive payment; and (iv) insurance proceeds received by Merchant (up to the
Amount Sold, less total remittances under this Agreement). “Receivables” also includes the Receivables of Merchant’s
subsidiaries and affiliated companies and, upon a Material Breach, of any (x) new or existing company owned or controlled by Merchant
(collectively, an “Other Business”), (y) any new or existing company, whether owned or controlled by Merchant
or any third party, to which all or a material portion of the business or assets of Merchant are sold or otherwise transferred (collectively,
a “Successor Company”) or (z) any affiliate of any of the foregoing, in each case without the express prior written
consent of Purchaser.
(c) Maintenance
of Collateral. Borrower agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair
and condition at all times while this Agreement remains in effect. Borrower further agrees to pay when due all claims for work done on,
or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be
filed against the Collateral, excluding liens (i) authorized or consented to by Lender or Servicer in writing, (ii) arising
in connection with Permitted Indebtedness (as defined) or (iii) described on Schedule A(2) (collectively, “Permitted
Liens”). As used herein, “Permitted Indebtedness” means, collectively, (i) indebtedness to Lender under
this Agreement, (ii) unsecured indebtedness to trade creditors incurred in the ordinary course of business, (iii) unsecured
indebtedness in respect of business credit cards used for business purposes in the ordinary course of business, (iv) Indebtedness
secured by Liens permitted under the definition of “Permitted Liens” hereunder, (v) any indebtedness secured by assets
in respect of which no lien or security interest has been created in favour of the Lender and (vi) the indebtedness listed on Schedule
A(1), up to the respective individual and respective aggregate cap amounts specified therein. The Borrower shall inform the Lender
in writing of any Permitted Indebtedness prior to incurring such Permitted Indebtedness, it being clarified that no such consent of the
Lender will be required for the purpose of incurring any Permitted Indebtedness up to the aggregate cap on such indebtedness as set out
in Schedule A(1). Permitted Liens shall be set out on Schedule A(2).
(d) Priority
in Collateral; Intercreditor Agreement. The parties agree that Lender shall have a senior first position lien on the Collateral,
and bSpace Investments Limited, Fiza Investments Limited (collectively, the “Other Lenders”) shall have a second secured
position with respect to the Collateral. To memorialize this seniority and ranking in respect of the security interests herein, Lender
and the Other Lenders shall enter into an intercreditor and subordination agreement on or prior to the Effective Date in the form attached
as Schedule B (the “Intercreditor Agreement”).
(e) Lender’s
Right to Maintain Collateral. Lender shall be entitled to take any action that Lender deems appropriate, in its sole discretion,
to maintain or preserve the Collateral, including, without limitation, inspecting the Collateral, discharging or paying all taxes, liens,
security interests, encumbrances and other claims at any time levied or placed on the Collateral and paying all costs for insuring, maintaining
and preserving the Collateral, subject in each case to the provisions of the Intercreditor Agreement. To the extent permitted by applicable
law, all such expenses will become a part of the Obligations and, at Lender’s option, will be: (i) payable on demand; (ii) added
to the principal balance of the Loan and be payable with any installment payments due during the remaining term of the Loan; or (iii) if
not paid sooner, due and payable on the last day of the Term of the Loan.
(f) Filings;
Cooperation. Borrower hereby authorizes each of Lender and Servicer (on Lender’s behalf) to make filings under in Article 9
of the Uniform Commercial Code (the “UCC”), as in effect from time to time in the State of New York, including, without
limitation, a UCC-1 financing statement and any other filings or recordations (against Borrower or the Collateral that Lender deems necessary
or desirable, in its sole discretion, to perfect or maintain the perfection of or otherwise protect Lender’s Security Interest
in the Collateral, subject in each case to the provisions of the Intercreditor Agreement. Upon request by Lender, Borrower agrees to
execute any documents or take any other action in connection with this Agreement as Lender deems necessary or desirable to perfect or
maintain the perfection of or otherwise protect Lender’s Security Interest in the Collateral.
(g) No
Liens. Other than Permitted Liens, Borrower shall not pledge or grant any security interest in any Collateral to any other person
or entity until all of the Obligations have been paid in full and this Agreement has been terminated.
(h) Taxes.
Borrower agrees to complete and file all necessary federal, state and local tax returns and will pay when due all taxes, assessments,
levies and liens upon the Collateral and provide evidence of such payments to Lender upon request.
| 6. | BORROWER
AND GUARANTOR AUTHORIZATIONS |
Borrower and each
Guarantor authorizes each of Lender and/or Servicer from time to time, in their sole discretion, to:
(a) Credit
Reports and Information. Contact credit and database reporting companies to obtain credit and other reports and information on Borrower
and each Guarantor, including, without limitation, credit history and credit card, debit card and other payment card processing and chargeback
history;
(b) Additional
Information. Require that Borrower and each Guarantor promptly provide Lender with such additional information about the financial
condition and operations of Borrower or any Guarantor, including without limitation financial statements and/or bank statements, as Lender
may reasonably request;
(c) Credit
Pulls. Do soft and/or hard credit pulls in each case as determined by the Lender or Servicer;
(d) Recorded
Calls. Monitor and/or record its telephone calls with Borrower, each Guarantor and their principals, owners, employees or agents
to confirm the content of conversations in connection with evaluations, training, monitoring for compliance and collections;
(e) Lease
information. Receive information regarding the commercial lease for the physical location of Borrower’s business from any applicable
leasing company and or agent and, upon the occurrence of an Event of Default, such other information as Servicer may reasonably request;
and
(f) Contact
Borrower and Guarantors. Contact Borrower and any Guarantor (including any Guarantor)regarding this Agreement or other business transactions
during normal business hours by phone, email or otherwise.
| 7. | BORROWER
REPRESENTATIONS AND WARRANTIES |
Borrower
represents and warrants to Lender that:
(a) Loan
Agreement. Borrower has reviewed this Agreement, understands its terms and conditions, and has freely and voluntarily executed this
Agreement without duress, pressure or coercion of any kind;
(b) Opportunity
for Review. Borrower has had a full opportunity to review this Agreement, request information of Lender and discuss this Agreement
with its attorney and/or legal or financial advisors;
(c) Compliance
with Law. Borrower has operated and will, at all times, operate its business in material compliance with all applicable federal,
state and local laws, statutes, regulations and rules relating to Borrower’s business;
(d) Sanctions;
Anti-Money Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, director, officer or employee or any Guarantor
is subject of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control,
the U.S. Department of State or any other relevant sanctions authority;
(e) Anti-Money
Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, directors, officers or employees or any Guarantor has
violated or has been investigated for violating (i) any applicable anti-money laundering laws and regulations or (i) any anti-corruption
or anti-bribery laws and regulations;
(f) Organization
and Qualification. Borrower is, and shall remain at all times during the term of the Loan, duly organized, licensed, validly existing
and in good standing under the laws of its state of formation or incorporation and in each other state in which it is does business;
(g) Authorization.
Borrower has the limited liability, corporate or other power and is duly authorized to execute, deliver and perform its obligations under
this Agreement and each other document executed in connection with this Agreement;
(h) Authorization
by Control Parties. This Agreement has been approved by individuals (x) owning not less than a majority of the total equity
and voting power of Borrower and (y) having control of the operations and management of Borrower, and executed by duly authorized
officers of Borrower;
(i) Valid
Agreement. This Agreement constitutes the legal, valid and binding obligation of Borrower except as such obligations may be modified
by bankruptcy laws or laws affecting the rights of creditors generally;
(j) Collateral.
Borrower has good and marketable title to all of its business assets that are included in the Collateral, free and clear of any liens,
security interests, restrictions, pledges and encumbrances of any kind, other than Permitted Liens and those in favor of Lender;
(k) No
Approvals. Other than as expressly provided in clause 7(r), the execution and performance of this Agreement by Borrower does not
require any governmental or third party consent, license or approval and will not conflict with or cause a breach in any agreement or
organizational documents of Borrower;
(l) Accurate
Disclosure. All information submitted by Borrower to Lender, or to Servicer on Lender’s behalf, in connection with its Loan
application and this Agreement (including, without limitation, Borrower’s legal name, location and ownership) is true, correct
and complete;
(m) Litigation
Disclosure. Borrower has accurately disclosed to Lender all lawsuits, arbitrations, proceedings or investigations (collectively,
“Actions”) pending or, to Borrower’s knowledge, threatened in writing against Borrower, any Guarantor or their
respective assets;
(n) Potentially
Adverse Actions. There are no Actions pending or, to Borrower’s knowledge, threatened in writing against Borrower or any of
its assets before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse
effect on its financial condition, business, assets or prospects or the value of the Collateral;
(o) Potentially
Adverse Facts Disclosed. Borrower has fully and accurately disclosed all material facts relating to its business, financial condition
and prospects, including all circumstances that might have a material adverse effect on Borrower’s financial condition, business,
assets or prospects or the value of the Collateral;
(p) Solvency.
Borrower is solvent and is not contemplating any bankruptcy or other insolvency proceeding, receivership or assignment for the benefit
of creditors and not such action or proceeding has been filed against Borrower;
(q) Licenses.
Borrower has fully disclosed to Lender all Licenses required to operate its business; and
(r) SPAC
Merger Agreement. In the event that the SPAC Merger Agreement (as defined below) creates a technical breach of this Agreement, such
breach shall be deemed waived provided that an amendment to the SPAC Merger Agreement curing such breach is executed as soon as reasonably
practicable after the Funding Date; provided further, that no such breach shall result in a Change in Control.
| 8. | BORROWER
COVENANTS (AGREEMENTS) |
| (a) | Affirmative
Covenants. Borrower covenants and agrees that it will: |
(i) Repayment
of Loan. Pay the Repayment Amount to Lender in accordance with the Payment Schedule and pay all other Obligations owed to Lender
when due in accordance with this Agreement, subject to the provisions of this Agreement;
(ii) Use
of Loan Proceeds. Use the proceeds of the Loan disbursed to Borrower on the Funding Date solely and exclusively for working capital
and other uses in Borrower’s business; provided, notwithstanding any provision hereof, Borrower may use proceeds to repay indebtedness
owed to East West Bank pursuant to the Loan and Security Agreement dated September 8, 2021, as amended, by and between East West
Bank and zSpace, Inc.
(iii) Performance
of Agreements. Promptly perform all obligations owed to Lender and covenants and agreements of Borrower under this Agreement;
(iv) Notice
to Lender. Promptly notify Lender in writing of (x) an actual or potential Event of Default as soon as Borrower becomes aware
of same; (y) any occurrence that has or may have a material adverse effect on Borrower’s financial condition, assets, business
or prospects or the value of the Collateral or (z) the filing of any Action against Borrower or its assets;
(v) Lender
Right to Information. Promptly provide Lender with any information, records, bank statements or other information relating to the
Loan, the Collateral or Borrower’s financial condition as lender may reasonably request;
(vi) Lender
Right to Contact. Allow Lender or any of its agents to contact Borrower or any Guarantor (including any cellular or mobile telephone,
work telephone or email) from time to time as Lender may determine in its business judgment;
(vii) Lender
Right to Audit. Allow Lender or any of its agents, on reasonable prior notice of not less than ten (10) business days to Borrower,
to (x) inspect Borrower’s accounting books and records, receipts and other documents and information that relate to Borrower’s
accounts, Loan payments, Collateral or the general financial condition of Borrower and (y) make copies made thereof on-site or off-premises;
(viii) Recordkeeping.
Borrower will at all times keep accurate and complete records of Borrower’s Designated Account(s) and Collateral. Except as
expressly provided herein, Lender shall have no obligation to maintain any electronic or other records or any documents in connection
with this Agreement;
(ix) Licenses.
Borrower will maintain, renew and supplement as required all Licenses needed to operate Borrower’s business under applicable law;
(x) Disclosure.
Borrower will promptly provide to Servicer documents and information relating to the SPAC Merger, Permitted Indebtedness (without limitation
those scheduled on Schedule A(1)) and Permitted Liens, as Servicer may request;
(xi) Duty
to Update. Borrower will promptly update Servicer upon incurring new Permitted Indebtedness and/or implementation of any Permitted
Lien;
(xii) Subsidiaries.
Borrower has two subsidiaries: zSpace Technologies (Shanghai) Ltd., a company organized under the laws of the Peoples Repubic of China,
and zSpace KKK, a company organized under the laws of Japan, each of which is a Guarantor under this Agreement ; and
(xiii) Cooperation.
Reasonably cooperate with Lender in all aspects regarding the Loan and this Agreement, including with respect to the maintenance of Collateral.
(b) Negative
Covenants. Borrower covenants and agrees that, until all of the Obligations have been paid in full and this Agreement has been terminated,
it will not, without the prior written consent of the Lender:
(i) No
Corporate Changes. Change its name, its tax identification number, legal structure or jurisdiction of organization or conduct Borrower’s
business under any name other than as disclosed to Lender, other than pursuant to or as a direct consequence of the SPAC Merger Agreement,
provided no such change shall result in a Change in Control or have a material adverse effect on the business, assets, financial condition
or prospects of Borrower;
(ii) No
Business Changes. Change (x) its place of business or principal executive office, its mailing address, upon written notice to
Servicer or (y) its line of business or its credit card processor(s), other than expressly pre-approved by Lender in writing;
(iii) No
Collateral Changes. Change the nature of the Collateral;
(iv) No
Family or Household Uses. Use the Loan proceeds for any personal, consumer, family or household purposes;
(v) No
Additional Indebtedness. Incur additional indebtedness, directly or indirectly via any subsidiary, other than (i) (x) intercompany
payables between subsidiaries or from any subsidiary to Borrower only and (y) trade payables in the ordinary course of business
or take out additional financing (including without limitation merchant cash advance or factoring or A/R financing products) or (ii) Permitted
Indebtedness;
(v) No
Liens. Place or permit any additional liens, security interests or other encumbrances on the Collateral, other than Permitted Liens;
(vii) No
Subsidiaries. Borrower will not create any subsidiaries, other than in connection with the SPAC Merger, without the prior written
consent of Lender; provided, Borrower shall promptly notify Lender in writing of all subsidiaries created by Borrower in connection with
the SPAC Merger; and
(viii) No
Mergers, Consolidations or Sales. (1) Merge or consolidate with or into any other 10 business entity, other than a Permitted
Acquisition (as defined) ; (2) enter into any joint venture or partnership with any person, firm or corporation, except in each
case, in connection with a Permitted Acquisition ; (3) sell, dispose or transfer assets of Borrower other than pursuant to a Permitted
Transfer (as defined) and in the ordinary course of business; or (4) sell, dispose or transfer any equity interest in Borrower that
would confer, directly or indirectly, majority equity ownership of the Company or operating control through its executive management
team (a “Change in Control”) to a new entity or individual.
“Permitted
Acquisition” means (A) any purchase or other acquisition by Borrower or its subsidiaries (including the creation and capitalization
of any subsidiary in connection with such purchase or other acquisition) of (x) all of the capital stock of a person that, upon
the consummation thereof, will become a wholly-owned subsidiary (including as a result of a merger or consolidation) or (y) all
or substantially all the assets of, or assets constituting one or more business units of, any person or (B) a merger, combination
or acquisition consisting of a transaction or series of related transactions in which (i) the holders of the voting securities of
the Borrower outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction
or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of
the Borrower or such other surviving or resulting entity and (ii) the executive management team of Borrower immediately prior to
such transaction or series of related transactions retains, immediately after such transaction or series of related transactions, control
of the operations of Borrower or such other surviving or resulting entity; provided, that, with respect to each such Permitted
Acquisition, (a) no Event of Default has occurred (subject to Section 7(r) and/or as disclosed to Lender in writing)
or would otherwise exist immediately after giving effect to such acquisition, (b) the aggregate cash consideration paid in connection
with all such Permitted Acquisitions does not exceed $3,000,000; and (c) in the case of any such acquisition involving Borrower
or any of its subsidiaries, Borrower or such subsidiary is the surviving legal entity, other than pursuant to or as a direct consequence
of the SPAC Merger Agreement, as provided in Section 8(b)(i). Without limiting the foregoing, the SPAC Merger shall be considered
a Permitted Acquisition for all purposes under this Agreement. As used herein, “SPAC Merger” means the special purpose
acquisition company (SPAC) merger governed by and pursuant to that certain Agreement and Plan of Reorganization dated May 16, 2022,
as may be amended, by and among zSpace, Inc. and Edtech X Holdings Acquisition Corp., EXHAC Merger Sub I, Inc. and EXHAC Merger
Sub II, Inc. (such agreement, as may be amended, the “SPAC Merger Agreement”), it being understood that no amendment
to the SPAC Merger Agreement shall authorize or implement a Change in Control. The Borrower shall inform the Lender in writing of any
Permitted Acquisition as soon as reasonably practicable prior to the closing of any such transaction, it being understood that Lender
consent is not required.
“Permitted
Investment” means, collectively, (A) Borrower’s investments the following investments, subject to the aggregate
dollar cap for all such investments of $5,000,000, (i) investments existing on the Effective Date, including investments (directly
or via another subsidiary) in subsidiaries; (ii) marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof; (iii) commercial
paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from
either Standard & Poor’s Corporation or Moody’s Investors Service (approx. $0 on the Effective Date); (iv) bank
certificates of deposit maturing no more than one (1) year from the date of investment therein (approx. $0 on the Effective Date);
(v) bank money market accounts; and (vi) Investments in bank deposit or checking accounts or otherwise permitted by, and subject
to the terms and conditions of Section 2; (vii) investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of business consistent with past practice (approx. $0 on the
Effective Date); (viii) investments made in connection with Permitted Transfers, up to $1,000,000 in the aggregate during any 12-month
period after the Effective Date; (ix) investments by Borrower (directly or via another subsidiary) in subsidiaries, up to $750,000
in the aggregate during any 12-month period after the Effective Date; (x) investments not to exceed $250,000 in the aggregate in
any fiscal year consisting of (A) travel advances and employee relocation loans and other employee loans and advances in the ordinary
course of business, and (B) loans to employees, officers or directors relating to the purchase of equity securities of Borrower
or its subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s board of directors, up to $100,000
in the aggregate during any 12-month period after the Effective Date; (xi) investments (including debt obligations) made in connection
with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with,
customers or suppliers arising in the ordinary course of Borrower’s business, up to $200,000 in the aggregate during any 12-month
period after the Effective Date; (xii) investments consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements, in each case, entered into in the ordinary course of business and designed to protect
against fluctuations in interest rates, currency exchange rates or commodity prices, but in no case for speculation purposes, up to $250,000
in the aggregate during any 12-month period after the Effective Date; (xiii) subject to the limitations set forth in the definition
of “Permitted Acquisition”, any investments or expenditures made in connection with or pursuant to any Acquisition that qualifies
as a Permitted Acquisition under this Agreement; (xiv) investments consisting of notes receivable of, or prepaid royalties and other
credit extensions, to customers and suppliers, in the ordinary course of business, provided that this clause (xiv) shall not apply
to Investments of Borrower in any subsidiary; and (xvi) other investments in an aggregate amount not to exceed $250,000 in any fiscal
year of Borrower.
“Permitted Transfer”
means a Transfer:
i. Of
inventory in the ordinary course of business;
ii. Of
non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;
iii. Of
worn-out, surplus, fully-depreciated or obsolete equipment that is, in the reasonable judgment of Borrower, no longer economically practicable
to maintain or useful in the ordinary course of business of Borrower;
iv. Consisting
of grants of security interests and other Liens that constitute Permitted Liens;
v. Of
assets, including Permitted Investments and distributions pursuant to Stock Plans;
vi. (1) by
any Subsidiary to another Subsidiary, or (2) from a Subsidiary to Borrower;
vii. Consisting
of the sale or issuance of any common stock, common partnership, common membership, or other common ownership interest or other common
equity securities of Borrower that is not otherwise prohibited by this Agreement;
viii. Consisting
of the sale of real property by any Subsidiary of Borrower; provided that any such sale of real property is made in exchange for cash
in an amount that is not less than the fair market value of such real property, as confirmed by documentation as may be reasonably requested
by Lender; or
ix. Of
other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.
(a) The
occurrence of any one or more of the following events shall constitute, upon ten (10) days prior written notice by Servicer to Borrower,
in the event the default has not been cured within such period, an event of default under this Agreement (each, an “Event of
Default”):
(i) Borrower
fails to pay the Periodic Amount in full when due not later than the scheduled Periodic Payment Date (whether for a Daily Periodic Payment,
Weekly Periodic Payment, Bi-monthly Periodic Payment, or Monthly Periodic Payment), time being of the essence;
(ii) Borrower
fails to pay any other Obligations in full when due in accordance with the terms of this Agreement;
(iii) the
determination by Lender, in its reasonable business judgment, that Borrower has failed to promptly perform any term, covenant or condition
in this Agreement, including, without limitation, the obligation to give written notice to Lender upon the occurrence of certain events;
(iv) the
determination by Lender, in its reasonable business judgment, that any representation or warranty made by Borrower or any Guarantor to
Lender in this Agreement or otherwise made by Borrower (or on behalf of Borrower) in connection with the Loan (including, without limitation,
the Loan application) is false or misleading;
(v) Borrower
incurs any additional indebtedness or financing in violation of this Agreement, other than Permitted Indebtedness, as provided in Section 8(b)(v);
(vi) Borrower
fails to maintain in full force and effect any License necessary to operate its business;
(vii)
all or any portion of the Collateral is subject to a security interest, lien or other encumbrance (other than Permitted Liens and those
in favor of Lender) in violation of this Agreement;
(viii) Borrower
fails to maintain Lender’s first priority perfected lien on the Collateral;
(ix) Borrower
changes credit card processors or any Designated Accounts in violation of this Agreement;
(x) the
voluntary or involuntary filing by or against Borrower of any case or proceeding under the federal bankruptcy code, any state or federal
bankruptcy law, assignment for the benefit of creditors or other similar law protecting the rights of creditors;
(xi)
the commencement of any judicial or non-judicial proceeding by or against Borrower that seeks to accomplish a reorganization
or arrangement with its creditors;
(xii) the
filing of a state or federal tax lien against Borrower or its assets, other than Permitted Liens;
(xiii)
the entry of any court order that enjoins, restrains or in any way prevents Borrower from conducting any material part of its business
affairs in the ordinary course of business;
(xiv)
Borrower liquidates, dissolves or otherwise terminates its existence or ceases to carry on any substantial
part of Borrower’s business as presently conducted, other than as permitted under Section 8(b)(i);
(xv)
the inability of Borrower to generally pay its debts as they become due;
(xvi) the
failure by Borrower to promptly provide Lender with information and/or documents requested by Lender in its reasonable business judgment,
including without limitation that specified in Section 6(b);
(xvii) the
entry of any judgment against Borrower;
(xviii)
the diminution or lapse of insurance coverage on Borrower’s assets; or
(xix)
the occurrence of any material adverse change to Borrower’s business, assets, financial condition or prospects, including, without
limitation, any default under or acceleration of third party indebtedness (to the extent permitted under this Agreement), or the value
of the Collateral.
| 10. | REMEDIES
OF LENDER UPON DEFAULT |
Upon
the occurrence of an Event of Default, Lender shall have and may exercise, directly or through Servicer, any one or more of the following
rights and remedies, in each case without notice to Borrower or any Guarantor:
(a) Accelerate
Obligations: Lender may declare the full Repayment Amount and all other Obligations under this Agreement immediately due and payable.
(b) Debit
Amounts Due from Designated Accounts: Lender may debit from the Designated Account(s) of Borrower any and all Obligations that
Borrower failed to pay.
(c) Legal
Process. Lender may commence other legal action, and enforce any right or remedy, against Borrower or any Guarantor.
(d) Freeze
Borrower Accounts. Lender may freeze or otherwise take control of Borrower’s bank and merchant processing accounts (including,
without limitation, the Designated Accounts) and notify Borrower account debtors and obligors to make payments directly to Lender.
(e) Rights
in Collateral: Lender may exercise all rights of a secured creditor under the UCC in the Collateral, including, without limitation:
(i) Sale
of Collateral. Lender may sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own
name or in the name of Borrower and/or any Guarantor, at public auction or private sale;
(ii) Collect
Revenues. Lender may collect the payments, rents, income, and revenues from the Collateral;
(iii) Transfer
Collateral. Lender may transfer any Collateral to itself or Lender’s nominee or assignee and receive the payments, rents, income
and revenues therefrom and hold the same as security for the Obligations or apply it to payment of the Obligations;
(iv) Appoint
a Receiver. Lender may appoint a receiver to take possession of all or any part of the Collateral, with the power to protect and
preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply
the proceeds against the Obligations; and
(v) Other
Remedies. Lender may exercise any other rights and remedies under the UCC or at law or equity for any deficiency.
(f) Remedies
Cumulative and Non-Exclusive: Lender’s remedies shall be cumulative and may be exercised singularly or concurrently, and shall
not prevent Lender from thereafter exercising other remedies. The remedies specified above are not exclusive of any other remedies to
Lender under applicable law.
11.
LIMITATION OF LIABILITY; INDEMNIFICATION
(a) Limitation
of Liability. YOU HEREBY AGREE THAT, TO THE EXTENT PERMITTED BY LAW, YOUR SOLE REMEDY AGAINST LENDER FOR ANY CLAIM ARISING UNDER
OR IN ANY WAY RELATED THIS AGREEMENT (WHETHER BASED UPON CONTRACT, TORT, STATUTE, REGULATION, COMMON LAW OR EQUITY) WILL BE MONEY DAMAGES
NOT TO EXCEED THE GREATER OF (i) THE AMOUNT OF FUNDS OVERPAID TO LENDER, IF ANY, AND (ii) TEN THOUSAND DOLLARS ($10,000).
YOU FURTHER AGREE THAT, TO THE EXTENT PERMITTED BY LAW, LENDER SHALL NOT BE LIABLE FOR, AND YOU HEREBY WAIVE, ANY AND ALL CLAIMS FOR
INDIRECT, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, LOST PROFITS
OR LOSS OF BUSINESS), EVEN IF YOU HAVE BEEN ADVISED OF THE POSSIBLLITY OF SUCH DAMAGES. IF YOU FILE ANY CLAIM OR ACTION AGAINST LENDER
IN VIOLATION OF THIS SECTION 11(a), YOU AGREE TO PAY ALL OF LENDER’S COSTS INCURRED IN THE MATTER (INCLUDING ATTORNEYS’
FEES).
(b) Indemnification.
In addition, you agree to indemnify and hold harmless Lender, its officers, directors, shareholders and agents (including, without limitation,
Servicer) from all losses, costs, damage, liabilities or expenses (including, without limitation, court costs and reasonable attorneys’
fees) that Lender may sustain or incur by reason of defending or protecting Lender’s security interest or the priority thereof
or enforcing the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter arising out of or in
connection with this Agreement and/or any other documents now or hereafter executed in connection with this Agreement, the Obligations
and/or the Collateral, excluding damages arising directly from Lender’s gross negligence or willful misconduct. This indemnity
shall survive the repayment of the Obligations and the termination of this Agreement.
12.
GOVERNING LAW; PERSONAL JURISDICTION; VENUE; CONSENT TO SERVICE; WAIVER OF JURY TRIAL AND CLASS ACTIONS; WAIVER OF CONSUMER
DEFENSES; WAIVER OF CERTAIN ACTIONS; ARBITRATION.
(a) Governing
Law. EXCEPT FOR SECTION 12(h), WHICH SHALL BE GOVERNED EXCLUSIVELY BY THE FEDERAL ARBITRATION ACT, THIS AGREEMENT, AND
ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT, TORT OR STATUTE) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT,
OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT (INCLUDING ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR
RELATED TO ANY REPRESENTATION OR WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT OR AS AN INDUCEMENT TO ENTER INTO THIS AGREEMENT),
SHALL BE GOVERNED BY, AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY LAWS
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE COLLATERAL, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Borrower and each Guarantor expressly acknowledge that Lender maintains its principal office in the State of New York and extends this
Loan from that office. Accordingly, the parties agree that this Agreement and its subject matter bears a “significant, material
and reasonable relationship” with the State of New York.
(b) Personal
Jurisdiction; Venue. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK
STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY ACT, TRANSACTION, DISPUTE OR CONTROVERSY ARISING HEREUNDER OR THEREUNDER OR RELATING HERETO OR THERETO, AND BORROWER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT
AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO SECTION 12(h) BELOW, ANY JUDICIAL PROCEEDING BY BORROWER
AGAINST LENDER, ANY ASSIGNEE OR AFFILIATE THEREOF OR ANY OTHER PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING
OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK COUNTY, NEW YORK.
(c) Consent
to Service. Borrower and each Guarantor waives personal service of any and all process upon Borrower and Guarantor and consents that
service of process may be made by mail (at Borrower’s primary business address specified in the Loan application) or by any other
method permitted by law.
(d) Waiver
of Jury Trial and Class Actions. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT THAT THEY MAY HAVE TO (1) TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY
OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY); AND (2) ASSERT
ANY CLAIMS AGAINST ANY OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER
IS PROHIBITED BY PUBLIC POLICY. TO THE EXTENT ANY PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE
ACTION AGAINST ANY OTHER PARTY, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY WILL NOT BE ENTITLED TO RECOVER ATTORNEYS’
FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT);
(2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY
RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION; AND (3) THE FOREGOING WAIVERS ARE ESSENTIAL TERMS OF THIS AGREEMENT.
YOU UNDERSTAND AND AGREE THAT, BY SIGNING THIS AGREEMENT, (1) YOU ARE PERMANENTLY WAIVING YOUR RIGHT TO A JURY TRIAL AND (2) YOU
MUST BRING CLAIMS AGAINST LENDER ONLY IN YOUR INDIVIDUAL OR CORPORATE CAPACITY, AS APPLICABLE, AND NOT AS A PLAINTIFF OR CLASS MEMBER
IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.
(e) Waiver
of Consumer Defenses. Borrower and each Guarantor hereby waives any defense, regardless of the actual use of Loan proceeds by Borrower
or Guarantor, claiming that the Loan was made to Borrower for personal, consumer, family or household purposes. Borrower and each Guarantor
understands and agrees that the Loan has been made to Borrower solely as a business loan for Borrower’s business as set forth in
this Agreement.
(f)
Waiver of Certain Actions. To the extent not prohibited by applicable law, the Borrower and each Guarantor waives demand, notice
of nonpayment, notice of intention to accelerate, notice of acceleration, presentment, protest, notice of dishonor and notice of protest.
Borrower and each Guarantor further agrees that: (i) Lender is not required to file suit, show diligence in collection against Borrower
or any Guarantor or proceed against any Collateral or the Guarantor Collateral (as defined); (ii) Lender may, but will not be obligated
to, substitute, exchange or release any Collateral; (iii) Lender may, but will not be obligated to, perfect Lender’s Security
Interest in any Collateral or the Guarantor Security Interest (as defined) in any Guarantor Collateral; (iv) Lender may, but will
not be obligated to, sue one or more persons or entities without joining or suing others; and (v) Lender may modify, renew, or extend
this Agreement without notice to or approval by any person (other than the party with whom the modification, renewal or extension is
made).
(g) Reduced
Statute of Limitations. Borrower and Lender each agree that: (i) it will not bring against the other party any claim,
action or legal or administrative proceeding of any kind or under any legal or equitable theory or request for relief of any kind to
enforce or arising out of or relating to in any material respect this Agreement (collectively, “Action or Proceeding”)
after the date two (2) years from the sooner to occur of (x) the payment of the Repayment Amount in full to Lender and (y) the
effective date of termination of this Agreement for any reason (such period, the “Limitations Period”); (ii) all
statutes of limitations under applicable law shall in all cases be limited to the Limitations Period; and (iii) the Limitations
Period is a reasonable period of time in which to bring an Action or Proceeding under or relating to this Agreement.
(h) Arbitration.
Notwithstanding any provision hereof, and excluding (i) the enforcement or domestication of, or litigation relating to, any judgment,
(ii) the enforcement of any provision of this Agreement against Borrower and/or any Guarantor and (iii) any action by or on
behalf of Lender for injunctive relief under this Agreement, each party (Borrower, each Guarantor and Lender) agrees to arbitrate all
disputes and claims arising out of or relating to this Agreement (collectively, “Claims”) at the request of the other
party. If a party seeks to have a dispute settled by arbitration, that party must first send to the other party, by certified mail, a
written Notice of Intent to Arbitrate (“Arbitration Notice”). If the parties do not reach an agreement to resolve
the Claim within thirty (30) days after the Arbitration Notice is received, Lender and Borrower agree that the Claim will be resolved
by a final and binding arbitration proceeding with JAMS, Inc. (“JAMS”) in New York County, New York under the
Optional Expedited Arbitration Procedures then in effect. The parties agree that, except as otherwise expressly required by JAMS rules,
(i) the party filing arbitration shall pay all JAMS filing fees and reasonable administrative fees; (ii) thereafter, each party
shall bear its own arbitration costs and fees, including witness fees and attorneys’ fees; and (iii) each party shall bear
an equal share of the arbitrator’s fees; provided, if the arbitrator finds that either the substance of the Claims of any party
or the relief sought by any party is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal
Rule of Civil Procedure 11(b)), then the arbitrator shall award the other party all of its costs and fees of the arbitration, including
witness and reasonable attorneys’ fees. Borrower and each Guarantor agrees that (i) arbitration is the required and exclusive
forum for the resolution of all Claims and to the fullest extent permitted by law, Borrower and each Guarantor is permanently giving
up their right to a jury trial in any forum and the right to a judicial forum for the resolution of any and all Claims. Further, the
parties agree that the arbitrator may not consolidate proceedings for more than one person’s Claims, and may not otherwise preside
over any form of a representative or class proceeding, and that if this specific provision is found unenforceable, then the entirety
of this arbitration clause shall be null and void. This arbitration section is governed by the Federal Arbitration Act, 9 U.S.C. §§
1-16.
BORROWER
MAY OPT OUT OF ARBITRATION. In order to opt out of this Arbitration Clause, Borrower shall send Lender a written notice executed
by Borrower, stating that Borrower does not want the arbitration clause set forth in this Section 12(h) to apply to
this Agreement. For any opt out to be effective, an opt out notice, duly executed by Borrower, must be sent to the following address
by registered mail, within ten (10) business days after the Effective Date, to Servicer, whose contact information will be set forth
on the Borrower Loan Dashboard. As of the date of this Agreement Servicer is: Itria Ventures LLC, One Penn Plaza, Suite 4530, New
York, NY 10119, Attention: President and General Counsel, with a copy in all cases by email to: notices@itriaventures.com.
(a) Entire
Agreement; Modifications. This Agreement, including the Term Loan Summary, the Guaranty and Schedules, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, whether written
or oral. This Agreement may only be modified by written amendment signed by the parties, and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
(b) Interpretation.
Section and paragraph headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.
This Agreement has been reviewed by all parties and their respective counsel and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.
(c) No
Assignment by Borrower. You may not assign this Agreement or any rights herein or delegate any duties, in whole or in part, without
the prior written consent of Lender, and any purported assignment or delegation by Borrower without such consent shall be void ab
initio.
(d) Assignment
by Lender. Lender may assign, sell and transfer this Agreement or any rights herein, in whole or in part, to any person, without
the consent of Borrower. In connection with any such assignment by Lender, Lender may disclose all documents and information that
Lender now or hereafter may have relating to Borrower, Borrower’s business or any Guarantor to the assignee or purchaser (“Assignee”).
After any such assignment, Lender may continue to service the Loan on behalf of the Assignee or transfer or delegate servicing to another
person. Lender will maintain a register of each such assignment within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of
the Internal Revenue Code, as amended and any related Treasury regulations.
(e) Confidentiality.
Borrower shall not make, publish or otherwise disseminate in any manner, including via the internet or any social media, a copy of this
Agreement or any part thereof or make any public statement or description, including via the internet or any social media, of the terms
of this Agreement, except (i) to its employees and advisors who have a legitimate “need to know” such information or
(ii) as required under the SPAC Merger Agreement or in connection with the SPAC Merger.
(f) Notices.
All communications between the parties with respect of, or notices, requests, directions, consents or other information sent under, this
Agreement shall be in writing and delivered by email (with proof of transmission) to an email address of the other party at which such
party normally receives email communications as of the time the notice is sent or, at the request of any party, by Federal Express or
other internationally recognized courier (with signature). All such communications and notices shall be effective upon sending via email
with proof of transmission or via courier with signature. Notice may be sent to Lender via the Borrower Loan Dashboard or by email, as
set forth in Section 1(g). Servicer email, as of the date hereof, is: notices@itriaventures.com.
(g) No
Waiver. Any waiver of rights under this Agreement must be in writing and will not be inferred from any failure to exercise or partial
exercise of any right hereunder.
(h) Severability.
If one or more provisions of this Agreement is determined to be invalid, illegal or unenforceable in any respect in any jurisdiction,
such determination shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction or any other provision
of this Agreement.
(i) Further
Assurances. The parties agree to execute such further and additional documents, instruments, and writings as may be necessary, proper,
required, desirable, or convenient for the purpose of fully effectuating the terms and provisions of this Agreement.
(j) Counterparts.
This Agreement may be executed in multiple counterparts, all of which taken together shall be deemed to constitute one and the same original
instrument. Transmission by email or other form of electronic transmission of an executed counterpart of this Agreement shall be deemed
an executed original.
(k) Consent
to Electronic Transactions. Borrower expressly consents to conducting this transaction by electronic means, including by email communications,
electronic signatures, the creation of a duly authenticated security interest by electronic signature and the retention and storage of
electronic records, to the maximum extent permitted by law. Borrower agrees that Lender shall not provide Borrower with a paper copy
of this Agreement or other document relating thereto unless specifically requested by Borrower in writing.
(l) Survival
of Terms. All representations, warranties and covenants herein, including in the Guaranty, shall survive the execution and delivery
of this Agreement and shall continue in full force until all Obligations under this Agreement shall have been satisfied and paid in full
and this Agreement shall have terminated, except that the indemnification obligations in Section 11(b) shall survive
the repayment of the Obligations and the termination of this Agreement.
(m) Other
Names. Borrower and each Guarantor hereby acknowledges and agrees that Lender may be using “doing business as” or “d/b/a”
names in connection with various matters relating to this Agreement and the Loan, including the filing of UCC-1 financing statements
and other notices or filings (which may be filed in such other names or in the name of Lender’s agent or representative).
(a) Guaranty.
Each Guarantor, jointly and severally, absolutely, irrevocably and unconditionally guarantees (this “Guaranty”): (i) the
prompt payment to Lender, including its successors and assignees, of the Repayment Amount and all of Borrower’s other Obligations
under this Agreement (collectively, “Guaranteed Amount”). Upon an Event of Default under this Agreement, each Guarantor
agrees to pay the Guaranteed Amount to Lender on demand, without requiring Lender first to enforce payment against Borrower or its right
with respect to the Collateral. This Guaranty is a guarantee of payment, and is an absolute, unconditional, primary, and continuing obligation
of each Guarantor. Each Guarantor’s obligations hereunder are independent of Borrower’s payment obligations and a separate
claim may be brought against each Guarantor, whether or not a claim is made against Borrower. This Guaranty will remain in full force
and effect until the Guaranteed Amount has been paid in full to Lender and this Agreement has been terminated.
(b) Security
Interest. Other than with respect to Permitted Liens, each Guarantor hereby grants to Lender a first priority security interest (“Guarantor
Security Interest”) in and to any and all Guarantor Collateral (as defined below) to secure the prompt and complete payment
when due of the Guaranteed Amount and the performance of Borrower’s covenants and obligations under this Agreement. “Guarantor
Collateral” means all of Guarantor’s right, title and interest in, to and under the following property, whether tangible
or intangible and whether now owned or existing or hereafter arising or acquired and wherever located: (i) all personal property
used in Guarantor’s business, including, without limitation, cash and cash equivalents, Receivables, accounts receivables, accounts,
chattel paper, deposit accounts, securities accounts, documents, investment property, fixtures, general intangibles, payment intangibles,
instruments, inventory, goods, equipment, letter of credit rights, as-extracted collateral and commercial tort claims (as those terms
are defined in Article 9 of the UCC in effect from time to time in the State of New York), (ii) all licenses, permits or other
such governmental document or instrument required in connection with the Borrower’s business and all registrations, recordings
and applications therefor and all renewals, reissues and extensions thereof, (iii) all proceeds from and rights to payment and collection
of all debts, obligations and liabilities owed to Borrower, including, without limitation, amounts due from merchant processors from
credit or debit card transactions; and (iv) all products, proceeds, accessions, accessories, parts, attachments, supplies and replacements
of the property described in clause (i), (ii) and (iii). Notwithstanding the foregoing, Guarantor Collateral shall not include any
assets of Guarantor to the extent a security interest in such assets would result in materially adverse tax consequences to Guarantor
and/or Borrower, as reasonably determined by Borrower and subject to Lender’s reasonable approval (in respect of which Guarantor
and/or Borrower will provide information and/or documentation requested by Lender), which approval shall not be unreasonably withheld,
delayed or conditioned.
(c) Each
Guarantor hereby authorizes Lender to make such UCC filings (including, without limitation, a UCC-1 financing statement) and any other
filings or recordations (including, without limitation, filings with the U.S. Patent and Trademark Office and U.S. Copyright Office)
against Guarantor or the Guarantor Collateral that Lender deems necessary or desirable, in its sole discretion, to perfect or maintain
the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral. Upon request by Lender,
each Guarantor agrees to execute any documents or take any other action in connection with this Agreement as Lender deems necessary or
desirable to perfect or maintain the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral.
(d) Upon
the failure of any Guarantor to pay to Lender the Guaranteed Amount as provided hereunder, Lender may exercise all rights of a secured
creditor under the UCC in the Guarantor Collateral.
(e) Acknowledgment.
Each Guarantor acknowledges that this Guaranty covers each liability, obligation, representation and warranty, covenant and agreement
and waiver of Borrower under this Agreement. Further, each Guarantor represents and warrants that he or she is a legal resident of the
United States of America. Each Guarantor also consents to service of any pleadings or other court documents by electronic mail at Borrower’s
email address provided by Borrower.
(f) ACH
Authorization. Each Guarantor hereby authorize Lender, and Servicer on Lender’s behalf, to debit via ACH any of its Designated
Accounts for the amounts due and payable by such Guarantor under this Guaranty.
(g) Waivers.
Each Guarantor hereby irrevocably and unconditionally affirms all waivers of Borrower in this Agreement, including, without limitation,
those set forth in Sections 11 and 12.
SIGNATURE
PAGE FOLLOWS
IN WITNESS WHEREOF,
Borrower and Lender by their duly authorized officers have executed this Agreement, in each case on the date specified below. By signing
this Agreement, Borrower affirms to Lender that they have read and understand this Agreement.
BORROWER: ZSPACE, INC.,
BORROWER TAX ID #: 352284050
| By: |
X |
|
|
Name: |
PAUL
EMIL KELLENBERGER |
|
Title: |
CEO |
| By: |
X |
|
|
Name: |
JOSEPH
BRYAN POWERS |
|
Title: |
CFO |
| GUARANTOR:
ZSPACE TECHNOLOGIES |
|
| (SHANGHAI)
LTD. |
|
| |
|
| By: |
|
|
| Name: |
|
|
| SS#: xxx-xx-__________(last 4 digits) |
|
| GUARANTOR: ZSPACE KKK |
|
| |
|
| By: |
|
|
| Name: |
|
|
| SS#: xxx-xx-__________(last 4 digits) |
|
| LENDER: Itria
Ventures LLC |
|
| |
|
| By: |
|
|
| Name: |
Ramit Arora |
|
| Title: President |
|
I, a Notary Public,
do hereby certify that on this____ day of ____________,2023, appeared before me, Paul Emil Kellenberger and Joseph Bryan Powers, the
CEO and CFO, respectively, of Borrower under the within Business Loan and Security Agreement, each personally known to me or proved to
me on the basis of satisfactory evidence to be the person whose name is subscribed to the foregoing agreement, and swore and acknowledged
to me that he or she executed the same by and in the name of Borrower, for the purpose and in the capacity therein expressed, and that
the statements contained therein are true and correct.
| Notary Commission Expires: |
|
|
Schedule
A
Permitted
Indebtedness; Permitted Liens
(1) Permitted
Indebtedness. The following indebtedness shall be deemed “Permitted Indebtedness” as per Section 5(d) of
the Agreement up to the respective principal amounts and aggregate cap specified below.
| Lender |
Individual
Agreement |
Outstanding |
Security |
Interest |
Maturity |
|
| |
|
Principal |
Interest |
Rate |
Date |
|
| |
|
|
|
|
|
| bSpace |
Amended
and Restated |
$31,500,000* |
Secured |
11%* |
On Demand* |
|
| Investments |
Loan
and Security |
|
|
|
|
|
| Limited |
Agreement,
Dated May |
|
|
|
|
|
| |
16,
2022 |
|
|
|
|
|
| Kuwaiti |
Amended
and Restated |
$5,000,000 |
Unsecured |
2.75%* |
On Demand* |
|
| Investment |
Promissory
Note, dated |
|
|
|
|
|
| Authority |
May 16,
2022 |
|
|
|
|
|
| Fiza
Investments |
Loan
and Security |
$5,000,000 |
Secured |
13% |
Sep-12-2023 |
|
| Limited |
Agreement,
November 3, |
|
|
|
|
|
| |
2022 |
|
|
|
|
|
| East
West Bank |
Loan
and Security |
$3,000,000 |
Secured |
Greater
of |
Sep-8-2023 |
|
| |
Agreement,
dated |
|
|
Prime
+ |
|
|
| |
September 8,
2021 |
|
|
3.5%,
or |
|
|
| |
|
|
|
6.5% |
|
|
*Subject to closing of SPAC Merger.
Aggregate Dollar
Cap. The aggregate principal amount of all Permitted Indebtedness (including Permitted Indebtedness incurred after the Funding Date)
shall not at any one time exceed $51,500,000.
| (2) | Permitted
Liens. “Permitted Liens” means the following: |
| (a) | any
Liens (i) existing on the Effective Date and disclosed in this Schedule as Permitted
Indebtedness (excluding Liens to be satisfied with the proceeds hereunder), (ii) arising
under this Agreement or (iii) created in respect of any other Permitted Indebtedness; |
| (b) | Liens
for taxes, fees, assessments or other governmental charges or levies, either not delinquent
or being contested in good faith by appropriate proceedings and for which Borrower maintains
adequate reserves, provided the same have no priority over any of Lender’s security
interests; |
| (c) | Liens
(i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (ii) existing on such equipment
at the time of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon or accessions or additions thereto, and the proceeds
of such equipment; |
| (d) | Liens
incurred in connection with the extension, renewal or refinancing of the indebtedness secured
by Liens of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by
the existing Lien (together with an improvements thereon or accessions or additions thereto)
and the principal amount of the indebtedness being extended, renewed or refinanced does not
increase (except by the amount of any fees, premium or other charges incurred in connection
with such extension, renewal or refinancing); |
| (e) | Liens
in favor of financial institutions arising in connection with Borrower’s or its Subsidiaries’
deposit accounts and/or securities accounts held at such institutions, provided that Lender
has a perfected security interest in such accounts to the extent required hereunder; |
| (f) | Liens
of carriers, landlords, banks (including customary rights of set off), warehousemen, mechanics,
suppliers, or other possessory Liens that are imposed by law arising in the ordinary course
of business, so long as the underlying obligations are not delinquent or remain payable without
penalty or are being contested in good faith by appropriate proceedings which have the effect
of staying or preventing the forfeiture or sale of the property subject to any such Lien; |
| (g) | Liens
securing payment of workers’ compensation, employment insurance, old-age pensions,
social security, and other like obligations incurred in the ordinary course of business (other
than Liens imposed by ERISA); |
| (h) | Deposits
to secure (i) the performance of bids, tenders, trade contracts, leases, government
contracts, statutory obligations, customs and other obligations of a similar nature, in each
case, incurred in the ordinary course of business; |
| (i) | Liens
in favor of customs and revenue authorities arising as a matter of law to secure payments
of customs duties in connection with the importation of goods; and |
| (j) | Easements,
rights or way, restrictions, encroachments, and other minor defects or irregularities of
title, in each case, that do not interfere in any material respect with the ordinary conduct
of Borrower’s or its Subsidiaries’ businesses; and leases, subleases, non-exclusive
licenses or sublicenses of property (other than intellectual property) granted in the ordinary
course of Borrower’s business (or, if referring to another Person, in the ordinary
course of such Person’s business), if the leases, subleases, licenses and sublicenses
do not prohibit granting Lender a security interest therein. |
Schedule
B
Form of
Intercreditor Agreement
Exhibit 10.19
TERM
LOAN SUMMARY
Case ID: 1301387
This Term Loan Summary
forms a part of and is incorporated by reference into the Business Loan and Security Agreement that follows.
| Effective
Date: |
January 31,
2023, which may be different than the Funding Date |
| Borrower: |
ZSPACE, INC.,
A Delaware Corporation |
| Lender: |
Itria
Ventures LLC |
| Loan
Amount: |
$2,530,000.00 |
| Origination
Fee: (Deducted from Loan Amount) |
N/A |
| Underwriting
Fee: (Deducted from Loan Amount) |
$499.00 |
Net
Loan Amount:
(Loan Amount less Origination Fee and Underwriting Fee) |
$2,529,501.00 |
Funded
Amount:
(Net Loan Amount less other debt amounts due to Lender) |
$2,529,501.00 |
|
paid
to Borrower at funding of the Loan |
| Monthly
Periodic Payment: |
$175,694.44
once a month*
*actual Periodic Payment amount may vary. See Section 1(e)(ii) |
Payment Schedule:
|
18
equal monthly payments of 175,694.44 (each a
“Periodic Payment”), (“Periodic Payment Date(s)”) (See Section 1(e)) |
| |
|
| Term: |
18
calendar Months from the Funding Date (“Term”) |
| Interest
Rate: |
34.09%,
subject to adjustment, including a Default Interest Rate |
| |
(See
Section 3) |
| Business
Purpose Loan: |
The
Loan proceeds funded to Borrower must be used solely and exclusively for working capital and other business purposes in Borrower’s
business, including repayment of existing debt (or as provided in Section 8(a)(ii)); and must never be used for personal, consumer,
family or household purposes. |
| Other
Fees: |
■
Returned Payment Fee: $25.00 |
| |
■
Late Fee: 3% of each missed Periodic Payment |
| |
■
Administrative Fee: up to 5% of the unpaid principal balance if there is an Event of Default (See Section 4) |
| Collateral: |
The
Loan is secured by Borrower’s specified business assets (See Section 5) |
| Guarantors: |
The
Loan is guaranteed by: |
| |
zSpace
Technologies (Shanghai) Ltd. and zSpace KKK |
| |
(See
Section 14) |
| Servicer: |
Itria
Ventures LLC (See Section 1(f)) |
| Prepayment: |
The
Loan may be prepaid by Borrower subject to payment of a Prepayment
Fee (See Section 3(d)) |
| Borrower
Loan Dashboard: |
Operated
by the Servicer (See Section 1(e)(i)) |
BUSINESS
LOAN AND SECURITY AGREEMENT
This
BUSINESS LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into by and among Itria Ventures LLC,
a Delaware limited liability company, as lender (including its successors and assigns, “Lender”, “we”,
“us” or “our”), the Borrower identified in the Term Loan Summary (“Borrower”,
“you” or “your”) and each Guarantor identified in the Term Loan Summary (each, a “Guarantor”
and, collectively, the “Guarantors”). This Agreement sets out the legal terms and conditions of the business loan
being made by Lender to Borrower (“Loan”). Capitalized terms used below may also be defined in the Term Loan Summary
on the prior page.
(a) Term
Loan Summary. The Term Loan Summary contains some of the terms applicable to your Loan. The Term Loan Summary forms a part of and
is incorporated by reference into this Agreement. You agree to repay the Loan to Lender as provided in the Term Loan Summary and this
Agreement.
(b) Effective
Date. This Agreement shall become effective upon the execution and delivery of this Agreement by Borrower, each Guarantor and Lender
(“Effective Date”). The date on which the Funded Amount is received by the Borrower shall be termed “Funding
Date”.
(c) Loan
Proceeds Disbursed to Borrower. On the Funding Date, the amount of Loan proceeds disbursed to Borrower shall be the Funded Amount
specified in the Term Loan Summary.
(d) Business
Purpose Loan. The proceeds of the Loan must be used solely for working capital or other use in Borrower’s business (including
but not limited to repayment of any existing debt, to the extent provided herein, or to satisfy any other obligations or expenses of
Borrower) and not for any other purpose. Further, the proceeds of the Loan shall not be used for personal, consumer, family or household
purposes. Borrower agrees that a breach of this provision will not affect Lender’s right to enforce this Agreement.
| (e) | Loan
and Payment Information. |
(i)
Borrower will have access to relevant Loan information, including: (A) Loan balance, (B) Periodic Payment amount (payable either
every business day (“Daily Periodic Payment”), or four (4) times a month (“Weekly Periodic Payment”)
or two (2) times a month (“Bi-monthly Periodic Payment”), or once a month (“Monthly Periodic Payment”),
as specified on the Term Loan Summary), (C) the Interest Amount (as defined in Section 3(e)), (D) Periodic Payment
Dates, (E) total Repayment Amount,(F) total amount of Periodic Payments made to date, (G) the amount of payments in
arrears and (H) any other fees or payments specified in this Agreement, in each case via: (1) the “Borrower Loan
Dashboard” referenced in the Term Loan Summary; or (2) other electronic communication sent to Borrower by Lender that
contain the above information. Borrower will receive a unique dashboard ID and must set up a unique password in order to access the Borrower
Loan Dashboard. The Borrower Loan Dashboard will be operated by the Servicer (as defined). You can also access the above information
by contacting your Lender case manager or Servicer, whose contact information will be displayed on the Borrower Loan Dashboard or provided
to you via email. Servicer may also send Borrower an email payment reminder or prepayment confirmation from time to time (“Email
Alert”). All such payments will be made on the first business day of the relevant payment period. Notwithstanding the foregoing,
Borrower agrees that the first Monthly Periodic Payment will be made on March 1, 2023.
(ii) The
actual Monthly Periodic Payment amount and the Interest Amount may be (x) slightly lower than the dollar amount set forth in the
Term Loan Summary, depending on the date that the Loan is funded or (y) higher than the dollar amount set forth in the Term Loan
Summary, if any payments are missed. The actual Monthly Periodic Payment amount and/or Interest Amount can be found on the Borrower Loan
Dashboard.
(f) Servicer.
Lender may designate a servicer of the Loan from time to time with no less than five (5) business days written notice without approval
of Borrower. Lender shall initially service the Loan (in such capacity, including its successors (including backup servicers) and assigns,
“Servicer”). Servicer shall administer this Agreement on Lender’s behalf, including receipt of payments and
other fees on behalf of Lender. Borrower hereby authorizes Servicer to administer this Loan in all respects on Lender’s behalf,
including without limitation the authorization to ACH payments and fees from Borrower’s account(s) as provided in Section 2.
Accordingly, all references to “Lender” in connection with Loan administration shall also be deemed to refer to “Servicer”
in all cases, as fully as if set forth here in addition to or in lieu of Lender.
(g) Notices
to Lender. Except as expressly otherwise provided herein, all notices to Lender under this Agreement shall be given to Servicer.
Borrower shall give all such notices to Servicer in writing either via the Borrower Loan Dashboard or email, where Servicer’s
contact information including email shall be displayed, it being understood that no further notice to Lender shall be required. The email
of the current Servicer is: notices@itriaventures.com.
(a) Designated
Account(s). Please specify below: (i) all of Borrower’s and each Guarantor’s business bank accounts (each, a “Designated
Account” and collectively, “Designated Accounts”) and (ii) the Designated Account into which
Lender should disburse the proceeds of the Loan. If no account is so designated, Lender will disburse the Loan proceeds into the first
account listed below. By submitting the information below, you certify to Lender that each such account was established only for business
purposes and not for personal, consumer, family or household purposes. As specified in Section 2(c) below, Lender
will be authorized to withdraw funds from Borrower’s Designated Accounts as and when payments are due under this Agreement. As
specified in Section 14, Lender will be authorized to withdraw funds from any Guarantor’s Designated Accounts following
the occurrence of an Event of Default or as authorized by Borrower and/or Guarantor at a later date. Borrower and each Guarantor confirms
to Lender that the Designated Accounts listed below are business accounts and not consumer accounts. Upon an Event of Default,
“Designated Accounts” includes any other business bank or merchant processing account of Borrower and each Guarantor.
| Account
1 |
Account
2 |
Account
3 |
| Deposit
Funds / Withdrawls |
Deposit
Funds / Withdrawls |
Deposit
Funds / Withdrawls |
| Account
Holder: |
Account
Holder: |
Account
Holder: |
| zSpace, Inc. |
zSpace
Technologies (Shanghai) Co. Ltd. |
zSpace
KK |
| Bank
Name: |
Bank
Name: |
Bank
Name: |
| East
West Bank |
China
Merchants Bank |
Mizuho
Bank - Yebisu Branch |
| San
Jose, Ca |
Shanghai,
PRC |
Tokyo,
Japan |
| Routing:
322070381 |
Routing:
SWIFT CMBCCNBS051 |
Routing:
SWIFT MHCBJPJT |
| Account:
003188789 |
Account:
121926902310901 |
Account:
1625047 |
[rest of page intentionally
left blank]
(b) Maintenance
of Designated Account(s). You agree to keep all Designated Account(s) referenced above open until all of your Obligations under
this Agreement have been repaid in full to Lender. You further agree to promptly notify Lender in writing if (i) there are any
changes to the account and routing numbers of the Designated Account(s) or (ii) you open any new business account (including
all details related such account), which new account(s) will be considered Designated Accounts for all purposes under this Agreement.
(c) ACH
Authorization. You hereby authorize Lender to debit via Automatic Clearing House (“ACH”) your Designated Accounts
on the periodic basis and in the amounts specified herein as required for repayment of the Loan, including all fees and payments specified
in this Agreement. You acknowledge that Lender shall have full read-only access to all Designated Accounts. This authorization shall
remain in full force and effect until all of the Obligations (as defined in Section 5(b) below) have been paid in
full. Unless otherwise agreed to by Lender and Borrower in writing, Lender will withdraw the applicable Periodic Payment specified in
the Term Loan Summary (“Periodic Amount”), by initiating a debit via ACH from the Designated Account(s). You hereby
authorize Lender to debit this Periodic Amount from your Designated Accounts in accordance with the Payment Schedule, until all Obligations
have been paid in full. You understand and acknowledge that, due to the timing of the receipt of data by Lender and the operations and
rules of the ACH system as determined by the National Automated Clearing House Association, Lender will not be able to confirm
receipt of funds until after the actual debit. You agree to promptly provide any assistance requested by Lender and/or another financial
institution to confirm that you have authorized Lender to initiate ACH debits of your Designated Accounts. You agree to be bound by the
NACHA Operating Rules in effect when any ACH entry is submitted.
(d) Bank
Fees. Borrower understands that only Borrower, and not Lender (or Servicer) is responsible for any fees charged by Borrower’s
bank as the result of credits or debits initiated under this Agreement.
(a) Repayment
of Loan. You agree to pay Lender both (i) the Loan Amount and (ii) the Interest Amount (the sum of such amounts, the
“Repayment Amount”), in each case as specified herein. The Repayment Amount will be repaid to Lender via periodic
ACH withdrawals of the Periodic Amount on each Periodic Payment Date in accordance with the Payment Schedule. If you decide to prepay
the Loan, it will be subject to a Prepayment Fee as provided in Section 3(d) below, so in this case your total payment
will be different. At the end of the Term or upon prepayment, you must also pay Lender any other Obligations then due and payable to
Lender. You agree to pay Lender all amounts due under this Agreement in U.S. dollars. Time is of the essence regarding all such payment
obligations, meaning that all such amounts are due and payable to Lender strictly in accordance with this Agreement. If a Periodic Payment
Date falls on Saturday, Sunday or Federal Reserve holiday, the Periodic Amount will be due on the next business day.
(b) Manner
of Repayment. The Loan shall be repaid by ACH withdrawals of the Periodic Amount from Borrower’s Designated Account(s) on
the Periodic Payment Dates. If Borrower knows that for any reason Lender will be unable to process a payment via ACH, then Borrower shall
immediately deposit sufficient funds into the Designated Account(s) so that the missed payment can be collected as provided above.
(c) Application
of Payments. Payments received on the Loan will be applied by the Lender as follows: (i) first, to interest accrued
on the Loan, (ii) second, to any fees, expenses and other Obligations that are then due and payable under this Agreement and (iii) third,
to the Loan Amount (as a reduction of the principal balance of the Loan).
(i) Prepayment
Fee. You have the option to prepay the Loan in full by giving Lender prior written notice in the manner specified in clause
(ii) below and paying, on the date of such prepayment, an amount equal to (1) (x) the Loan balance and the accrued
Interest Amount which is outstanding and unpaid on such date, if the Loan is to be prepaid in full or (y) the principal amount
of the Loan you wish to repay, as specified to the Lender in the Prepayment Notice under subparagraph (ii) below, plus
(2) the applicable Prepayment Fee, plus (3) without duplication on interest payments, any fees, expenses and other
Obligations that may then be due and payable under this Agreement (collectively, the “Prepayment Amount”). As used
herein, the “Prepayment Fee” means the following amounts (as summarized in the chart below):
(A) for
Loans with a Term of 13 to 18 months, (1) 2% of the principal balance of the Loan being prepaid if you prepay the Loan on or before
the 12th month of the Term or (2) 1% of the principal balance of the Loan being prepaid if you prepay the Loan after the 12th month
of the Term but before the last day of the Term;
| Prepayment
Fee* Summary |
| |
Month
of Prepayment |
| Term |
2-12 |
13-24 |
25
- 36 |
| 25
to 36 months |
2.0% |
1.0% |
N/A |
| *Percent
(%) of principal amount to be paid as of the Prepayment Date. |
(ii) Prepayment
Notice. If you wish to prepay your Loan, you must give the Servicer prior written notice via the Borrower Loan Dashboard or by
email (“Prepayment Notice”), as provided in Section 1(g), that you intend to prepay the Loan in full or in part
as of a specified date. The initial Servicer’s email is: notices@itriaventures.com. If you want to prepay the Loan in part
only, you must specify the principal amount to be repaid as of the Prepayment Date in the Prepayment Notice. The prepayment date (the
“Prepayment Date”) specified in the Prepayment Notice must be a business day that is no earlier than five (5) business
days after the date of the Prepayment Notice and no later than the next scheduled Periodic Payment Date. Lender will notify you in writing
of the Prepayment Amount due and payable on the Prepayment Date via Email Alert or the Borrower Dashboard not later than one (1) business
days prior to the Prepayment Date.
(e) Interest;
Maximum Permitted Interest Rate. Prior to the occurrence of an Event of Default, the Loan will accrue at the Interest Rate specified
in the Term Loan Summary, calculated on the basis of a 365-day year (“Interest Rate”). The total interest expense
you will pay on the Loan (assuming there is no prepayment and no Event of Default) is the “Interest Amount”. From
and after the date 30 days following the occurrence of an Event of Default until such time as the Event of Default continues, the entire
unpaid principal balance of the Loan will bear interest at a rate 5% higher than the Interest Rate specified in the Term Loan Summary,
unless waived by the Lender at its sole discretion, but shall not in any event exceed maximum legal rate of interest permitted under
New York law (“Default Interest Rate”). Interest accrued at the Default Interest Rate will result in a higher total
Repayment Amount payable by you. In the event that a court of competent jurisdiction determines that Lender has charged or received interest
in excess of the maximum permitted rate, then (i) the applicable interest rate, inclusive of any fees or charges payable under
this Agreement that are determined by such court to constitute interest, shall be automatically reduced to the maximum rate permitted
by law and (ii) if required by law, any sums already collected from Borrower that exceed the maximum permitted rate will be refunded
or credited to Borrower.
| (a) | Fees.
Borrower shall pay the following fees to Lender or Servicer on behalf of Lender: |
(i) Origination
Fee: A one-time Origination Fee in the amount set forth in the Term Loan Summary (“Origination Fee”). The Origination
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(ii) Underwriting
Fee: A one-time Underwriting Fee in the amount set forth in the Term Loan Summary (“Underwriting Fee”). The Underwriting
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(iii) Returned
Payment Fee: A returned payment fee in the amount set forth in the Term Loan Summary that is due and payable to Lender each time
any electronic payment processed on Borrower’s Loan is returned unpaid or dishonored for any reason other than reasons beyond the
control of the Borrower (“Returned Payment Fee”).
(iv) Late
Fee: A late fee in the amount of 3% of each scheduled Periodic Payment on the Loan that is not received by Lender in full on a timely
basis in accordance with the Payment Schedule on a cumulative basis (including shortfalls and missed payments from prior periods) for
any reason other than reasons beyond the control of the Borrower (“Late Fee”).
(v) Administrative
Fee. Upon the occurrence of an Event of Default, a fee of up to 5% of the unpaid principal balance of the Loan (“Administrative
Fee”, and together with the Prepayment Fee, Origination Fee, Underwriting Fee, Returned Payment Fee, Late Fee and Administrative
Fee, the “Fees”), for in-house collections enforcement costs, including in-house counsel time, legal filings, mailings,
levies, and other expenses.
(b) Attorneys’
Fees and Collection Costs. In addition to the above Fees, Borrower shall pay to Lender on demand any and all third party collection
costs, attorneys’ fees and expenses, and any other expenses reasonably incurred by Lender to obtain or enforce payment of Borrower’s
Obligations or any Guarantor’s obligation to pay the Repayment Amount (collectively, “Enforcement Expenses”),
including, without limitation, expenses incurred in connection with: (i) any bankruptcy or insolvency proceedings of Borrower or
any Guarantor; (ii) the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection
therewith; and (iii) the perfection or protection of Lender’s rights in and to the Collateral. All such Enforcement Expenses
will become a part of the Obligations.
| 5. | SECURITY
INTEREST AND COLLATERAL |
(a) Secured
Loan. This Loan is secured by certain business assets of Borrower, which business assets are pledged as collateral to Lender as provided
below.
(b) Security
Interest. Borrower hereby grants to Lender a first priority security interest in and to any and all Collateral (as defined below)
(the “Security Interest”) to secure the prompt and complete payment when due of all debts, liabilities and obligations
of any kind whatsoever of Borrower to Lender as set out in this Agreement or any other agreement in respect of the Repayment Amount,
whether fixed, contingent or otherwise, including, without limitation, the Repayment Amount and all other Fees and Enforcement Expenses
payable to Lender under this Agreement (collectively, “Obligations”) and the performance by Borrower of all of the
covenants and obligations to be performed by it in accordance with this Agreement. “Collateral” means, collectively,
all of Borrower’s right, title and interest in, to and under the following property, whether tangible or intangible and whether
now owned or existing or hereafter arising or acquired and wherever located: (i) all Receivables (as defined); and (ii) all
proceeds from Receivables and/or rights to payment and collection of all debts, obligations and liabilities owed to Borrower, including,
without limitation, amounts due from merchant processors from credit or debit card transactions. As used herein, “Receivables”
means any and all: (i) funds that Merchant receives from its customers using credit cards, charge cards, debit cards, prepaid cards,
benefit cards, or similar cards to purchase Merchant’s products and/or services (including without limitation any such funds that
are processed by Merchant’s card processor(s)); (ii) funds that Merchant receives from its customers in any manner of payment
to purchase Merchant’s products and/or services; (iii) accounts, future accounts, contract rights, choses in action, checks,
notes, negotiable instruments and any other rights to receive payment; and (iv) insurance proceeds received by Merchant (up to
the Amount Sold, less total remittances under this Agreement). “Receivables” also includes the Receivables of Merchant’s
subsidiaries and affiliated companies and, upon a Material Breach, of any (x) new or existing company owned or controlled by Merchant
(collectively, an “Other Business”), (y) any new or existing company, whether owned or controlled by Merchant
or any third party, to which all or a material portion of the business or assets of Merchant are sold or otherwise transferred (collectively,
a “Successor Company”) or (z) any affiliate of any of the foregoing, in each case without the express prior
written consent of Purchaser.
(c) Maintenance
of Collateral. Borrower agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair
and condition at all times while this Agreement remains in effect. Borrower further agrees to pay when due all claims for work done on,
or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be
filed against the Collateral, excluding liens (i) authorized or consented to by Lender or Servicer in writing, (ii) arising
in connection with Permitted Indebtedness (as defined) or (iii) described on Schedule A(2) (collectively, “Permitted
Liens”). As used herein, “Permitted Indebtedness” means, collectively, (i) indebtedness to Lender
under this Agreement, (ii) unsecured indebtedness to trade creditors incurred in the ordinary course of business, (iii) unsecured
indebtedness in respect of business credit cards used for business purposes in the ordinary course of business, (iv) Indebtedness
secured by Liens permitted under the definition of “Permitted Liens” hereunder, (v) any indebtedness secured by assets
in respect of which no lien or security interest has been created in favour of the Lender and (vi) the indebtedness listed on Schedule
A(1), up to the respective individual and respective aggregate cap amounts specified therein. The Borrower shall inform the Lender
in writing of any Permitted Indebtedness prior to incurring such Permitted Indebtedness, it being clarified that no such consent of the
Lender will be required for the purpose of incurring any Permitted Indebtedness up to the aggregate cap on such indebtedness as set out
in Schedule A(1). Permitted Liens shall be set out on Schedule A(2).
(d) Priority
in Collateral; Intercreditor Agreement. The parties agree that Lender shall have a senior first position lien on the Collateral,
and bSpace Investments Limited, Fiza Investments Limited (collectively, the “Other Lenders”) shall have a second secured
position with respect to the Collateral. To memorialize this seniority and ranking in respect of the security interests herein, Lender
and the Other Lenders shall enter into an intercreditor and subordination agreement on or prior to the Effective Date in the form attached
as Schedule B (the “Intercreditor Agreement”).
(e) Lender’s
Right to Maintain Collateral. Lender shall be entitled to take any action that Lender deems appropriate, in its sole discretion,
to maintain or preserve the Collateral, including, without limitation, inspecting the Collateral, discharging or paying all taxes, liens,
security interests, encumbrances and other claims at any time levied or placed on the Collateral and paying all costs for insuring, maintaining
and preserving the Collateral, subject in each case to the provisions of the Intercreditor Agreement. To the extent permitted by applicable
law, all such expenses will become a part of the Obligations and, at Lender’s option, will be: (i) payable on demand; (ii) added
to the principal balance of the Loan and be payable with any installment payments due during the remaining term of the Loan; or (iii) if
not paid sooner, due and payable on the last day of the Term of the Loan.
(f) Filings;
Cooperation. Borrower hereby authorizes each of Lender and Servicer (on Lender’s behalf) to make filings under in Article 9
of the Uniform Commercial Code (the “UCC”), as in effect from time to time in the State of New York, including, without
limitation, a UCC-1 financing statement and any other filings or recordations (against Borrower or the Collateral that Lender deems necessary
or desirable, in its sole discretion, to perfect or maintain the perfection of or otherwise protect Lender’s Security Interest
in the Collateral, subject in each case to the provisions of the Intercreditor Agreement. Upon request by Lender, Borrower agrees to
execute any documents or take any other action in connection with this Agreement as Lender deems necessary or desirable to perfect or
maintain the perfection of or otherwise protect Lender’s Security Interest in the Collateral.
(g) No
Liens. Other than Permitted Liens, Borrower shall not pledge or grant any security interest in any Collateral to any other person
or entity until all of the Obligations have been paid in full and this Agreement has been terminated.
(h) Taxes.
Borrower agrees to complete and file all necessary federal, state and local tax returns and will pay when due all taxes, assessments,
levies and liens upon the Collateral and provide evidence of such payments to Lender upon request.
| 6. | BORROWER
AND GUARANTOR AUTHORIZATIONS |
Borrower and each
Guarantor authorizes each of Lender and/or Servicer from time to time, in their sole discretion, to:
(a) Credit
Reports and Information. Contact credit and database reporting companies to obtain credit and other reports and information on Borrower
and each Guarantor, including, without limitation, credit history and credit card, debit card and other payment card processing and chargeback
history;
(b) Additional
Information. Require that Borrower and each Guarantor promptly provide Lender with such additional information about the financial
condition and operations of Borrower or any Guarantor, including without limitation financial statements and/or bank statements, as Lender
may reasonably request;
| (c) | Credit
Pulls. Do soft and/or hard credit pulls in each case as determined by the Lender or Servicer; |
(d) Recorded
Calls. Monitor and/or record its telephone calls with Borrower, each Guarantor and their principals, owners, employees or agents
to confirm the content of conversations in connection with evaluations, training, monitoring for compliance and collections;
(e)
Lease information. Receive information regarding
the commercial lease for the physical location of Borrower’s business from any applicable leasing company and or agent and, upon
the occurrence of an Event of Default, such other information as Servicer may reasonably request; and
(f) Contact
Borrower and Guarantors. Contact Borrower and any Guarantor (including any Guarantor)regarding this Agreement or other business transactions
during normal business hours by phone, email or otherwise.
| 7. | BORROWER
REPRESENTATIONS AND WARRANTIES |
Borrower
represents and warrants to Lender that:
(a) Loan
Agreement. Borrower has reviewed this Agreement, understands its terms and conditions, and has freely and voluntarily executed this
Agreement without duress, pressure or coercion of any kind;
(b) Opportunity
for Review. Borrower has had a full opportunity to review this Agreement, request information of Lender and discuss this Agreement
with its attorney and/or legal or financial advisors;
(c) Compliance
with Law. Borrower has operated and will, at all times, operate its business in material compliance with all applicable federal,
state and local laws, statutes, regulations and rules relating to Borrower’s business;
(d) Sanctions;
Anti-Money Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, director, officer or employee or any Guarantor
is subject of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control,
the U.S. Department of State or any other relevant sanctions authority;
(e) Anti-Money
Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, directors, officers or employees or any Guarantor has
violated or has been investigated for violating (i) any applicable anti-money laundering laws and regulations or (i) any
anti-corruption or anti-bribery laws and regulations;
(f) Organization
and Qualification. Borrower is, and shall remain at all times during the term of the Loan, duly organized, licensed, validly existing
and in good standing under the laws of its state of formation or incorporation and in each other state in which it is does business;
(g) Authorization.
Borrower has the limited liability, corporate or other power and is duly authorized to execute, deliver and perform its obligations under
this Agreement and each other document executed in connection with this Agreement;
(h) Authorization
by Control Parties. This Agreement has been approved by individuals (x) owning not less than a majority of the total equity
and voting power of Borrower and (y) having control of the operations and management of Borrower, and executed by duly authorized
officers of Borrower;
(i) Valid
Agreement. This Agreement constitutes the legal, valid and binding obligation of Borrower except as such obligations may be modified
by bankruptcy laws or laws affecting the rights of creditors generally;
(j) Collateral.
Borrower has good and marketable title to all of its business assets that are included in the Collateral, free and clear of any liens,
security interests, restrictions, pledges and encumbrances of any kind, other than Permitted Liens and those in favor of Lender;
(k) No
Approvals. Other than as expressly provided in clause 7(r), the execution and performance of this Agreement by Borrower does not
require any governmental or third party consent, license or approval and will not conflict with or cause a breach in any agreement or
organizational documents of Borrower;
(l) Accurate
Disclosure. All information submitted by Borrower to Lender, or to Servicer on Lender’s behalf, in connection with its Loan
application and this Agreement (including, without limitation, Borrower’s legal name, location and ownership) is true, correct
and complete;
(m) Litigation
Disclosure. Borrower has accurately disclosed to Lender all lawsuits, arbitrations, proceedings or investigations (collectively,
“Actions”) pending or, to Borrower’s knowledge, threatened in writing against Borrower, any Guarantor or their
respective assets;
(n) Potentially
Adverse Actions. There are no Actions pending or, to Borrower’s knowledge, threatened in writing against Borrower or any of
its assets before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse
effect on its financial condition, business, assets or prospects or the value of the Collateral;
(o) Potentially
Adverse Facts Disclosed. Borrower has fully and accurately disclosed all material facts relating to its business, financial condition
and prospects, including all circumstances that might have a material adverse effect on Borrower’s financial condition, business,
assets or prospects or the value of the Collateral;
(p) Solvency.
Borrower is solvent and is not contemplating any bankruptcy or other insolvency proceeding, receivership or assignment for the benefit
of creditors and not such action or proceeding has been filed against Borrower;
| (q) | Licenses.
Borrower has fully disclosed to Lender all Licenses required to operate its business; and |
(r) SPAC
Merger Agreement. In the event that the SPAC Merger Agreement (as defined below) creates a technical breach of this Agreement, such
breach shall be deemed waived provided that an amendment to the SPAC Merger Agreement curing such breach is executed as soon as reasonably
practicable after the Funding Date; provided further, that no such breach shall result in a Change in Control.
| 8. | BORROWER
COVENANTS (AGREEMENTS) |
| (a) | Affirmative
Covenants. Borrower covenants and agrees that it will: |
(i) Repayment
of Loan. Pay the Repayment Amount to Lender in accordance with the Payment Schedule and pay all other Obligations owed to Lender
when due in accordance with this Agreement, subject to the provisions of this Agreement;
(ii) Use
of Loan Proceeds. Use the proceeds of the Loan disbursed to Borrower on the Funding Date solely and exclusively for working capital
and other uses in Borrower’s business; provided, notwithstanding any provision hereof, Borrower may use proceeds to repay indebtedness
owed to East West Bank pursuant to the Loan and Security Agreement dated September 8, 2021, as amended, by and between East West
Bank and zSpace, Inc.
(iii) Performance
of Agreements. Promptly perform all obligations owed to Lender and covenants and agreements of Borrower under this Agreement;
(iv) Notice
to Lender. Promptly notify Lender in writing of (x) an actual or potential Event of Default as soon as Borrower becomes aware
of same; (y) any occurrence that has or may have a material adverse effect on Borrower’s financial condition, assets, business
or prospects or the value of the Collateral or (z) the filing of any Action against Borrower or its assets;
(v) Lender
Right to Information. Promptly provide Lender with any information, records, bank statements or other information relating to the
Loan, the Collateral or Borrower’s financial condition as lender may reasonably request;
(vi) Lender
Right to Contact. Allow Lender or any of its agents to contact Borrower or any Guarantor (including any cellular or mobile telephone,
work telephone or email) from time to time as Lender may determine in its business judgment;
(vii) Lender
Right to Audit. Allow Lender or any of its agents, on reasonable prior notice of not less than ten (10) business days
to Borrower, to (x) inspect Borrower’s accounting books and records, receipts and other documents and information that relate
to Borrower’s accounts, Loan payments, Collateral or the general financial condition of Borrower and (y) make copies made
thereof on-site or off-premises;
(viii) Recordkeeping.
Borrower will at all times keep accurate and complete records of Borrower’s Designated Account(s) and Collateral. Except
as expressly provided herein, Lender shall have no obligation to maintain any electronic or other records or any documents in connection
with this Agreement;
(ix) Licenses.
Borrower will maintain, renew and supplement as required all Licenses needed to operate Borrower’s business under applicable law;
(x) Disclosure.
Borrower will promptly provide to Servicer documents and information relating to the SPAC Merger, Permitted Indebtedness (without limitation
those scheduled on Schedule A(1)) and Permitted Liens, as Servicer may request;
(xi) Duty
to Update. Borrower will promptly update Servicer upon incurring new Permitted Indebtedness and/or implementation of any Permitted
Lien;
(xii) Subsidiaries.
Borrower has two subsidiaries: zSpace Technologies (Shanghai) Ltd., a company organized under the laws of the Peoples Repubic of China,
and zSpace KKK, a company organized under the laws of Japan, each of which is a Guarantor under this Agreement ; and
(xiii) Cooperation.
Reasonably cooperate with Lender in all aspects regarding the Loan and this Agreement, including with respect to the maintenance of Collateral.
(b) Negative
Covenants. Borrower covenants and agrees that, until all of the Obligations have been paid in full and this Agreement has been terminated,
it will not, without the prior written consent of the Lender:
(i) No
Corporate Changes. Change its name, its tax identification number, legal structure or jurisdiction of organization or conduct Borrower’s
business under any name other than as disclosed to Lender, other than pursuant to or as a direct consequence of the SPAC Merger Agreement,
provided no such change shall result in a Change in Control or have a material adverse effect on the business, assets, financial condition
or prospects of Borrower;
(ii) No
Business Changes. Change (x) its place of business or principal executive office, its mailing address, upon written notice
to Servicer or (y) its line of business or its credit card processor(s), other than expressly pre-approved by Lender in writing;
(iii) No
Collateral Changes. Change the nature of the Collateral;
(iv) No
Family or Household Uses. Use the Loan proceeds for any personal, consumer, family or household purposes;
(v) No
Additional Indebtedness. Incur additional indebtedness, directly or indirectly via any subsidiary, other than (i) (x) intercompany
payables between subsidiaries or from any subsidiary to Borrower only and (y) trade payables in the ordinary course of business
or take out additional financing (including without limitation merchant cash advance or factoring or A/R financing products) or (ii) Permitted
Indebtedness;
(v) No
Liens. Place or permit any additional liens, security interests or other encumbrances on the Collateral, other than Permitted
Liens;
(vii) No
Subsidiaries. Borrower will not create any subsidiaries, other than in connection with the SPAC Merger, without the prior
written consent of Lender; provided, Borrower shall promptly notify Lender in writing of all subsidiaries created by Borrower in connection
with the SPAC Merger; and
(viii) No
Mergers, Consolidations or Sales. (1) Merge or consolidate with or into any other business entity, other than a Permitted Acquisition
(as defined) ; (2) enter into any joint venture or partnership with any person, firm or corporation, except in each case, in connection
with a Permitted Acquisition ; (3) sell, dispose or transfer assets of Borrower other than pursuant to a Permitted Transfer (as
defined) and in the ordinary course of business; or (4) sell, dispose or transfer any equity interest in Borrower that would confer,
directly or indirectly, majority equity ownership of the Company or operating control through its executive management team (a “Change
in Control”) to a new entity or individual.
“Permitted
Acquisition” means (A) any purchase or other acquisition by Borrower or its subsidiaries (including the creation and
capitalization of any subsidiary in connection with such purchase or other acquisition) of (x) all of the capital stock of a person
that, upon the consummation thereof, will become a wholly-owned subsidiary (including as a result of a merger or consolidation) or (y) all
or substantially all the assets of, or assets constituting one or more business units of, any person or (B) a merger, combination
or acquisition consisting of a transaction or series of related transactions in which (i) the holders of the voting securities
of the Borrower outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction
or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of
the Borrower or such other surviving or resulting entity and (ii) the executive management team of Borrower immediately prior to
such transaction or series of related transactions retains, immediately after such transaction or series of related transactions, control
of the operations of Borrower or such other surviving or resulting entity; provided, that, with respect to each such Permitted
Acquisition, (a) no Event of Default has occurred (subject to Section 7(r) and/or as disclosed to Lender in
writing) or would otherwise exist immediately after giving effect to such acquisition, (b) the aggregate cash consideration paid
in connection with all such Permitted Acquisitions does not exceed $3,000,000; and (c) in the case of any such acquisition involving
Borrower or any of its subsidiaries, Borrower or such subsidiary is the surviving legal entity, other than pursuant to or as a direct
consequence of the SPAC Merger Agreement, as provided in Section 8(b)(i). Without limiting the foregoing, the SPAC Merger
shall be considered a Permitted Acquisition for all purposes under this Agreement. As used herein, “SPAC Merger” means
the special purpose acquisition company (SPAC) merger governed by and pursuant to that certain Agreement and Plan of Reorganization dated
May 16, 2022, as may be amended, by and among zSpace, Inc. and Edtech X Holdings Acquisition Corp., EXHAC Merger Sub I, Inc.
and EXHAC Merger Sub II, Inc. (such agreement, as may be amended, the “SPAC Merger Agreement”), it being understood
that no amendment to the SPAC Merger Agreement shall authorize or implement a Change in Control. The Borrower shall inform the Lender
in writing of any Permitted Acquisition as soon as reasonably practicable prior to the closing of any such transaction, it being understood
that Lender consent is not required.
“Permitted
Investment” means, collectively, (A) Borrower’s investments the following investments, subject to the aggregate
dollar cap for all such investments of $5,000,000, (i) investments existing on the Effective Date, including investments (directly
or via another subsidiary) in subsidiaries; (ii) marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof; (iii) commercial
paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from
either Standard & Poor’s Corporation or Moody’s Investors Service (approx. $0 on the Effective Date); (iv) bank
certificates of deposit maturing no more than one (1) year from the date of investment therein (approx. $0 on the Effective Date);
(v) bank money market accounts; and (vi) Investments in bank deposit or checking accounts or otherwise permitted by, and
subject to the terms and conditions of Section 2; (vii) investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of business consistent with past practice (approx. $0 on the
Effective Date); (viii) investments made in connection with Permitted Transfers, up to $1,000,000 in the aggregate during any 12-month
period after the Effective Date; (ix) investments by Borrower (directly or via another subsidiary) in subsidiaries, up to $750,000
in the aggregate during any 12-month period after the Effective Date; (x) investments not to exceed $250,000 in the aggregate in
any fiscal year consisting of (A) travel advances and employee relocation loans and other employee loans and advances in the ordinary
course of business, and (B) loans to employees, officers or directors relating to the purchase of equity securities of Borrower
or its subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s board of directors, up to $100,000
in the aggregate during any 12-month period after the Effective Date; (xi) investments (including debt obligations) made in connection
with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with,
customers or suppliers arising in the ordinary course of Borrower’s business, up to $200,000 in the aggregate during any 12-month
period after the Effective Date; (xii) investments consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements, in each case, entered into in the ordinary course of business and designed to protect
against fluctuations in interest rates, currency exchange rates or commodity prices, but in no case for speculation purposes, up to $250,000
in the aggregate during any 12-month period after the Effective Date; (xiii) subject to the limitations set forth in the definition
of “Permitted Acquisition”, any investments or expenditures made in connection with or pursuant to any Acquisition that qualifies
as a Permitted Acquisition under this Agreement; (xiv) investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers, in the ordinary course of business, provided that this clause (xiv) shall
not apply to Investments of Borrower in any subsidiary; and (xvi) other investments in an aggregate amount not to exceed $250,000
in any fiscal year of Borrower.
“Permitted Transfer”
means a Transfer:
i.
Of inventory in the ordinary course of business;
ii.
Of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business;
iii. Of
worn-out, surplus, fully-depreciated or obsolete equipment that is, in the reasonable judgment of Borrower, no longer economically practicable
to maintain or useful in the ordinary course of business of Borrower;
iv.
Consisting of grants of security interests and other Liens that constitute Permitted
Liens;
v.
Of assets, including Permitted Investments and distributions pursuant to Stock
Plans;
vi.
(1) by any Subsidiary to another Subsidiary, or (2) from a Subsidiary to
Borrower;
vii. Consisting
of the sale or issuance of any common stock, common partnership, common membership, or other common ownership interest or other common
equity securities of Borrower that is not otherwise prohibited by this Agreement;
viii. Consisting
of the sale of real property by any Subsidiary of Borrower; provided that any such sale of real property is made in exchange for cash
in an amount that is not less than the fair market value of such real property, as confirmed by documentation as may be reasonably requested
by Lender; or
ix.
Of other assets of Borrower or its Subsidiaries that do not in the aggregate exceed
$250,000 during any fiscal year.
(a) The
occurrence of any one or more of the following events shall constitute, upon ten (10) days prior written notice by Servicer to
Borrower, in the event the default has not been cured within such period, an event of default under this Agreement (each, an “Event
of Default”):
(i) Borrower
fails to pay the Periodic Amount in full when due not later than the scheduled Periodic Payment Date (whether for a Daily Periodic Payment,
Weekly Periodic Payment, Bi-monthly Periodic Payment, or Monthly Periodic Payment), time being of the essence;
(ii) Borrower
fails to pay any other Obligations in full when due in accordance with the terms of this Agreement;
(iii) the
determination by Lender, in its reasonable business judgment, that Borrower has failed to promptly perform any term, covenant or condition
in this Agreement, including, without limitation, the obligation to give written notice to Lender upon the occurrence of certain events;
(iv) the
determination by Lender, in its reasonable business judgment, that any representation or warranty made by Borrower or any Guarantor to
Lender in this Agreement or otherwise made by Borrower (or on behalf of Borrower) in connection with the Loan (including, without limitation,
the Loan application) is false or misleading;
(v) Borrower
incurs any additional indebtedness or financing in violation of this Agreement, other than Permitted Indebtedness, as provided in Section 8(b)(v);
(vi) Borrower
fails to maintain in full force and effect any License necessary to operate its business;
(vii) all
or any portion of the Collateral is subject to a security interest, lien or other encumbrance (other than Permitted Liens and those in
favor of Lender) in violation of this Agreement;
(viii) Borrower
fails to maintain Lender’s first priority perfected lien on the Collateral;
(ix) Borrower
changes credit card processors or any Designated Accounts in violation of this Agreement;
(x) the
voluntary or involuntary filing by or against Borrower of any case or proceeding under the federal bankruptcy code, any state
or federal bankruptcy law, assignment for the benefit of creditors or other similar law protecting the rights of creditors;
(xi) the
commencement of any judicial or non-judicial proceeding by or against Borrower that seeks to accomplish a reorganization or arrangement
with its creditors;
(xii) the
filing of a state or federal tax lien against Borrower or its assets, other than Permitted Liens;
(xiii) the
entry of any court order that enjoins, restrains or in any way prevents Borrower from conducting any material part of its business affairs
in the ordinary course of business;
(xiv) Borrower
liquidates, dissolves or otherwise terminates its existence or ceases to carry on any substantial part of Borrower’s business as
presently conducted, other than as permitted under Section 8(b)(i);
(xv)
the inability of Borrower to generally pay its debts as they become due;
(xvi) the
failure by Borrower to promptly provide Lender with information and/or documents requested by Lender in its reasonable business judgment,
including without limitation that specified in Section 6(b);
(xvii) the
entry of any judgment against Borrower;
(xviii) the
diminution or lapse of insurance coverage on Borrower’s assets; or
(xix) the
occurrence of any material adverse change to Borrower’s business, assets, financial condition or prospects, including, without
limitation, any default under or acceleration of third party indebtedness (to the extent permitted under this Agreement), or the value
of the Collateral.
| 10. | REMEDIES
OF LENDER UPON DEFAULT |
Upon
the occurrence of an Event of Default, Lender shall have and may exercise, directly or through Servicer, any one or more of the following
rights and remedies, in each case without notice to Borrower or any Guarantor:
(a) Accelerate
Obligations: Lender may declare the full Repayment Amount and all other Obligations under this Agreement immediately due and payable.
(b) Debit
Amounts Due from Designated Accounts: Lender may debit from the Designated Account(s) of Borrower any and all Obligations that
Borrower failed to pay.
(c) Legal
Process. Lender may commence other legal action, and enforce any right or remedy, against Borrower or any Guarantor.
(d) Freeze
Borrower Accounts. Lender may freeze or otherwise take control of Borrower’s bank and merchant processing accounts (including,
without limitation, the Designated Accounts) and notify Borrower account debtors and obligors to make payments directly to Lender.
(e) Rights
in Collateral: Lender may exercise all rights of a secured creditor under the UCC in the Collateral, including, without limitation:
(i) Sale
of Collateral. Lender may sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own
name or in the name of Borrower and/or any Guarantor, at public auction or private sale;
(ii) Collect Revenues.
Lender may collect the payments, rents, income, and revenues from the Collateral;
(iii) Transfer
Collateral. Lender may transfer any Collateral to itself or Lender’s nominee or assignee and receive the payments, rents, income
and revenues therefrom and hold the same as security for the Obligations or apply it to payment of the Obligations;
(iv) Appoint
a Receiver. Lender may appoint a receiver to take possession of all or any part of the Collateral, with the power to protect and
preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply
the proceeds against the Obligations; and
(v) Other
Remedies. Lender may exercise any other rights and remedies under the UCC or at law or equity for any deficiency.
(f) Remedies
Cumulative and Non-Exclusive: Lender’s remedies shall be cumulative and may be exercised singularly or concurrently, and shall
not prevent Lender from thereafter exercising other remedies. The remedies specified above are not exclusive of any other remedies to
Lender under applicable law.
| 11. | LIMITATION
OF LIABILITY; INDEMNIFICATION |
(a) Limitation
of Liability. YOU HEREBY AGREE THAT, TO THE EXTENT PERMITTED BY LAW, YOUR SOLE REMEDY AGAINST LENDER FOR ANY CLAIM ARISING UNDER
OR IN ANY WAY RELATED THIS AGREEMENT (WHETHER BASED UPON CONTRACT, TORT, STATUTE, REGULATION, COMMON LAW OR EQUITY) WILL BE MONEY DAMAGES
NOT TO EXCEED THE GREATER OF (i) THE AMOUNT OF FUNDS OVERPAID TO LENDER, IF ANY, AND (ii) TEN THOUSAND DOLLARS ($10,000).
YOU FURTHER AGREE THAT, TO THE EXTENT PERMITTED BY LAW, LENDER SHALL NOT BE LIABLE FOR, AND YOU HEREBY WAIVE, ANY AND ALL CLAIMS FOR
INDIRECT, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, LOST PROFITS
OR LOSS OF BUSINESS), EVEN IF YOU HAVE BEEN ADVISED OF THE POSSIBLLITY OF SUCH DAMAGES. IF YOU FILE ANY CLAIM OR ACTION AGAINST LENDER
IN VIOLATION OF THIS SECTION 11(a), YOU AGREE TO PAY ALL OF LENDER’S COSTS INCURRED IN THE MATTER (INCLUDING ATTORNEYS’
FEES).
(b) Indemnification.
In addition, you agree to indemnify and hold harmless Lender, its officers, directors, shareholders and agents (including, without limitation,
Servicer) from all losses, costs, damage, liabilities or expenses (including, without limitation, court costs and reasonable attorneys’
fees) that Lender may sustain or incur by reason of defending or protecting Lender’s security interest or the priority thereof
or enforcing the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter arising out of or in
connection with this Agreement and/or any other documents now or hereafter executed in connection with this Agreement, the Obligations
and/or the Collateral, excluding damages arising directly from Lender’s gross negligence or willful misconduct. This indemnity
shall survive the repayment of the Obligations and the termination of this Agreement.
12. GOVERNING
LAW; PERSONAL JURISDICTION; VENUE; CONSENT TO SERVICE; WAIVER OF JURY TRIAL AND CLASS ACTIONS; WAIVER OF CONSUMER DEFENSES; WAIVER
OF CERTAIN ACTIONS; ARBITRATION.
(a) Governing
Law. EXCEPT FOR SECTION 12(h), WHICH SHALL BE GOVERNED EXCLUSIVELY BY THE FEDERAL ARBITRATION ACT, THIS AGREEMENT, AND
ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT, TORT OR STATUTE) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT,
OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT (INCLUDING ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR
RELATED TO ANY REPRESENTATION OR WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT OR AS AN INDUCEMENT TO ENTER INTO THIS AGREEMENT),
SHALL BE GOVERNED BY, AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY LAWS
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE COLLATERAL, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Borrower and each Guarantor expressly acknowledge that Lender maintains its principal office in the State of New York and extends this
Loan from that office. Accordingly, the parties agree that this Agreement and its subject matter bears a “significant, material
and reasonable relationship” with the State of New York.
(b) Personal
Jurisdiction; Venue. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK
STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY ACT, TRANSACTION, DISPUTE OR CONTROVERSY ARISING HEREUNDER OR THEREUNDER OR RELATING HERETO OR THERETO, AND BORROWER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT
AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO SECTION 12(h) BELOW, ANY JUDICIAL PROCEEDING BY BORROWER
AGAINST LENDER, ANY ASSIGNEE OR AFFILIATE THEREOF OR ANY OTHER PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING
OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK COUNTY, NEW YORK.
(c) Consent
to Service. Borrower and each Guarantor waives personal service of any and all process upon Borrower and Guarantor and consents that
service of process may be made by mail (at Borrower’s primary business address specified in the Loan application) or by any other
method permitted by law.
(d) Waiver
of Jury Trial and Class Actions. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT THAT THEY MAY HAVE TO (1) TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY
OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY); AND (2) ASSERT
ANY CLAIMS AGAINST ANY OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER
IS PROHIBITED BY PUBLIC POLICY. TO THE EXTENT ANY PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE
ACTION AGAINST ANY OTHER PARTY, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY WILL NOT BE ENTITLED TO RECOVER ATTORNEYS’
FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT);
(2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN
ANY RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION; AND (3) THE FOREGOING WAIVERS ARE ESSENTIAL TERMS OF THIS
AGREEMENT. YOU UNDERSTAND AND AGREE THAT, BY SIGNING THIS AGREEMENT, (1) YOU ARE PERMANENTLY WAIVING YOUR RIGHT TO A JURY TRIAL
AND (2) YOU MUST BRING CLAIMS AGAINST LENDER ONLY IN YOUR INDIVIDUAL OR CORPORATE CAPACITY, AS APPLICABLE, AND NOT AS A PLAINTIFF
OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.
(e) Waiver
of Consumer Defenses. Borrower and each Guarantor hereby waives any defense, regardless of the actual use of Loan proceeds by Borrower
or Guarantor, claiming that the Loan was made to Borrower for personal, consumer, family or household purposes. Borrower and each Guarantor
understands and agrees that the Loan has been made to Borrower solely as a business loan for Borrower’s business as set forth in
this Agreement.
(f) Waiver
of Certain Actions. To the extent not prohibited by applicable law, the Borrower and each Guarantor waives demand, notice of nonpayment,
notice of intention to accelerate, notice of acceleration, presentment, protest, notice of dishonor and notice of protest. Borrower and
each Guarantor further agrees that: (i) Lender is not required to file suit, show diligence in collection against Borrower or any Guarantor
or proceed against any Collateral or the Guarantor Collateral (as defined); (ii) Lender may, but will not be obligated to, substitute,
exchange or release any Collateral; (iii) Lender may, but will not be obligated to, perfect Lender’s Security Interest in
any Collateral or the Guarantor Security Interest (as defined) in any Guarantor Collateral; (iv) Lender may, but will not be obligated
to, sue one or more persons or entities without joining or suing others; and (v) Lender may modify, renew, or extend this Agreement
without notice to or approval by any person (other than the party with whom the modification, renewal or extension is made).
(g) Reduced
Statute of Limitations. Borrower and Lender each agree that: (i) it will not bring against the other party any claim,
action or legal or administrative proceeding of any kind or under any legal or equitable theory or request for relief of any kind to
enforce or arising out of or relating to in any material respect this Agreement (collectively, “Action or Proceeding”)
after the date two (2) years from the sooner to occur of (x) the payment of the Repayment Amount in full to Lender and (y) the
effective date of termination of this Agreement for any reason (such period, the “Limitations Period”); (ii) all
statutes of limitations under applicable law shall in all cases be limited to the Limitations Period; and (iii) the Limitations
Period is a reasonable period of time in which to bring an Action or Proceeding under or relating to this Agreement.
(h) Arbitration.
Notwithstanding any provision hereof, and excluding (i) the enforcement or domestication of, or litigation relating to, any judgment,
(ii) the enforcement of any provision of this Agreement against Borrower and/or any Guarantor and (iii) any action by or
on behalf of Lender for injunctive relief under this Agreement, each party (Borrower, each Guarantor and Lender) agrees to arbitrate
all disputes and claims arising out of or relating to this Agreement (collectively, “Claims”) at the request of the
other party. If a party seeks to have a dispute settled by arbitration, that party must first send to the other party, by certified mail,
a written Notice of Intent to Arbitrate (“Arbitration Notice”). If the parties do not reach an agreement to resolve
the Claim within thirty (30) days after the Arbitration Notice is received, Lender and Borrower agree that the Claim will be resolved
by a final and binding arbitration proceeding with JAMS, Inc. (“JAMS”) in New York County, New York under the
Optional Expedited Arbitration Procedures then in effect. The parties agree that, except as otherwise expressly required by JAMS rules,
(i) the party filing arbitration shall pay all JAMS filing fees and reasonable administrative fees; (ii) thereafter, each
party shall bear its own arbitration costs and fees, including witness fees and attorneys’ fees; and (iii) each party shall
bear an equal share of the arbitrator’s fees; provided, if the arbitrator finds that either the substance of the Claims of any
party or the relief sought by any party is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal
Rule of Civil Procedure 11(b)), then the arbitrator shall award the other party all of its costs and fees of the arbitration, including
witness and reasonable attorneys’ fees. Borrower and each Guarantor agrees that (i) arbitration is the required and exclusive
forum for the resolution of all Claims and to the fullest extent permitted by law, Borrower and each Guarantor is permanently giving
up their right to a jury trial in any forum and the right to a judicial forum for the resolution of any and all Claims. Further, the
parties agree that the arbitrator may not consolidate proceedings for more than one person’s Claims, and may not otherwise preside
over any form of a representative or class proceeding, and that if this specific provision is found unenforceable, then the entirety
of this arbitration clause shall be null and void. This arbitration section is governed by the Federal Arbitration Act, 9 U.S.C. §§
1-16.
BORROWER
MAY OPT OUT OF ARBITRATION. In order to opt out of this Arbitration Clause, Borrower shall send Lender a written notice executed
by Borrower, stating that Borrower does not want the arbitration clause set forth in this Section 12(h) to apply to
this Agreement. For any opt out to be effective, an opt out notice, duly executed by Borrower, must be sent to the following address
by registered mail, within ten (10) business days after the Effective Date, to Servicer, whose contact information will be set
forth on the Borrower Loan Dashboard. As of the date of this Agreement Servicer is: Itria Ventures LLC, One Penn Plaza, Suite 4530,
New York, NY 10119, Attention: President and General Counsel, with a copy in all cases by email to: notices@itriaventures.com.
(a) Entire
Agreement; Modifications. This Agreement, including the Term Loan Summary, the Guaranty and Schedules, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, whether written
or oral. This Agreement may only be modified by written amendment signed by the parties, and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
(b) Interpretation.
Section and paragraph headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.
This Agreement has been reviewed by all parties and their respective counsel and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.
(c) No
Assignment by Borrower. You may not assign this Agreement or any rights herein or delegate any duties, in whole or in part, without
the prior written consent of Lender, and any purported assignment or delegation by Borrower without such consent shall be void ab
initio.
(d) Assignment
by Lender. Lender may assign, sell and transfer this Agreement or any rights herein, in whole or in part, to any person, without
the consent of Borrower. In connection with any such assignment by Lender, Lender may disclose all documents and information that
Lender now or hereafter may have relating to Borrower, Borrower’s business or any Guarantor to the assignee or purchaser (“Assignee”).
After any such assignment, Lender may continue to service the Loan on behalf of the Assignee or transfer or delegate servicing to another
person. Lender will maintain a register of each such assignment within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of
the Internal Revenue Code, as amended and any related Treasury regulations.
(e) Confidentiality.
Borrower shall not make, publish or otherwise disseminate in any manner, including via the internet or any social media, a copy of this
Agreement or any part thereof or make any public statement or description, including via the internet or any social media, of the terms
of this Agreement, except (i) to its employees and advisors who have a legitimate “need to know” such information or
(ii) as required under the SPAC Merger Agreement or in connection with the SPAC Merger.
(f) Notices.
All communications between the parties with respect of, or notices, requests, directions, consents or other information sent under, this
Agreement shall be in writing and delivered by email (with proof of transmission) to an email address of the other party at which such
party normally receives email communications as of the time the notice is sent or, at the request of any party, by Federal Express or
other internationally recognized courier (with signature). All such communications and notices shall be effective upon sending via email
with proof of transmission or via courier with signature. Notice may be sent to Lender via the Borrower Loan Dashboard or by email, as
set forth in Section 1(g). Servicer email, as of the date hereof, is: notices@itriaventures.com.
(g) No
Waiver. Any waiver of rights under this Agreement must be in writing and will not be inferred from any failure to exercise or partial
exercise of any right hereunder.
(h) Severability.
If one or more provisions of this Agreement is determined to be invalid, illegal or unenforceable in any respect in any jurisdiction,
such determination shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction or any other provision
of this Agreement.
(i) Further
Assurances. The parties agree to execute such further and additional documents, instruments, and writings as may be necessary, proper,
required, desirable, or convenient for the purpose of fully effectuating the terms and provisions of this Agreement.
(j) Counterparts.
This Agreement may be executed in multiple counterparts, all of which taken together shall be deemed to constitute one and the same original
instrument. Transmission by email or other form of electronic transmission of an executed counterpart of this Agreement shall be deemed
an executed original.
(k) Consent
to Electronic Transactions. Borrower expressly consents to conducting this transaction by electronic means, including by email communications,
electronic signatures, the creation of a duly authenticated security interest by electronic signature and the retention and storage of
electronic records, to the maximum extent permitted by law. Borrower agrees that Lender shall not provide Borrower with a paper copy
of this Agreement or other document relating thereto unless specifically requested by Borrower in writing.
(l) Survival
of Terms. All representations, warranties and covenants herein, including in the Guaranty, shall survive the execution and delivery
of this Agreement and shall continue in full force until all Obligations under this Agreement shall have been satisfied and paid in full
and this Agreement shall have terminated, except that the indemnification obligations in Section 11(b) shall survive
the repayment of the Obligations and the termination of this Agreement.
(m) Other
Names. Borrower and each Guarantor hereby acknowledges and agrees that Lender may be using “doing business as” or “d/b/a”
names in connection with various matters relating to this Agreement and the Loan, including the filing of UCC-1 financing statements
and other notices or filings (which may be filed in such other names or in the name of Lender’s agent or representative).
(a) Guaranty.
Each Guarantor, jointly and severally, absolutely, irrevocably and unconditionally guarantees (this “Guaranty”): (i) the
prompt payment to Lender, including its successors and assignees, of the Repayment Amount and all of Borrower’s other Obligations
under this Agreement (collectively, “Guaranteed Amount”). Upon an Event of Default under this Agreement, each Guarantor
agrees to pay the Guaranteed Amount to Lender on demand, without requiring Lender first to enforce payment against Borrower or its right
with respect to the Collateral. This Guaranty is a guarantee of payment, and is an absolute, unconditional, primary, and continuing obligation
of each Guarantor. Each Guarantor’s obligations hereunder are independent of Borrower’s payment obligations and a separate
claim may be brought against each Guarantor, whether or not a claim is made against Borrower. This Guaranty will remain in full force
and effect until the Guaranteed Amount has been paid in full to Lender and this Agreement has been terminated.
(b) Security
Interest. Other than with respect to Permitted Liens, each Guarantor hereby grants to Lender a first priority security interest (“Guarantor
Security Interest”) in and to any and all Guarantor Collateral (as defined below) to secure the prompt and complete payment
when due of the Guaranteed Amount and the performance of Borrower’s covenants and obligations under this Agreement. “Guarantor
Collateral” means all of Guarantor’s right, title and interest in, to and under the following property, whether tangible
or intangible and whether now owned or existing or hereafter arising or acquired and wherever located: (i) all personal property
used in Guarantor’s business, including, without limitation, cash and cash equivalents, Receivables, accounts receivables, accounts,
chattel paper, deposit accounts, securities accounts, documents, investment property, fixtures, general intangibles, payment intangibles,
instruments, inventory, goods, equipment, letter of credit rights, as-extracted collateral and commercial tort claims (as those terms
are defined in Article 9 of the UCC in effect from time to time in the State of New York), (ii) all licenses, permits or
other such governmental document or instrument required in connection with the Borrower’s business and all registrations, recordings
and applications therefor and all renewals, reissues and extensions thereof, (iii) all proceeds from and rights to payment and
collection of all debts, obligations and liabilities owed to Borrower, including, without limitation, amounts due from merchant processors
from credit or debit card transactions; and (iv) all products, proceeds, accessions, accessories, parts, attachments, supplies
and replacements of the property described in clause (i), (ii) and (iii). Notwithstanding the foregoing, Guarantor Collateral shall
not include any assets of Guarantor to the extent a security interest in such assets would result in materially adverse tax consequences
to Guarantor and/or Borrower, as reasonably determined by Borrower and subject to Lender’s reasonable approval (in respect of which
Guarantor and/or Borrower will provide information and/or documentation requested by Lender), which approval shall not be unreasonably
withheld, delayed or conditioned.
(c) Each
Guarantor hereby authorizes Lender to make such UCC filings (including, without limitation, a UCC-1 financing statement) and any other
filings or recordations (including, without limitation, filings with the U.S. Patent and Trademark Office and U.S. Copyright Office)
against Guarantor or the Guarantor Collateral that Lender deems necessary or desirable, in its sole discretion, to perfect or maintain
the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral. Upon request by Lender,
each Guarantor agrees to execute any documents or take any other action in connection with this Agreement as Lender deems necessary or
desirable to perfect or maintain the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral.
(d) Upon
the failure of any Guarantor to pay to Lender the Guaranteed Amount as provided hereunder, Lender may exercise all rights of a secured
creditor under the UCC in the Guarantor Collateral.
(e) Acknowledgment.
Each Guarantor acknowledges that this Guaranty covers each liability, obligation, representation and warranty, covenant and agreement
and waiver of Borrower under this Agreement. Further, each Guarantor represents and warrants that he or she is a legal resident of the
United States of America. Each Guarantor also consents to service of any pleadings or other court documents by electronic mail at Borrower’s
email address provided by Borrower.
(f) ACH
Authorization. Each Guarantor hereby authorize Lender, and Servicer on Lender’s behalf, to debit via ACH any of its Designated
Accounts for the amounts due and payable by such Guarantor under this Guaranty.
(g) Waivers.
Each Guarantor hereby irrevocably and unconditionally affirms all waivers of Borrower in this Agreement, including, without limitation,
those set forth in Sections 11 and 12.
SIGNATURE
PAGE FOLLOWS
IN WITNESS WHEREOF,
Borrower and Lender by their duly authorized officers have executed this Agreement, in each case on the date specified below. By signing
this Agreement, Borrower affirms to Lender that they have read and understand this Agreement.
BORROWER: ZSPACE, INC.,
BORROWER TAX ID #: 352284050
| By: |
X |
|
Name: |
PAUL
EMIL KELLENBERGER |
|
Title: |
CEO |
| |
|
|
|
|
|
|
|
| By: |
X |
|
Name: |
JOSEPH
BRYAN POWERS |
|
Title: |
CFO |
| GUARANTOR:
ZSPACE TECHNOLOGIES (SHANGHAI) LTD. |
|
| |
|
| By: |
|
|
| Name: |
|
|
| SS#: xxx-xx-__________(last 4 digits) |
|
| GUARANTOR: ZSPACE KKK |
|
| |
|
| By: |
|
|
| Name: |
|
|
| SS#: xxx-xx-__________(last 4 digits) |
|
| LENDER: Itria Ventures LLC |
|
| |
|
| By: |
|
|
| Name: |
Ramit Arora |
|
| Title: President |
|
I, a Notary Public,
do hereby certify that on this____ day of ____________, 2023, appeared before me, Paul Emil Kellenberger and Joseph Bryan Powers, the
CEO and CFO, respectively, of Borrower under the within Business Loan and Security Agreement, each personally known to me or proved to
me on the basis of satisfactory evidence to be the person whose name is subscribed to the foregoing agreement, and swore and acknowledged
to me that he or she executed the same by and in the name of Borrower, for the purpose and in the capacity therein expressed, and that
the statements contained therein are true and correct.
| Notary Commission Expires: |
|
|
Schedule
A
Permitted
Indebtedness; Permitted Liens
| (1) | Permitted
Indebtedness. The following indebtedness shall be deemed “Permitted Indebtedness”
as per Section 5(d) of the Agreement up to the respective principal amounts and
aggregate cap specified below. |
| Lender |
Individual
Agreement |
Outstanding |
Security |
Interest |
Maturity |
| |
|
Principal |
Interest |
Rate |
Date |
| bSpace
Investments Limited |
Amended
and Restated Loan and Security Agreement, Dated May 16, 2022 |
$31,500,000* |
Secured |
11%* |
On
Demand* |
| Kuwaiti
Investment Authority |
Amended
and Restated Promissory Note, dated May 16, 2022 |
$5,000,000 |
Unsecured |
2.75%* |
On
Demand* |
| Fiza
Investments Limited |
Loan
and Security Agreement, November 3, 2022 |
$5,000,000 |
Secured |
13% |
Sep-12-2023 |
| East
West Bank |
Loan
and Security Agreement, dated September 8, 2021 |
$3,000,000 |
Secured |
Greater
of Prime + 3.5%, or 6.5% |
Sep-8-2023 |
*Subject to closing of SPAC Merger.
Aggregate Dollar
Cap. The aggregate principal amount of all Permitted Indebtedness (including Permitted Indebtedness incurred after the Funding Date)
shall not at any one time exceed $51,500,000.
| (2) | Permitted
Liens. “Permitted Liens” means the following: |
| (a) | any
Liens (i) existing on the Effective Date and disclosed in this Schedule as Permitted
Indebtedness (excluding Liens to be satisfied with the proceeds hereunder), (ii) arising
under this Agreement or (iii) created in respect of any other Permitted Indebtedness; |
| (b) | Liens
for taxes, fees, assessments or other governmental charges or levies, either not delinquent
or being contested in good faith by appropriate proceedings and for which Borrower maintains
adequate reserves, provided the same have no priority over any of Lender’s security
interests; |
| (c) | Liens
(i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (ii) existing on such equipment
at the time of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon or accessions or additions thereto, and the proceeds
of such equipment; |
| (d) | Liens
incurred in connection with the extension, renewal or refinancing of the indebtedness secured
by Liens of the type described in clauses (a) through (c) above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by
the existing Lien (together with an improvements thereon or accessions or additions thereto)
and the principal amount of the indebtedness being extended, renewed or refinanced does not
increase (except by the amount of any fees, premium or other charges incurred in connection
with such extension, renewal or refinancing); |
| (e) | Liens
in favor of financial institutions arising in connection with Borrower’s or its Subsidiaries’
deposit accounts and/or securities accounts held at such institutions, provided that Lender
has a perfected security interest in such accounts to the extent required hereunder; |
| (f) | Liens
of carriers, landlords, banks (including customary rights of set off), warehousemen, mechanics,
suppliers, or other possessory Liens that are imposed by law arising in the ordinary course
of business, so long as the underlying obligations are not delinquent or remain payable without
penalty or are being contested in good faith by appropriate proceedings which have the effect
of staying or preventing the forfeiture or sale of the property subject to any such Lien; |
| (g) | Liens
securing payment of workers’ compensation, employment insurance, old-age pensions,
social security, and other like obligations incurred in the ordinary course of business (other
than Liens imposed by ERISA); |
| (h) | Deposits
to secure (i) the performance of bids, tenders, trade contracts, leases, government
contracts, statutory obligations, customs and other obligations of a similar nature, in each
case, incurred in the ordinary course of business; |
| (i) | Liens
in favor of customs and revenue authorities arising as a matter of law to secure payments
of customs duties in connection with the importation of goods; and |
| (j) | Easements,
rights or way, restrictions, encroachments, and other minor defects or irregularities of
title, in each case, that do not interfere in any material respect with the ordinary conduct
of Borrower’s or its Subsidiaries’ businesses; and leases, subleases, non-exclusive
licenses or sublicenses of property (other than intellectual property) granted in the ordinary
course of Borrower’s business (or, if referring to another Person, in the ordinary
course of such Person’s business), if the leases, subleases, licenses and sublicenses
do not prohibit granting Lender a security interest therein. |
Schedule
B
Form of
Intercreditor Agreement
Exhibit 10.20
INTERCREDITOR AGREEMENT
This
INTERCREDITOR AGREEMENT is made as of January 31, 2023 (this “Agreement”) between Itria Ventures LLC (“Itria”),
on the one hand, and bSpace Investments Limited and Fiza Investments Limited, on the other hand (collectively, “Creditor”),
with respect to their respective security interests in the assets of ZSPACE, INC., a Delaware corporation (the “Company”).
Reference is made to that certain Business Loan and Security Agreement dated as of the date hereof between Itria, as lender and Company,
as borrower (the “Loan Agreement”). Capitalized terms not defined herein shall have the meaning set out in the Loan
Agreement.
WHEREAS, Itria
proposes to provide a loan to the Company as provided in the Loan Agreement, pursuant to which Itria has a first priority senior secured
UCC lien on all Receivables Collateral (as defined herein) of the Company (the “Itria Lien”). As used herein, “Receivables
Collateral” shall have the meaning assigned to the term “Collateral” in the Loan Agreement.
WHEREAS,
the Creditor has entered into a financing facility with the Company (the “Creditor Facility”), pursuant to which Creditor
has (i) a first position security interest in the in all collateral of the Company other than Receivables Collateral (“Other
Collateral”) and (ii) a second priority security interest in the Receivables Collateral (collectively, the “Creditor
Security Interest”).
NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.
Until the Creditor Facility has been repaid in full, (i) the Creditor Security Interest shall be senior and superior to and independent
of the Itria Lien (or this Agreement) with respect to the Other Collateral and (ii) the Itria Lien shall be senior and superior
to the Creditor Security Interest, which shall be junior to the Itria Lien with respect to the Receivables Collateral.
2.
Until the Repayment Amount (as defined in the Loan Agreement) shall have been repaid in full or prepaid in accordance with the Loan Agreement
or Itria shall have given its prior consent in writing, each Creditor agrees that it will not enforce any rights pursuant to the Creditor
Facility in so far as such enforcement relates to any Receivables Collateral.
3.
[Intentionally Not Used].
4.
Notwithstanding any provision hereof, Creditor acknowledges that Itria shall be entitled to receive its repayment from Company pursuant
the Loan Agreement on the terms and conditions provided therein, without subordination. Notwithstanding any provision hereof, Itria
acknowledges that each Creditor shall be entitled to receive its repayment from Company (if any) pursuant the Creditor Facility on the
terms and conditions provided therein, without subordination, and be entitled to convert the Creditor Facility into stock of the Company
in accordance with the terms of thereof.
5.
This Agreement: (a) contains the entire understanding between the parties regarding the subject matter hereof; (b) may not
be assigned without the prior written consent of the other party (any purported assignment without such consent is null and void); (c) shall
be construed according to the laws of the State of New York, without giving effect to its conflict of laws principles, (d) may be
executed in any number of counterparts, each of which shall be deemed an original and each of which shall constitute the same legal instrument;
and (e) may not be amended except by written agreement signed by the parties. The parties hereby irrevocably designate the State
and Federal Courts of the State of New York, New York County, located in the borough of Manhattan, as the exclusive tribunals for the
resolution of any dispute hereunder, and consent to the exclusive jurisdiction of such tribunals.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Subordination
Agreement as of the date first written above by its duly authorized officer.
| ITRIA VENTURES LLC |
BSPACE INVESTMENTS LIMITED |
| |
|
| By: |
|
|
By: |
/s/ Mohammed Al Hassan |
| Name: |
Ramit Arora |
|
Name: |
Mohammed Al Hassan |
| Title: |
President |
|
Title: |
Authorized Signatories |
| FIZA INVESTMENTS
LIMITED |
| |
| By: |
/s/ Imran |
|
/s/ Husain Zariwala |
|
| Name: |
Imran |
|
Husain Zariwala |
|
| Title: |
Authorized Signatories |
|
ACCEPTED
AND AGREED:
ZSPACE, INC.
| By: |
/s/ Paul E. Kellenberger |
|
| |
Name: |
Paul E. Kellenberger |
|
| |
Title: |
CEO |
|
| |
|
|
|
| By: |
/s/ Joseph B. Powers |
|
| |
Name: |
Joseph B. Powers |
|
| |
Title: |
CFO |
|
Exhibit 10.21
EMPLOYEE
RETENTION TAX CREDIT TERM LOAN SUMMARY
This Employee Retention
Tax Credit Term Loan Summary (the “Term Loan Summary”) forms a part of and is incorporated by reference into the Business
Loan and Security Agreement that follows.
| Agreement
Date: |
April 12
2023, |
| |
which
may be different than the Loan funding date |
| Borrower: |
ZSPACE, INC.,
A Delaware Corporation |
| |
|
| Lender: |
Itria
Ventures LLC |
| Loan
Amount: |
$680,000.00 |
| Origination
Fee |
$20,400.00 |
| (Deducted
from Loan Amount) |
*
3 % of the Loan Amount. |
| Underwriting
Fee |
$749.00 |
| (Deducted
from Loan Amount) |
|
| Net
Loan Amount: |
|
| (Loan
Amount less Origination Fee and Underwriting Fee) |
$658,851.00 |
| Funded
Amount: |
$658,851.00, |
| (Net
Loan Amount less other debt amounts due to Lender or any other lenders on the Loan funding date) |
paid
to Borrower at funding of the Loan |
| Interest
Only Period: |
The
period from the Loan funding date to the sooner of (i) the 12-month anniversary of the Loan funding date and (ii) the Mandatory
Prepayment Date. |
| |
(See
Section 3(a)) |
| Amortization
Period: |
Unless
terminated during the Interest Only Period, the Amortization Period starts on the 12-month anniversary of the Loan funding date through
the sooner of (i) the 36-month anniversary of the Loan funding date and (ii) the Mandatory Prepayment Date. |
| Monthly
Periodic Payment: |
$10,200.00
once a month |
| Payment
Schedule: |
(I)
During the Interest Only Period (up to 12 months), monthly interest payments of $10,200.00 (each a “Periodic
Interest Only Payment”) and (II) during the Amortization Period (if any, up to 24 months), monthly interest and principal
payments of $33,948.39 (each a “Periodic Amortization Payment” and, together with each Periodic Interest Only
Payment, the “Periodic Payments”), in each case, due on the dates provided in the Agreement (“Periodic
Payment Date(s)”); provided that, if ERTC Proceeds in an amount at least sufficient to pay the Mandatory Prepayment
Amount are deposited into the Lockbox Account, the Mandatory Prepayment Amount shall be paid on the Mandatory Prepayment Date in
accordance with Section 3(a). |
| Term: |
12
Months from the Loan funding date; provided that this Agreement shall terminate on the Mandatory Prepayment Date; provided
further that, if as of the last day of the Interest Only Period, the Mandatory Prepayment Date has not occurred, the Amortization
Period shall commence and the Term shall be automatically extended to 36 Months from the Loan funding date (“Term”). |
| Interest
Rate: |
1.5
% (Per Month), subject to adjustment, including possible interest reimbursement following any Mandatory Prepayment Date. |
| |
(See
Section 3) |
| Business
Purpose Loan: |
The
Loan proceeds funded to Borrower must be used solely and exclusively for working capital and other business purposes in Borrower’s
business; and must never be used for personal, consumer, family or household purposes. |
| Other
Fees: |
n
Returned Payment Fee: $25.00 |
| |
n
Late Fee: (i) with respect to
Periodic Amounts due and payable during the Interest Only Period, 5% of the applicable Periodic Interest Only Payment and (ii) with
respect to Periodic Amounts due and payable during the Amortization Period (if any), 5% of the applicable Periodic Amortization Payment. |
| |
n
Administrative Fee: up to 15% of the
unpaid principal balance of the Loan if there is an Event of Default |
| |
(See
Section 4) |
| Collateral: |
The
Loan is secured by (i) Borrower’s business assets and (ii) all Employee Retention Tax Credit proceeds (“ERTC
Proceeds”) Borrower is entitled to receive from the U.S. Internal Revenue Service (“IRS”) relating to
the 2021 tax year. |
| |
(See
Section 5) |
| Guarantor(s): |
The
Loan is guaranteed by: |
| |
PAUL
EMIL KELLENBERGER, JOSEPH BRYAN POWERS |
| |
|
| |
(See
Section 14) |
| Servicer |
Itria
Ventures LLC |
| |
(See
Section 1(g)) |
| Prepayment: |
The
Loan may be prepaid by Borrower, subject to Prepayment Fee if prepaid before end of the 7th month (210 days). |
| |
(See
Section 3(d)) |
| Mandatory
Prepayment: |
The
Loan must be repaid once ERTC Proceeds are made available to Borrower by the IRS. |
| |
(See
Sections 2(a) and 3(a)) |
| Borrower
Loan Dashboard: |
Operated
by the Servicer. |
| |
(See
Section 1(f)(i)) |
BUSINESS
LOAN AND SECURITY AGREEMENT
This
BUSINESS LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into by and among Itria Ventures LLC,
a Delaware limited liability company, as lender (including its successors and assigns, “Lender”, “we”,
“us” or “our”), the Borrower identified in the Term Loan Summary (“Borrower”,
“you” or “your”) and each Guarantor identified in the Term Loan Summary (each, a “Guarantor”
and, collectively, the “Guarantors”). This Agreement sets out the legal terms and conditions of the business loan
being made by Lender to Borrower (“Loan”). Capitalized terms used below may also be defined in the Term Loan
Summary on the prior page.
(a)
Term Loan Summary. The Term Loan Summary set forth directly above contains some of the terms applicable to your Loan. The Term
Loan Summary forms a part of and is incorporated by reference into this Agreement. You agree to repay the Loan to Lender as provided
in the Term Loan Summary and this Agreement.
(b)
Effective Date. This Agreement shall become effective upon the execution and delivery of this Agreement by Borrower, each
Guarantor and Lender and the disbursement of the Loan proceeds in accordance with the terms of this Agreement to Borrower (“Effective
Date”).
(c) Conditions
Precedent to Loan Funding. Notwithstanding anything to the contrary herein, the obligation of Lender to fund the Loan to the Borrower
is subject to the satisfaction of the following conditions precedent:
(i) Borrower
shall have amended its 2021 tax return in a manner that makes Borrower eligible to receive an Employee Retention Tax Credit refund in
an amount at least equal to the Loan Amount; and
(ii) Borrower
shall have executed and delivered the Lockbox Processing Instructions (as defined below) to Lender and registered for the
Lockbox Services (as defined below) with Exela Technologies, Inc. (“Exela”).
(d) Loan
Proceeds Disbursed to Borrower. On the Effective Date, the amount of Loan proceeds disbursed to Borrower shall be the Funded Amount
specified in the Term Loan Summary.
(e) Business
Purpose Loan. The proceeds of the Loan must be used solely for working capital or other use in Borrower’s business and not
for any other purpose. Further, the proceeds of the Loan shall not be used for personal, consumer, family or household purposes.
Borrower agrees that a breach of this provision will not affect Lender’s right to enforce this Agreement.
(f) Loan
and Payment Information.
(i) Borrower
will have access to relevant Loan information, including: (A) the unpaid principal balance of the Loan, (B) the applicable
Periodic Payment amount (payable either four (4) times a month (“Weekly Periodic Payment”) or two (2) times
a month (“Bi-monthly Periodic Payment”), or once a month (“Monthly Periodic Payment”), as specified on
the Term Loan Summary), (C) the Interest Amount (as defined in Section 3(e)), (D) the Periodic Payment Date, (E) the
total Repayment Amount, (F) the total amount of Periodic Payments made to date, (G) the amount of payments in arrears, (H) any
other fees or payments specified in this Agreement, (I) amounts deposited into the Lockbox Account and (J) amounts withdrawn
from the Lockbox Account, in each case via: (1) the “Borrower Loan Dashboard” referenced in the Term Loan Summary;
or (2) other electronic communication sent to Borrower by Lender that contain the above information. Borrower will receive a unique
dashboard ID and must set up a unique password in order to access the Borrower Loan Dashboard. The Borrower Loan Dashboard will be operated
by the Servicer (as defined herein). You can also access the above information by contacting your Lender case manager or Servicer, whose
contact information will be displayed on the Borrower Loan Dashboard or provided to you via email. Servicer may also send Borrower an
email payment reminder or prepayment confirmation from time to time (“Email Alert”).
(ii) The
actual Weekly Periodic Payment amount, Bi-monthly Periodic Payment amount or Monthly Periodic Payment amount and the Interest Amount
may be (x) slightly lower than the dollar amount set forth in the Term Loan Summary, depending on the date that the Loan is funded
or (y) higher than the dollar amount set forth in the Term Loan Summary, if any payments are missed. The actual Weekly Periodic
Payment amount, Bi-monthly Periodic Payment amount or Monthly Periodic Payment amount and/or Interest Amount can be found on the Borrower
Loan Dashboard.
(iii) All
payments to Lender under this Agreement will be made by Borrower in U.S. Dollars, and all references to “dollars” herein
mean U.S. Dollars.
(g) Servicer.
Lender may designate a servicer of the Loan from time to time without notice to or approval of Borrower. Lender shall initially
service the Loan (in such capacity, including its successors (including backup servicers) and assigns, “Servicer”).
Servicer shall administer this Agreement on Lender’s behalf, including receipt of payments and other fees on behalf of Lender.
Borrower hereby authorizes Servicer to administer this Loan in all respects on Lender’s behalf, including without limitation the
authorization to debit or withdraw payments and fees from Borrower’s Designated Account(s) and the Lockbox Account as provided
in Section 2. Accordingly, all references to “Lender” in connection with Loan administration shall also be deemed to
refer to “Servicer” in all cases, as fully as if set forth here in addition to or in lieu of Lender.
(h) Notices
to Lender. Except as expressly otherwise provided herein, all notices to Lender under this Agreement shall be given
to Servicer. Borrower shall give all such notices to Servicer in writing either via the Borrower Loan Dashboard or email, where Servicer’s
contact information including email shall be displayed. The email of the current Servicer is: notices@itriaventures.com.
| 2. | DESIGNATED
ACCOUNT(S); LOCKBOX ACCOUNT |
(a) Designated
Account(s). Please specify below: (i) all of Borrower’s and each Guarantor’s business bank accounts (each, a “Designated
Account” and collectively, “Designated Accounts”) and (ii) the Designated Account into which
Lender should disburse the proceeds of the Loan. If no account is so designated, Lender will disburse the Loan proceeds into the first
account listed below. By submitting the information below, you certify to Lender that each such account was established only for business
purposes and not for personal, consumer, family or household purposes. As specified in Section 2(c) below, Lender will
be authorized to withdraw funds from Borrower’s Designated Accounts as and when payments are due under this Agreement. As specified
in Section 14, Lender will be authorized to withdraw funds from any Guarantor’s Designated Accounts following the occurrence
of an Event of Default or as authorized by Borrower and/or Guarantor at a later date. Borrower and each Guarantor confirm to Lender that
the Designated Accounts listed below are business accounts and not consumer accounts. Upon an Event of Default, “Designated
Accounts” includes any other business bank or merchant processing account of Borrower and each Guarantor.
| Account #1* * REQUIRED |
Account
#2 |
Account
#3 |
| Deposit Funds / Withdrawals |
Deposit Funds / Withdrawals |
Deposit Funds / Withdrawals |
| Account Holder: |
Account
Holder: |
Account
Holder: |
| Bank Name: |
EAST
WEST BANK |
Bank
Name: |
|
Bank
Name: |
|
| Routing #: |
322070381 |
Routing
#: |
|
Routing
#: |
|
| Account #: |
8003188789 |
Account
#: |
|
Account
#: |
|
(b) Maintenance
of Designated Account(s). You agree to keep all Designated Account(s) referenced above open until all of your Obligations under
this Agreement have been repaid in full to Lender. You further agree to promptly notify Lender in writing if (i) there are any changes
to the account and routing numbers of the Designated Account(s) or (ii) you open any new business account (including all details
related such account), which new account(s) will be considered Designated Accounts for all purposes under this Agreement.
(c) ACH
Authorization. You hereby authorize Lender, and Servicer on Lender’s behalf, to debit via Automatic Clearing House (“ACH”)
your Designated Accounts on a periodic basis and in the amounts specified herein as required for full repayment of the Loan, including
all fees and payments specified in this Agreement. You acknowledge that Lender shall have full read-only access to all Designated
Accounts while this Agreement is in effect. This authorization shall remain in full force and effect until all of the Obligations
(as defined in Section 5(b) below) have been repaid in full. Unless otherwise agreed to by Lender and Borrower in writing,
Lender will withdraw the applicable Periodic Payment specified in the Term Loan Summary (“Periodic Amount”) by initiating
a debit via ACH from the Designated Account(s). You hereby authorize Lender to debit the applicable Periodic Amount from your Designated
Accounts in accordance with the Payment Schedule and Section 3, until all Obligations have been paid in full. You understand and
acknowledge that, due to the timing of the receipt of data by Lender and the operations and rules of the ACH system as determined
by the National Automated Clearing House Association, Lender will not be able to confirm receipt of funds until after the actual debit.
You agree to promptly provide any assistance requested by Lender and/or another financial institution to confirm that you have authorized
Lender to initiate ACH debits of your Designated Accounts. You agree to be bound by the NACHA Operating Rules in effect when
any ACH entry is submitted.
(d) Bank
Fees. Borrower understands that only Borrower, and not Lender (or Servicer) is responsible for any fees charged by Borrower’s
bank as the result of credits or debits initiated under this Agreement.
(e) Lockbox
Agreement; Lockbox Account. Borrower shall register for lockbox services, the terms of which shall be substantially in the form of
Exhibit A attached hereto (the “Lockbox Services”) with Exela or other lockbox agent chosen by or otherwise
approved by lender (the “Lockbox Agent”). Borrower acknowledges and agrees that, pursuant to the terms of the
Lockbox Services and the lockbox processing instructions attached hereto as Exhibit B (“Lockbox Processing Instructions”),
(i) Borrow shall be obligated to cause 100% of the ERTC Proceeds to be deposited into the designated lockbox account (the “Lockbox
Account”) specified in the Lockbox Services and Lockbox Processing Instructions, to be controlled by the Lockbox Agent and
(ii) the Lockbox Agent shall be authorized to withdraw funds on deposit in the Lockbox Account on a periodic basis and in the amounts
specified herein to pay the Mandatory Prepayment Amount to Lender as required for full repayment of the Loan, including all fees and
payments, in each case, as specified in this Agreement.
(a) Repayment
of Loan. You agree to pay Lender both (i) the Loan Amount and (ii) the Interest Amount (the sum of such amounts,
the “Repayment Amount”) in accordance with the terms of this Agreement. During the Interest Only Period, the Interest
Amount will be paid to Lender via ACH withdrawals of the applicable Periodic Amount on each Periodic Payment Date in accordance with
the Payment Schedule; provided that, on the date that is five business days after the date (such later date, the “Mandatory
Prepayment Date”) ERTC Proceeds, in an amount (the “Mandatory Prepayment Amount”) at least sufficient to
pay the full remaining Repayment Amount and all other Obligations due and payable under this Agreement, are deposited into the Lockbox
Account by the IRS, (i) Borrower shall cause the Lockbox Agent to withdraw the Mandatory Prepayment Amount from the Lockbox Account
and pay to Lender the Mandatory Prepayment Amount on the Mandatory Prepayment Date in accordance with the Payment Schedule, (ii) Borrower
shall be entitled to receive any remaining amounts on deposit in the Lockbox Account in accordance with the terms of the Lockbox Processing
Instructions and (iii) this Agreement shall terminate. If as of the last day of the Interest Only Period, the Mandatory Prepayment
Date has not occurred, (x) the Amortization Period shall commence and (y) Borrower shall cause the Lockbox Agent to pay Lender
the remaining Repayment Amount via periodic withdrawals from the Lockbox Account and/or ACH withdrawals of the applicable Periodic Amount
on each Periodic Payment Date in accordance with the Payment Schedule. If the Loan is prepaid for any reason on or before the end of
the 7th month (210 calendar days) of the Term, it will be subject to a Prepayment Fee as provided in Section 3(d) below.
At the end of the Term or upon prepayment in full of the Repayment Amount, you must also pay Lender any other Obligations then due and
payable to Lender. You acknowledge and agree that time is of the essence regarding all such payment obligations, meaning that all such
amounts are due and payable to Lender strictly in accordance with this Agreement. If a Periodic Payment Date or the Mandatory Prepayment
Date falls on a Saturday, Sunday or Federal Reserve holiday, the applicable Periodic Amount or the Mandatory Prepayment Amount, as applicable,
will be due, and the Mandatory Prepayment Date will be deemed to occur, on the next business day.
(b) Manner
of Repayment. The Loan shall be repaid by ACH withdrawals of the applicable Periodic Amount from Borrower’s Designated
Account(s) on the Periodic Payment Dates; provided that, on the Mandatory Prepayment Date, Borrower shall cause the remaining Loan
balance to be repaid to Lender by instructing the Lockbox Agent to withdraw the Mandatory Prepayment Amount from the Lockbox Account
and to remit such the Mandatory Prepayment Amount to Lender. If Borrower knows that for any reason Lender or the Lockbox Agent will be
unable to process a payment via ACH or the Lockbox Account, as applicable, then Borrower shall immediately deposit sufficient funds into
the Lockbox Account and/or the Designated Account(s), as applicable, so that the missed payment can be collected as provided above.
(c) Application
of Payments. Payments received on the Loan will be applied by the Lender as follows: (I) during the Interest Only Period (i) first,
to interest accrued on the Loan, (ii) second, to any fees, expenses and other Obligations that are then due and payable under this
Agreement and (iii) third, solely to the extent that the applicable Periodic Payment Date is also a Prepayment Date in which a Voluntary
Prepayment Amount is being made, to the Loan Amount (as a reduction of the principal balance of the Loan) and (II) if (x) a
Mandatory Prepayment Amount is being made on the Mandatory Prepayment Date or (y) the Amortization Period has commenced (i) first,
to interest accrued on the Loan, (ii) second, to any fees, expenses and other Obligations that are then due and payable under this
Agreement and (iii) third, to the Loan Amount (as a reduction of the principal balance of the Loan).
(d)
Prepayment.
(i)
Prepayment Fee. You have the option to prepay the Loan in full or in part by giving Lender prior written notice
in the manner specified in clause (ii) below and paying, on the date of such prepayment, an amount equal to (1) (x) the
Repayment Amount outstanding on such date, if the Loan is to be prepaid in full or (y) the principal amount of the Loan you wish
to repay, as specified to the Lender in the Prepayment Notice under subparagraph (ii) below, plus (2) the applicable
Prepayment Fee (if any), plus (3) any fees, expenses and other Obligations that may then be due and payable under this Agreement
(collectively, the “Voluntary Prepayment Amount”). As used herein, the “Prepayment Fee” means an
amount equal to 2% of the unpaid principal balance of the Loan, if the Loan is prepaid on or before the end of the 7th month
(210 calendar days) of the Term, whether due to (i) voluntary prepayment or (ii) the occurrence of the Mandatory Prepayment
Date before this time. If the Loan is prepaid after the 7th month (210 calendar days) of the Term, there is no Prepayment
Fee.
(ii) Prepayment
Notice. If you wish to prepay your Loan, you must give the Servicer prior written notice via the Borrower Loan Dashboard
or by email (“Prepayment Notice”), as provided in Section 1(h), that you intend to prepay the Loan in full or
in part as of a specified date. The initial Servicer’s email is: notices@itriaventures.com. If you want to prepay
the Loan in part only, you must specify the principal amount to be repaid as of the Prepayment Date in the Prepayment Notice. The prepayment
date (the “Prepayment Date”) specified in the Prepayment Notice must be a business day that is no earlier than five
(5) business days after the date of the Prepayment Notice and no later than the next scheduled Periodic Payment Date. Lender will
notify you in writing of the Voluntary Prepayment Amount due and payable on the Prepayment Date via Email Alert or the Borrower Dashboard
not later than one (1) business day prior to the Prepayment Date.
(e)
Interest; Maximum Permitted Interest Rate. The Loan will accrue interest at the Interest Rate specified in the Term Loan Summary,
calculated on the basis of a 365-day year (“Interest Rate”) and charged on a monthly basis; provided that the
Interest Rate shall not exceed the maximum legal rate of interest permitted under New York law. In addition, following any Mandatory
Repayment Date, Lender or Servicer, as applicable will recalculate the Interest Rate based on the shortened Term, and promptly refund
to you any amount paid in excess of the maximum legal rate under applicable state law. The total interest expense you will pay on the
Loan (assuming there is no Loan prepayment and no Event of Default) is the “Interest Amount”. In the event that a
court of competent jurisdiction determines that Lender has charged or received interest in excess of the maximum permitted rate, then
(i) the applicable interest rate, inclusive of any fees or charges payable under this Agreement that are determined by such court
to constitute interest, shall be automatically reduced to the maximum rate permitted by law and (ii) if required by law, any sums
already collected from Borrower that exceed the maximum permitted rate will be refunded or credited to Borrower.
(a)
Fees. Borrower shall pay the following fees to Lender or Servicer on behalf of Lender:
(i) Origination
Fee: A one-time Origination Fee in the amount set forth in the Term Loan Summary (“Origination Fee”).
The Origination Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(ii) Underwriting
Fee: A one-time Underwriting Fee in the amount set forth in the Term Loan Summary (“Underwriting Fee”). The Underwriting
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(iii) Returned
Payment Fee: A returned payment fee in the amount set forth in the Term Loan Summary that is due and payable to Lender each time
any electronic payment processed on Borrower’s Loan is returned unpaid or dishonored for any reason (“Returned Payment
Fee”).
(iv) Late
Fee: A late fee in the amount of (i) during the Interest Only Period, 5% of the applicable Periodic Interest Only Payment and
(ii) during the Amortization Period, 5% of the applicable Periodic Amortization Payment on the Loan, in each case, that is not received
by Lender in full on a timely basis in accordance with the Payment Schedule on a cumulative basis (including shortfalls and missed
payments from prior periods) (“Late Fee”).
(v) Administrative
Fee. Upon the occurrence of an Event of Default, a fee of up to 15% of the unpaid principal balance of the Loan, as determined by
the Lender in its sole discretion (“Administrative Fee”, and together with the Prepayment Fee, Origination
Fee, Underwriting Fee, Returned Payment Fee, and Late Fee, the “Fees”), for in-house collections
enforcement costs, including in-house counsel time, legal filings, mailings, levies, and other expenses.
(b) Attorneys’
Fees and Collection Costs. In addition to the above Fees, Borrower shall pay to Lender on demand any and all third party collection
costs, attorneys’ fees and expenses, and any other expenses reasonably incurred by Lender to obtain or enforce payment of Borrower’s
Obligations or any Guarantor’s obligation to pay the Guaranteed Amount (collectively, “Enforcement Expenses”),
including, without limitation, expenses incurred in connection with: (i) any bankruptcy or insolvency proceedings of Borrower
or any Guarantor; (ii) the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection
therewith; and (iii) the perfection or protection of Lender’s rights in and to the Collateral. All such Enforcement Expenses
will become a part of the Obligations.
| 5. | SECURITY
INTEREST AND COLLATERAL |
(a) Secured
Loan. This Loan is secured by certain business assets of Borrower and the ERTC Proceeds, which business assets and ERTC Proceeds
are pledged as collateral to Lender as provided below.
(b) Security
Interest. Excluding liens authorized or consented to by Lender or Servicer in writing (such liens, “Permitted Liens”),
Borrower hereby grants to Lender a first priority security interest (“Security Interest”) in and to any and
all Collateral (as defined below) to secure the prompt and complete payment when due of all debts, liabilities and obligations of any
kind whatsoever of Borrower to Lender as set out in this Agreement or any other agreement, whether fixed, contingent or otherwise, including,
without limitation, the Repayment Amount or the Mandatory Prepayment Amount, as applicable, and all other Fees and Enforcement Expenses
payable to Lender under this Agreement (collectively, “Obligations”) and the performance by Borrower of all of the
covenants and obligations to be performed by it in accordance with this Agreement. “Collateral” means all of Borrower’s
right, title and interest in, to and under the following property, whether tangible or intangible and whether now owned or existing or
hereafter arising or acquired and wherever located: (i) all personal property used in Borrower’s business, including, without
limitation, cash and cash equivalents, receivables, accounts receivables, accounts, chattel paper, deposit accounts, securities accounts,
documents, investment property, fixtures, general intangibles, payment intangibles, instruments, inventory, goods, equipment, letter
of credit rights, as-extracted collateral and commercial tort claims (as those terms are defined in Article 9 of the Uniform Commercial
Code (the “UCC”) in effect from time to time in the State of New York), (ii) all licenses, permits or other such
governmental document or instrument required in connection with the Borrower’s business and all registrations, recordings and applications
therefor and all renewals, reissues and extensions thereof (collectively, “Licenses”), (iii) all proceeds from
and rights to payment and collection of all debts, obligations and liabilities owed to Borrower, including, without limitation, amounts
due from merchant processors from credit or debit card transactions; (iv) all products, proceeds, accessions, accessories, parts,
attachments, supplies and replacements of the property described in clause (i), (ii) and (iii) and (v) all ERTC Proceeds.
(c) Location
of Collateral. All Collateral shall be located at Borrower’s address as shown in the application for the Loan, except for inventory
or other Collateral sold in the ordinary course of Borrower’s business, but excluding any transaction prohibited under Section 8(b)(v),
including without limitation factoring or similar transactions; provided that all ERTC Proceeds shall initially be held in the
Lockbox Account.
(d) Maintenance
of Collateral. Borrower agrees to keep and maintain, and to cause the Lockbox Agent and others to keep and maintain, the Collateral
in good order, repair and condition at all times while this Agreement remains in effect. Borrower further agrees to pay when due all
claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance
may ever attach to or be filed against the Collateral, other than Permitted Liens.
(e) Lender’s
Right to Maintain Collateral. Lender shall be entitled take any action that Lender deems appropriate, in its sole discretion, to
maintain or preserve the Collateral, including, without limitation, inspecting the Collateral, discharging or paying all taxes, liens,
security interests, encumbrances and other claims at any time levied or placed on the Collateral and paying all costs for insuring,
maintaining and preserving the Collateral. To the extent permitted by applicable law, all such expenses will become a part of the Obligations
and, at Lender’s option, will be: (i) payable on demand; (ii) added to the principal balance of the Loan and be payable
with any installment payments due during the remaining term of the Loan; or (iii) if not paid sooner, due and payable on the last
day of the Term of the Loan.
(f) Filings;
Cooperation. Borrower hereby authorizes each of Lender and Servicer (on Lender’s behalf) to make such UCC filings (including,
without limitation, a UCC-1 financing statement) and any other filings or recordations (including, without limitation, filings with the
U.S. Patent and Trademark Office and U.S. Copyright Office) against Borrower or the Collateral that Lender deems necessary or
desirable, in its sole discretion, to perfect or maintain the perfection of or otherwise protect Lender’s Security Interest in
the Collateral. Upon request by Lender, Borrower agrees to execute any documents or take any other action in connection with this Agreement
as Lender deems necessary or desirable to perfect or maintain the perfection of or otherwise protect Lender’s Security Interest
in the Collateral.
(g) No
Liens. Other than Permitted Liens (which Lender or Servicer may approve or reject in its sole discretion), Borrower shall not pledge
or grant any security interest in any Collateral to any other person or entity until all of the Obligations have been paid in full and
this Agreement has been terminated.
(h) Taxes.
Borrower agrees to complete and file all necessary federal, state and local tax returns and will pay when due all taxes, assessments,
levies and liens upon the Collateral and provide evidence of such payments to Lender upon request.
(i) Insurance.
Borrower shall maintain customary and reasonable insurance on tangible Collateral in an amount not less than the fair market value of
such Collateral and shall issue a certificate of insurance to Lender naming Lender as an additional insured and loss payee. If
Borrower at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may obtain such insurance as
Lender deems appropriate at Borrower’s sole cost and expense and the cost of such insurance shall become part of the Obligations
payable by Borrower. Borrower shall promptly notify Lender of any loss of or damage to the Collateral.
| 6. | BORROWER
AND GUARANTOR AUTHORIZATIONS |
Borrower and each
Guarantor authorize each of Lender and/or Servicer from time to time, in their sole discretion, to:
(a) Credit
Reports and Information. Contact credit and database reporting companies to obtain credit and other reports and information on Borrower
and each Guarantor, including, without limitation, credit history and credit card, debit card and other payment card processing and chargeback
history;
(b) Additional
Information. Require that Borrower and any Guarantor promptly provide Lender with such additional information about the financial
condition and operations of Borrower or any Guarantor, including without limitation financial statements and/or bank statements, as Lender
may reasonably request;
(c)
Credit Pulls. Do soft and/or hard credit pulls in each case as determined by the Lender or Servicer;
(d) Recorded
Calls. Monitor and/or record its telephone calls with Borrower, each Guarantor and their principals, owners, employees or agents
to confirm the content of conversations in connection with evaluations, training, monitoring for compliance and collections;
(e) Lease
information. Receive information regarding the commercial lease for the physical location of Borrower’s business from any applicable
leasing company and or agent and, upon the occurrence of an Event of Default, receive an executed assignment of the lease from
Borrower covering the leased premises in favor of Lender (“Assignment of Lease”); and
(f) Contact
Borrower and Guarantors. Contact Borrower and any Guarantor regarding this Agreement or other business transactions during normal
business hours by phone, email or otherwise.
| 7. | BORROWER
REPRESENTATIONS AND WARRANTIES |
Borrower represents and
warrants to Lender that:
(a) Loan
Agreement. Borrower has reviewed this Agreement, understands its terms and conditions, and has freely and voluntarily executed this
Agreement without duress, pressure or coercion of any kind;
(b) Opportunity
for Review. Borrower has had a full opportunity to review this Agreement, request information of Lender and discuss this Agreement
with its attorney and/or legal or financial advisors;
(c) Compliance
with Law. Borrower has operated and will, at all times, operate its business in compliance with all applicable federal, state
and local laws, statutes, regulations and rules relating to Borrower’s business;
(d) Sanctions;
Anti-Money Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners (including any Guarantor),
director, officer or employee is subject of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office
of Foreign Assets Control, the U.S. Department of State or any other relevant sanctions authority;
(e) Anti-Money
Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners (including any Guarantor), directors, officers or employees
has violated or has been investigated for violating (i) any applicable anti-money laundering laws and regulations or (i) any
anti-corruption or anti-bribery laws and regulations;
(f) Organization
and Qualification. Borrower is, and shall remain at all times during the term of the Loan, duly organized, licensed, validly existing
and in good standing under the laws of its state of formation or incorporation and in each other state in which it is does business;
(g) Authorization.
Borrower has the limited liability, corporate or other power and is duly authorized to execute, deliver and perform its obligations under
this Agreement and each other document executed in connection with this Agreement;
(h) Execution
by Control Parties. This Agreement has been executed by individuals (x) owning not less than a majority of the total equity
and voting power of Borrower and (y) having control of the operations and management of Borrower;
(i) Valid
Agreement. This Agreement constitutes the legal, valid and binding obligation of Borrower except as such obligations may be modified
by bankruptcy laws or laws affecting the rights of creditors generally;
(j) Collateral.
Borrower has good and marketable title to all of its business assets that are included in the Collateral, free and clear of any liens,
security interests, restrictions, pledges and encumbrances of any kind, other than Permitted Liens and those in favor of Lender;
(k) No
Approvals. The execution and performance of this Agreement by Borrower does not require any governmental or third party consent,
license or approval and will not conflict with or cause a breach in any agreement or organizational documents of Borrower;
(l) Accurate
Disclosure. All information submitted by Borrower to Lender, or to Servicer on Lender’s behalf, in connection with its Loan
application and this Agreement (including, without limitation, Borrower’s legal name, location and ownership) is true, correct
and complete;
(m) Litigation
Disclosure. Borrower has accurately disclosed to Lender all lawsuits, arbitrations, proceedings or investigations (collectively,
“Actions”) pending or, to Borrower’s knowledge, threatened against Borrower, any Guarantor or their respective
assets;
(n) Potentially
Adverse Actions. There are no Actions pending or, to Borrower’s knowledge, threatened against or Borrower or any of its assets
before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse effect on
its financial condition, business, assets or prospects or the value of the Collateral;
(o) Potentially
Adverse Facts Disclosed. Borrower has fully and accurately disclosed all material facts relating to its business, financial
condition and prospects, including all circumstances that might have a material adverse effect on Borrower’s financial condition,
business, assets or prospects or the value of the Collateral;
(p) Solvency.
Borrower is solvent and is not contemplating any bankruptcy or other insolvency proceeding, receivership or assignment for the benefit
of creditors and not such action or proceeding has been filed against Borrower;
(q)
Licenses. Borrower has fully disclosed to Lender all Licenses required to operate its business; and
(r) Employee
Retention Tax Credit. Borrower has amended its 2021 tax return in a manner that makes Borrower eligible to receive an Employee Retention
Tax Credit refund in an amount at least equal to the Loan Amount.
| 8. | BORROWER
COVENANTS (AGREEMENTS) |
(a)
Affirmative Covenants. Borrower covenants and agrees that it will:
(i) Repayment
of Loan. Pay the Repayment Amount or the Mandatory Prepayment Amount, as applicable, to Lender in accordance with the Payment Schedule
and Section 3 and pay all other Obligations owed to Lender when due in accordance with this Agreement, subject to the provisions
of this Agreement;
(ii) Use
of Loan Proceeds. Use the proceeds of the Loan disbursed to Borrower on the Effective Date solely and exclusively for
working capital and other uses in Borrower’s business;
(iii) Performance
of Agreements. Promptly perform all obligations owed to Lender and covenants and agreements of Borrower under this Agreement;
(iv) Notice
to Lender. Promptly notify Lender in writing of (x) an actual or potential Event of Default as soon as Borrower
becomes aware of same; (y) any occurrence that has or may have a material adverse effect on Borrower’s financial condition,
assets, business or prospects or the value of the Collateral or (z) the filing of any Action against Borrower or its assets;
(v) Lender
Right to Information. Promptly provide Lender with any information, records, bank statements or other information relating to the
Loan, the Collateral or Borrower’s financial condition as lender may request;
(vi) Lender
Right to Contact. Allow Lender or any of its agents to contact Borrower (including any cellular or mobile telephone, work telephone
or email) from time to time as Lender may determine;
(vii) Lender
Right to Audit. Allow Lender or any of its agents, on prior notice to Borrower, to (x) inspect Borrower’s accounting
books and records, receipts and other documents and information that relate to Borrower’s accounts, Loan payments, Collateral or
the general financial condition of Borrower and (y) make copies made thereof on-site or off-premises;
(viii) Recordkeeping.
Borrower will at all times keep accurate and complete records of Borrower’s Designated Account(s) and Collateral.
Except as expressly provided herein, Lender shall have no obligation to maintain any electronic or other records or any documents in
connection with this Agreement;
(ix) Licenses.
Borrower will maintain, renew and supplement as required all Licenses needed to operate Borrower’s business under applicable law;
(x) Cooperation.
Reasonably cooperate with Lender in all aspects regarding the Loan and this Agreement, including with respect to the maintenance of Collateral;
and
(xi) Lockbox
Services. Promptly register for Lockbox Services and perform all obligations, covenants and agreements of Borrower under the Lockbox
Services and Lockbox Processing Instructions.
(b) Negative
Covenants. Borrower covenants and agrees that, until all of the Obligations have been paid in full and this Agreement has been terminated,
it will not:
(i) No
Corporate Changes. Change its name, its tax identification number, legal structure or jurisdiction of organization or conduct Borrower’s
business under any name other than as disclosed to Lender;
(ii)
No Business Changes. Change its place of business or principal executive office, its mailing address, its line of business
or its credit card processor(s);
(iii) No
Collateral Changes. Change the nature or the location of the Collateral;
(iv) No
Family or Household Uses. Use the Loan proceeds for any personal, consumer, family or household purposes;
(v)
No Additional Indebtedness. Incur additional indebtedness other than trade payables in the ordinary course of business
or take out additional financing (including without limitation merchant cash advance or factoring or A/R financing products);
(vi) No
Liens. Place or permit any additional liens, security interests or other encumbrances on the Collateral, other than Permitted Liens
expressly pre-approved by Lender or Servicer in writing;
(vii) No
Mergers, Consolidations or Sales. (1) Merge or consolidate with or into any other business entity; (2) enter into any joint
venture or partnership with any person, firm or corporation; (3) sell, dispose or transfer assets of Borrower other than in the
ordinary course of business; or (4) sell, dispose or transfer any equity interest in Borrower that would confer majority equity
ownership or control of management to a new entity or individual; and
(viii) No
Violations - Lockbox. Take any action, directly or indirectly, that would breach or violate any terms and conditions in the Lockbox
Services, Lockbox Processing Instructions or this Agreement regarding the Lockbox Account, including without limitation directing the
payment of any ERTC Proceeds anywhere but the Lockbox Account, in which is prohibited under Section 2(e).
(a) The
occurrence of any one or more of the following events shall constitute, without notice or demand, an event of default under this Agreement
(each, an “Event of Default”):
(i) Borrower
fails to pay the applicable Periodic Amount or the Mandatory Prepayment Amount, as applicable, in full when due not later than the scheduled
Periodic Payment Date (whether for a Weekly Periodic Payment, Bi-monthly Periodic Payment, or Monthly Periodic Payment) or the Mandatory
Prepayment Date, as applicable, time being of the essence;
(ii) Borrower
fails to pay any other Obligations in full when due in accordance with the terms of this Agreement;
(iii) the
determination by Lender that Borrower has failed to promptly perform any term, covenant or condition in this Agreement, including, without
limitation, the obligation to give written notice to Lender upon the occurrence of certain events;
(iv) the
determination by Lender that any representation or warranty made by Borrower or any Guarantor to Lender in this Agreement or pursuant
to the Lockbox Services or Lockbox Processing Instructions or otherwise made by Borrower (or on behalf of Borrower) in connection with
the Loan (including, without limitation, the Loan application) is false or misleading;
(v) Borrower
incurs any additional indebtedness or financing in violation of this Agreement (including without limitation through the transactions
specified in Section 8(b)(v));
(vi)
Borrower fails to maintain in full force and effect any License required to operate its business;
(vii)
all or any portion of the Collateral is subject to a security interest, lien or other encumbrance (other than Permitted Liens and those
in favor of Lender) in violation of this Agreement;
(viii)
Borrower fails to maintain Lender’s first priority or senior (as applicable) perfected lien on the Collateral;
(ix)
Borrower or any Guarantor changes credit card processors or any Designated Accounts in violation of this Agreement;
(x)
the voluntary or involuntary filing by or against Borrower or any Guarantor of any case or proceeding under the federal bankruptcy code,
any state or federal bankruptcy law, assignment for the benefit of creditors or other similar law protecting the rights of creditors;
(xi)
the commencement of any judicial or non-judicial proceeding by or against Borrower or any Guarantor that seeks to accomplish a reorganization
or arrangement with its creditors;
(xii)
the filing of a state or federal tax lien against Borrower or its assets;
(xiii)
the entry of any court order that enjoins, restrains or in any way prevents Borrower from conducting all or any part of its business
affairs in the ordinary course of business;
(xiv)
Borrower liquidates, dissolves or otherwise terminates its existence or ceases to carry on any substantial part of Borrower’s business
as presently conducted;
(xv)
the failure by Borrower to generally pay the debts of Borrower as they become due;
(xvi)
the failure by Borrower to promptly provide Lender with information and/or documents requested by Lender, including without limitation
that specified in Section 6(b);
(xvii)
the entry of any judgment against Borrower;
(xviii)
the diminution or lapse of insurance coverage on Borrower’s assets in violation of this Agreement;
(xix)
the occurrence of any material adverse change to Borrower’s business, assets, financial condition or prospects, including, without limitation,
any default under or acceleration of third party indebtedness (to the extent permitted under this Agreement), or the value of the Collateral;
(xx)
the determination by Lender that an event has occurred with respect to Borrower and the Loan that is likely to adversely affect Borrower’s
ability to repay the Loan or result in a material adverse change in the business, financial condition or prospects of Borrower or the
value of the Collateral; or
(xxi)
Borrower violates any provision of the Lockbox Processing Instructions or Lockbox Services.
| 10. | REMEDIES
OF LENDER UPON DEFAULT |
Upon ten (10) calendar days
after the occurrence of an Event of Default (the “Cure Period”), Lender shall have and may exercise, directly or through
Servicer, any one or more of the following rights and remedies, in each case without notice to Borrower or any Guarantor:
(a) Accelerate
Obligations: Lender may declare the full Repayment Amount or the Mandatory Prepayment Amount, as applicable, and all other Obligations
under this Agreement immediately due and payable.
(b) Debit
Amounts Due from Lockbox Account and Designated Accounts: Pursuant to the terms of the Lockbox Services, Lender, or Servicer on Lender’s
behalf, shall be authorized to instruct the Lockbox Agent to debit from the Lockbox Account any and all Obligations that Borrower failed
to pay, and to remit the proceeds of such debt to Lender. In addition, Lender, or Servicer on Lender’s behalf, shall be authorized to
debit from the Designated Account(s) of Borrower any and all Obligations that Borrower failed to pay, and to remit the proceeds of such
debt to Lender.
(c) Legal
Process. Lender may commence other legal action, and enforce any right or remedy, against Borrower or any Guarantor.
(d) Freeze
Borrower Accounts. Lender may freeze or otherwise take control of Borrower’s bank and merchant processing accounts (including, without
limitation, the Designated Accounts) and notify Borrower account debtors and obligors to make payments directly to Lender.
(e) Rights
in Collateral: Lender may exercise all rights of a secured creditor under the UCC in the Collateral, including, without limitation:
(i) Sale
of Collateral. Lender may sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own name or
in the name of Borrower and/or any Guarantor, at public auction or private sale;
(ii)
Collect Revenues. Lender may collect the payments, rents, income, and revenues from the Collateral;
(iii)
Transfer Collateral. Lender may transfer any Collateral to itself or Lender’s nominee or assignee and receive the payments, rents,
income and revenues therefrom and hold the same as security for the Obligations or apply it to payment of the Obligations;
(iv)
Appoint a Receiver. Lender may appoint a receiver to take possession of all or any part of the Collateral, with the power to protect
and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and
apply the proceeds against the Obligations;
(v)
Assignment of Lease. Lender may exercise its rights under any Assignment of Lease, including, without limitation, the right: (a)
to enter Borrower’s premises and to take possession of the fixtures and equipment therein for the purpose of protecting and preserving
same; and (b) to assign Borrower’s lease to another qualified merchant capable of operating a business comparable to Borrower’s at such
premises; and
(vi)
Other Remedies. Lender may exercise any other rights and remedies under the UCC or at law or equity for any deficiency.
(f) Remedies
Cumulative and Non-Exclusive: Lender’s remedies shall be cumulative and may be exercised singularly or concurrently, and shall not
prevent Lender from thereafter exercising other remedies. The remedies specified above are not exclusive of any other remedies to Lender
under applicable law.
| 11. | LIMITATION
OF LIABILITY; INDEMNIFICATION |
(a) Limitation
of Liability. YOU HEREBY AGREE THAT, TO THE EXTENT PERMITTED BY LAW, YOUR SOLE REMEDY AGAINST LENDER FOR ANY CLAIM ARISING UNDER
OR IN ANY WAY RELATED THIS AGREEMENT (WHETHER BASED UPON CONTRACT, TORT, STATUTE, REGULATION, COMMON LAW OR EQUITY) WILL BE MONEY DAMAGES
NOT TO EXCEED THE GREATER OF (i) THE AMOUNT OF FUNDS OVERPAID TO LENDER, IF ANY, AND (ii) FIVE THOUSAND DOLLARS ($5,000). YOU
FURTHER AGREE THAT, TO THE EXTENT PERMITTED BY LAW, LENDER SHALL NOT BE LIABLE FOR, AND YOU HEREBY WAIVE, ANY AND ALL CLAIMS FOR INDIRECT,
PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOSS OF
BUSINESS), EVEN IF YOU HAVE BEEN ADVISED OF THE POSSIBLLITY OF SUCH DAMAGES. IF YOU FILE ANY CLAIM OR ACTION AGAINST LENDER IN VIOLATION
OF THIS SECTION 11(a), YOU AGREE TO PAY ALL OF LENDER’S COSTS INCURRED IN THE MATTER (INCLUDING ATTORNEYS’ FEES).
(b) Indemnification.
You agree to indemnify and hold harmless Lender, its officers, directors, shareholders and agents (including, without limitation,
Servicer) from all losses, costs, damage, liabilities or expenses (including, without limitation, court costs and reasonable attorneys’
fees) that Lender may sustain or incur by reason of defending or protecting Lender’s security interest or the priority thereof or enforcing
the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter arising out of or in connection with
this Agreement and/or any other documents now or hereafter executed in connection with this Agreement, the Obligations and/or the Collateral,
excluding damages arising directly from Lender’s gross negligence or willful misconduct. This indemnity shall survive the repayment of
the Repayment Amount or the Mandatory Prepayment Amount, as applicable, and the Obligations and the termination of this Agreement.
12. GOVERNING
LAW; PERSONAL JURISDICTION; VENUE; CONSENT TO SERVICE; WAIVER OF JURY TRIAL AND CLASS ACTIONS; WAIVER OF CONSUMER DEFENSES; WAIVER OF
CERTAIN ACTIONS; ARBITRATION.
(a)
Governing Law. EXCEPT FOR SECTION 12(h), WHICH SHALL BE GOVERNED EXCLUSIVELY BY THE FEDERAL ARBITRATION ACT, THIS AGREEMENT,
AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT, TORT OR STATUTE) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT,
OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT (INCLUDING ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR
RELATED TO ANY REPRESENTATION OR WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT OR AS AN INDUCEMENT TO ENTER INTO THIS AGREEMENT),
SHALL BE GOVERNED BY, AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY LAWS
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE COLLATERAL, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. Borrower
and each Guarantor expressly acknowledge that Lender maintains its principal office in the State of New York and extends this Loan from
that office. Accordingly, the parties agree that this Agreement and its subject matter bears a “significant, material and reasonable
relationship” with the State of New York.
(b) Personal
Jurisdiction; Venue. BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY ACT, TRANSACTION, DISPUTE OR CONTROVERSY ARISING HEREUNDER OR THEREUNDER OR
RELATING HERETO OR THERETO, AND BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN
SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO SECTION
12(h) BELOW, ANY JUDICIAL PROCEEDING BY BORROWER AGAINST LENDER, ANY ASSIGNEE OR AFFILIATE THEREOF OR ANY OTHER PARTY INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY
IN A COURT IN NEW YORK COUNTY, NEW YORK.
(c)
Consent to Service. Borrower and each Guarantor waive personal service of any and all process upon Borrower and Guarantor and
consent that service of process may be made by mail (at Borrower’s primary business address specified in the Loan application) or by
any other method permitted by law.
(d)
Waiver of Jury Trial and Class Actions. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY RIGHT THAT THEY MAY HAVE TO (1) TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY
OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY); AND (2)
ASSERT ANY CLAIMS AGAINST ANY OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER
IS PROHIBITED BY PUBLIC POLICY. TO THE EXTENT ANY PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE
ACTION AGAINST ANY OTHER PARTY, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY WILL NOT BE ENTITLED TO RECOVER ATTORNEYS’ FEES
OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT); (2) THE
PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY RECOVERY SECURED
THROUGH THE CLASS OR REPRESENTATIVE ACTION; AND (3) THE FOREGOING WAIVERS ARE ESSENTIAL TERMS OF THIS AGREEMENT. YOU UNDERSTAND AND AGREE
THAT, BY SIGNING THIS AGREEMENT, (1) YOU ARE PERMANENTLY WAIVING YOUR RIGHT TO A JURY TRIAL AND (2) YOU MUST BRING CLAIMS AGAINST LENDER
ONLY IN YOUR INDIVIDUAL OR CORPORATE CAPACITY, AS APPLICABLE, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE
PROCEEDING.
(e) Waiver
of Consumer Defenses. Borrower and each Guarantor hereby waive any defense, regardless of the actual use of Loan proceeds by Borrower
or Guarantor, claiming that the Loan was made to Borrower for personal, consumer, family or household purposes. Borrower and each
Guarantor understand and agree that the Loan has been made to Borrower solely as a business loan for Borrower’s business as set
forth in this Agreement.
(f)
Waiver of Certain Actions. To the extent not prohibited by applicable law, the Borrower and each Guarantor waive demand, notice
of nonpayment, notice of intention to accelerate, notice of acceleration, presentment, protest, notice of dishonor and notice of protest.
Borrower and each Guarantor further agree that: (i) Lender is not required to file suit, show diligence in collection against Borrower
or any Guarantor, or proceed against any Collateral or the Guarantor Collateral; (ii) Lender may, but will not be
obligated to, substitute, exchange or release any Collateral; (iii) Lender may, but will not be obligated to, perfect Lender’s
Security Interest in any Collateral or the Guarantor Security Interest in any Guarantor Collateral; (iv) Lender may, but will not
be obligated to, sue one or more persons or entities without joining or suing others; and (v) Lender may modify, renew, or extend
this Agreement without notice to or approval by any person (other than the party with whom the modification, renewal or extension is
made).
(g) Reduced
Statute of Limitations. Borrower and Lender each agree that: (i) it will not bring against the other party any claim, action
or legal or administrative proceeding of any kind or under any legal or equitable theory or request for relief of any kind to
enforce or arising out of or relating to in any material respect this Agreement (collectively, “Action or Proceeding”)
after the date one (1) year from the sooner to occur of (x) the payment of the Repayment Amount or the Mandatory Prepayment
Amount, as applicable, in full to Lender and (y) the effective date of termination of this Agreement for any reason (such period,
the “Limitations Period”); (ii) all statutes of limitations under applicable law shall in all cases be limited
to the Limitations Period; and (iii) the Limitations Period is a reasonable period of time in which to bring an Action or Proceeding
under or relating to this Agreement
(h) Arbitration.
Notwithstanding any provision hereof, and excluding (i) the enforcement or domestication of, or litigation relating to, any judgment,
(ii) the enforcement of any provision of this Agreement against Borrower and/or any Guarantor and (iii) any action by
or on behalf of Lender for injunctive relief under this Agreement, each party (Borrower, each Guarantor and Lender) agrees to arbitrate
all disputes and claims arising out of or relating to this Agreement (collectively, “Claims”) at the request of the
other party. If a party seeks to have a dispute settled by arbitration, that party must first send to the other party, by certified mail,
a written Notice of Intent to Arbitrate (“Arbitration Notice”). If the parties do not reach an agreement to resolve
the Claim within thirty (30) days after the Arbitration Notice is received, Lender and Borrower agree that the Claim will be resolved
by a final and binding arbitration proceeding with JAMS, Inc. (“JAMS”) in New York County, New York under the
Optional Expedited Arbitration Procedures then in effect. The parties agree that, except as otherwise expressly required by JAMS rules,
(i) the party filing arbitration shall pay all JAMS filing fees and reasonable administrative fees; (ii) thereafter, each party
shall bear its own arbitration costs and fees, including witness fees and attorneys’ fees; and (iii) each party shall bear
an equal share of the arbitrator’s fees; provided, if the arbitrator finds that either the substance of the Claims of any party
or the relief sought by any party is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal
Rule of Civil Procedure 11(b)), then the arbitrator shall award the other party all of its costs and fees of the arbitration, including
witness and reasonable attorneys’ fees. Borrower and each Guarantor agree that (i) arbitration is the required and exclusive
forum for the resolution of all Claims and (ii) to the fullest extent permitted by law, Borrower and each Guarantor are permanently
giving up their right to a jury trial in any forum and the right to a judicial forum for the resolution of any and all Claims. Further,
the parties agree that the arbitrator may not consolidate proceedings for more than one person’s Claims, and may not otherwise
preside over any form of a representative or class proceeding, and that if this specific provision is found unenforceable, then the entirety
of this arbitration clause shall be null and void. This arbitration section is governed by the Federal Arbitration Act, 9 U.S.C. §§
1-16.
BORROWER MAY OPT OUT
OF ARBITRATION. In order to opt out of this Arbitration Clause, Borrower shall send Lender a written notice executed by Borrower,
stating that Borrower does not want the arbitration clause set forth in this Section 12(h) to apply to this Agreement. For any
opt out to be effective, an opt out notice, duly executed by Borrower, must be sent to the following address by registered mail, within
ten (10) business days after the Effective Date, to Servicer, whose contact information will be set forth on the Borrower Loan Dashboard.
As of the date of this Agreement Servicer is: Itria Ventures LLC, One Penn Plaza, Suite 4530, New York, NY 10119, Attention: President
and General Counsel, with a copy in all cases by email to: notices@itriaventures.com.
(a)
Entire Agreement; Modifications. This Agreement, including the Term Loan Summary, and the Guaranty, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, whether written
or oral. This Agreement may only be modified by written amendment signed by the parties, and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
(b)
Interpretation. Section and paragraph headings used in this Agreement are for convenience only and shall not affect the construction
of this Agreement. This Agreement has been reviewed by all parties and their respective counsel and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.
(c)
No Assignment by Borrower. You may not assign this Agreement or any rights herein or delegate any duties, in whole or in part,
without the prior written consent of Lender, and any purported assignment or delegation by Borrower without such consent shall be void
ab initio.
(d)
Assignment by Lender. Lender may assign, sell and transfer this Agreement or any rights herein, in whole or in part, to any
person, without the consent of or notice to Borrower. In connection with any such assignment by Lender, Lender may disclose all documents
and information that Lender now or hereafter may have relating to Borrower, Borrower’s business or any Guarantor to the assignee or purchaser
(“Assignee”). After any such assignment, Lender may continue to service the Loan on behalf of the Assignee or transfer
or delegate servicing to another person. Lender will maintain a register of each such assignment within the meaning of Sections 163(f),
871(h)(2) and 881(c)(2) of the Internal Revenue Code, as amended and any related Treasury regulations.
(e)
Confidentiality. Borrower shall not make, publish or otherwise disseminate in any manner, including via the internet or any social
media, a copy of this Agreement or any part thereof or make any public statement or description, including via the internet or any social
media, of the terms of this Agreement, except to its employees and advisors who have a legitimate “need to know” such information.
(f)
Notices. All communications between the parties with respect of, or notices, requests, directions, consents or other information
sent under, this Agreement shall be in writing and delivered by email (with proof of transmission) to an email address of the other party
at which such party normally receives email communications as of the time the notice is sent or, at the request of any party, by Federal
Express or other internationally recognized courier (with signature). All such communications and notices shall be effective upon sending
via email with proof of transmission or via courier with signature. Notice may be sent to Lender via the Borrower Loan Dashboard or by
email, as set forth in Section 1(h). Servicer email, as of the date hereof, is: notices@itriaventures.com.
(g)
No Waiver. Any waiver of rights under this Agreement must be in writing and will not be inferred from any failure to exercise
or partial exercise of any right hereunder.
(h)
Severability. If one or more provisions of this Agreement is determined to be invalid, illegal or unenforceable in any respect
in any jurisdiction, such determination shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction
or any other provision of this Agreement.
(i)
Further Assurances. The parties agree to execute such further and additional documents, instruments, and writings as may be necessary,
proper, required, desirable, or convenient for the purpose of fully effectuating the terms and provisions of this Agreement.
(j)
Counterparts. This Agreement may be executed in multiple counterparts, all of which taken together shall be deemed to constitute
one and the same original instrument. Transmission by email or other form of electronic transmission of an executed counterpart of this
Agreement shall be deemed an executed original.
(k)
Consent to Electronic Transactions. Borrower expressly consents to conducting this transaction by electronic means, including
by email communications, electronic signatures, the creation of a duly authenticated security interest by electronic signature and the
retention and storage of electronic records, to the maximum extent permitted by law. Borrower agrees that Lender shall not provide
Borrower with a paper copy of this Agreement or other document relating thereto unless specifically requested by Borrower in writing.
(l)
Survival of Terms. All representations, warranties and covenants herein, including in the Guaranty, shall survive the execution
and delivery of this Agreement and shall continue in full force until all Obligations under this Agreement shall have been satisfied
and paid in full and this Agreement shall have terminated, except that the indemnification obligations in Section 11(b) shall
survive the repayment of the Obligations and the termination of this Agreement.
(m)
Other Names. Borrower and each Guarantor hereby acknowledge and agree that Lender may be using “doing business as” or
“d/b/a” names in connection with various matters relating to this Agreement and the Loan, including the filing of UCC-1 financing
statements and other notices or filings (which may be filed in such other names or in the name of Lender’s agent or representative).
(a)
Guaranty. Each Guarantor, jointly and severally, absolutely, irrevocably and unconditionally guarantees (this “Guaranty”):
(i) the prompt payment to Lender, including its successors and assignees, of the Repayment Amount or the Mandatory Prepayment Amount,
as applicable, and all of Borrower’s other Obligations under this Agreement (collectively, “Guaranteed Amount”). Upon
an Event of Default under this Agreement, each Guarantor agrees to pay the Guaranteed Amount to Lender on demand, without requiring Lender
first to enforce payment against Borrower or its right with respect to the Collateral. This Guaranty is a guarantee of payment, and is
an absolute, unconditional, primary, and continuing obligation of each Guarantor. Each Guarantor’s obligations hereunder are independent
of Borrower’s payment obligations and a separate claim may be brought against each Guarantor, whether or not a claim is made against
Borrower. This Guaranty will remain in full force and effect until the Guaranteed Amount has been paid in full to Lender and this Agreement
has been terminated.
(b)
Security Interest. Other than with respect to Permitted Liens, each Guarantor hereby grants to Lender a first priority security
interest (“Guarantor Security Interest”) in and to any and all Guarantor Collateral (as defined below) to secure the
prompt and complete payment when due of the Guaranteed Amount and the performance of Borrower’s covenants and obligations under this
Agreement. “Guarantor Collateral” means all of Guarantor’s right, title and interest in, to and under the following
property, whether tangible or intangible and whether now owned or existing or hereafter arising or acquired and wherever located: (i)
all personal property used in Guarantor’s business, including, without limitation, cash and cash equivalents, receivables, accounts receivables,
accounts, chattel paper, deposit accounts, securities accounts, documents, investment property, fixtures, general intangibles, payment
intangibles, instruments, inventory, goods, equipment, letter of credit rights, as-extracted collateral and commercial tort claims (as
those terms are defined in Article 9 of the UCC in effect from time to time in the State of New York), (ii) all licenses, permits or
other such governmental document or instrument required in connection with the Borrower’s business and all registrations, recordings
and applications therefor and all renewals, reissues and extensions thereof, (iii) all proceeds from and rights to payment and collection
of all debts, obligations and liabilities owed to Borrower, including, without limitation, amounts due from merchant processors from
credit or debit card transactions; and (iv) all products, proceeds, accessions, accessories, parts, attachments, supplies and replacements
of the property described in clause (i), (ii) and (iii).
(c)
Each Guarantor hereby authorizes Lender to make such UCC filings (including, without limitation, a UCC-1 financing statement) and any
other filings or recordations (including, without limitation, filings with the U.S. Patent and Trademark Office and U.S. Copyright Office)
against Guarantor or the Guarantor Collateral that Lender deems necessary or desirable, in its sole discretion, to perfect or maintain
the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral. Upon request by Lender, each
Guarantor agrees to execute any documents or take any other action in connection with this Agreement as Lender deems necessary or desirable
to perfect or maintain the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral.
(d)
Upon the failure of any Guarantor to pay to Lender the Guaranteed Amount as provided hereunder, Lender may exercise all rights of a secured
creditor under the UCC in the Guarantor Collateral.
(e)
Acknowledgment. Each Guarantor acknowledges that this Guaranty covers each liability, obligation, representation and warranty,
covenant and agreement and waiver of Borrower under this Agreement. Further, each Guarantor represents and warrants that he or she is
a legal resident of the United States of America. Each Guarantor also consents to service of any pleadings or other court documents by
electronic mail at Borrower’s email address provided by Borrower.
(f)
ACH and Lockbox Account Authorization. Each Guarantor hereby authorizes (i) Lender, and Servicer on Lender’s behalf, to debit
via ACH any of its Designated Accounts and (ii) Lender to instruct the Lockbox Agent to withdraw from the Lockbox Account in accordance
with the Lockbox Services and Lockbox Processing Instructions, in each case, for the amounts due and payable by such Guarantor under
this Guaranty.
(g)
Waivers. Each Guarantor hereby irrevocably and unconditionally affirms all waivers of Borrower in this Agreement, including, without
limitation, those set forth in Sections 11 and 12.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Borrower, each Guarantor
and Lender by their duly authorized officers have executed this Agreement, in each case on the date specified by the Notary below. By
signing this Agreement, Borrower and each Guarantor hereby affirm to Lender that they have read and understand this Agreement.
BORROWER: ZSPACE, INC.
TAX ID #:352284050
| By: |
/s/ PAUL EMIL KELLENBERGER |
|
Name: |
PAUL EMIL KELLENBERGER |
|
Title: |
Managing Member |
| |
|
|
|
|
|
|
|
| By: |
|
|
Name: |
JOSEPH BRYAN POWERS |
|
Title: |
CFO |
| |
|
|
|
|
|
|
|
| By: |
|
|
Name: |
|
|
Title: |
|
| |
|
|
|
|
|
|
|
| By: |
|
|
Name: |
|
|
Title: |
|
| By: |
/s/ PAUL EMIL KELLENBERGER |
|
By: |
|
| Name: |
PAUL EMIL KELLENBERGER |
|
Name: |
JOSEPH BRYAN POWERS |
| SS#: |
xxx-xx- |
0655 |
(last 4 digits) |
|
SS#: |
xxx-xx- |
2018 |
(last 4 digits) |
| SS#: |
xxx-xx- |
|
(last 4 digits) STATE |
|
SS#: |
xxx-xx- |
|
(last 4 digits) |
| |
|
|
OF Texas) COUNTY OF
Harris) |
|
|
|
|
|
I,. a Notary Public, do hereby certify that on
this 12th day of April, 2023, appeared before me PAUL EMIL KELLENBERGER, the (title(s)) of Borrower, and a Guarantor under
the within Business Loan and Security Agreement, each personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the foregoing agreement, and swore and acknowledged to me that he or she executed the same
by and in the name of Borrower and/or as Guarantor, respectively, for the purpose and in the capacity therein expressed, and that the
statements contained therein are true and correct.
| Notary Signature: |
/s/ Jamal Jones |
|
| |
|
|
| Name of Notary: |
Jamal Jones |
|
| Notary Commission Expires: |
12/29/2024 |
|
Notarized online using audio-video communication
IN WITNESS WHEREOF, Borrower, each Guarantor
and Lender by their duly authorized officers have executed this Agreement, in each case on the date specified by the Notary below. By
signing this Agreement, Borrower and each Guarantor hereby affirm to Lender that they have read and understand this Agreement.
BORROWER: ZSPACE, INC.
TAX ID #:352284050
| By: |
|
|
Name: |
PAUL EMIL KELLENBERGER |
|
Title: |
Managing Member |
| |
|
|
|
|
|
|
|
| By: |
/s/ JOSEPH BRYAN POWERS |
|
Name: |
JOSEPH BRYAN POWERS |
|
Title: |
CFO |
| |
|
|
|
|
|
|
|
| By: |
|
|
Name: |
|
|
Title: |
|
| |
|
|
|
|
|
|
|
| By: |
|
|
Name: |
|
|
Title: |
|
| By: |
|
|
By: |
/s/ JOSEPH BRYAN POWERS |
| Name: |
PAUL EMIL KELLENBERGER |
|
Name: |
JOSEPH BRYAN POWERS |
| SS#: |
xxx-xx- |
0655 |
(last 4 digits) |
|
SS#: |
xxx-xx- |
2018 |
(last 4 digits) |
| SS#: |
xxx-xx- |
|
(last 4 digits) STATE |
|
SS#: |
xxx-xx- |
|
(last 4 digits) |
| |
|
|
OF Texas) COUNTY OF
Dallas) |
|
|
|
|
|
I,. a Notary Public, do hereby certify that
on this 12th day of April, 2023, appeared before me JOSEPH BRYAN POWERS, CFO, the (title(s)) of Borrower, and a
Guarantor under the within Business Loan and Security Agreement, each personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the foregoing agreement, and swore and acknowledged to me that he
or she executed the same by and in the name of Borrower and/or as Guarantor, respectively, for the purpose and in the capacity
therein expressed, and that the statements contained therein are true and correct.
| Notary Signature: |
/s/ Kaneisha
R Curtis |
|
| |
|
|
| Name of Notary: |
Kaneisha R Curtis |
|
| Notary Commission Expires: |
05/21/2024 |
|
Notarized online using audio-video communication
Exhibit 10.22
SHORT FORM AGREEMENT
This short form agreement (Agreement) is being executed on this
May 29, 2023 between:
| 1. | zSpace, Inc., a Delaware corporation, having its address at 2050 Gateway Place, Ste. 100-302, San
Jose, Ca 95110 (Borrower); and |
| 2. | Fiza
Investments Limited a limited liability company incorporated in Cayman Islands, having its
address at 2nd
Floor, Regatta Office Park, West Bay Road, P.O. Box 10655, Grand Cayman
KY1-1006, Caymen Islands (Lender). |
The Borrower and the Lender are collectively referred to as “Parties”
and individually as “Party”.
RECITALS
| A. | The Borrower has a requirement of funds for an amount of up to USD $3,000,000 (Loan Amount). |
| B. | The Borrower has approached the Lender to lend the Loan Amount to the Borrower. The Borrower and the Lender
are in the process of finalizing definitive documents (including but not limited to security documents) for the purpose of the Lender
extending the Loan Amount to the Borrower (Loan Agreement). |
| C. | The Parties agree and acknowledge that the Borrower is in immediate requirement of the Loan Amount. The
Lender has agreed to advance the Loan Amount, on the basis of the terms and conditions set out in this Agreement. |
OPERATIVE TERMS
| 1. | The Lender has agreed to advance the Loan Amount to the Borrower on the following terms: |
| 1.1. | The Loan Amount shall be disbursed to the Borrower within 2 business days from the date of execution of
this Agreement. |
| 1.2. | The Loan Amount shall be the aggregate loan amount to be disbursed under the Loan Agreement (and the Lender
shall have no liability to disburse any further amounts). The key commercial terms for the advancement of the Loan Amount are as set out
in Annexure A, which the Borrower acknowledges to be acceptable to it. The Parties agree that the Loan Agreement shall be executed
on the basis of the terms set out in Annexure A. |
| 1.3. | Subject to the execution of the Loan Agreement, the initial maturity date for the Loan Amount shall
be 15 business days from the date of advancement of the Loan Amount (Maturity Date). Notwithstanding the above, in the event
that (a) the Loan Agreement together with all documents pursuant thereto (in such form as may be acceptable to the Lender) are
executed on or prior to the Maturity Date; and (b) all approvals needed to be obtained by the Borrower from all relevant third
parties, are obtained (to the satisfaction of the Lender) on or prior to the Maturity Date (conditions (a) and
(b) collectively, the “Conditions”), then the Maturity Date for
the Loan Amount shall stand extended to the maturity date as set out in the Loan Agreement. |
| 1.4. | Till the Conditions are met, the Loan Amount shall be subject to the conditions set out in Annexure A,
provided that the Maturity Date shall be as stated in Clause 1.3 above. In the event that the Conditions are complied with on or prior
to the Maturity Date, then Loan Amount will be subject to the terms and conditions set out in the Loan Agreement (including but not limited
to payment of interest, repayment and prepayment terms). Provided however that the interest on the Loan Amount shall be calculated on
and from the date of disbursal of the Loan Amount under this Agreement. |
| 1.5. | In the event the Conditions are not complied with on or prior to the Maturity Date, then the entire Loan
Amount shall be repaid in full to the Lender on the day immediately succeeding the Maturity Date (together with interest as stated in
Annexure A). If the Loan Amount (together with interest) is not so repaid, then the Lender will have the right to take such actions, at
the sole cost and expense of the Borrower, as it may desire to enforce its recovery rights in respect of the Loan Amount (together with
interest) at law, under contract or in equity. |
| For and on behalf of Borrower |
|
| zSpace, Inc. |
|
| |
|
| /s/ Joseph B.
Powers |
|
| Joseph B. Powers |
|
| Chief Financial Officer |
|
| |
|
| For and on behalf of Lender |
|
| |
|
| |
|
| |
|
ANNEXURE A
Key Commercial Terms
| KEY TERMS |
| Company |
zSpace Inc. (a Delaware, USA registered company) |
| |
|
| Lender |
Fiza Investments Limited |
| |
|
| Loan Amount |
Provision of up to $3,000,000 in form of secured debt. |
| |
|
| Use of proceeds |
To be utilized for working capital purposes of the Borrower |
| |
|
| Maturity Date |
Till the Conditions are completed, 15 days from the date of disbusrsement. |
| |
Once the Conditions are completed, 24 months from date of disbursement. |
| |
|
| Security/Instrument |
Loan Amount will be in form of secured debt as described in the Loan Agreement. |
| |
|
| |
Security and collateral for the Loan Amount will be senior to existing bSpace Investments Ltd. secured debt aggregated to USD $31,500,000. |
| |
|
| |
Loan Amount will be subordinated to existing indebtedness provided by Itria Ventures (Itria Loans) in respect of receivables collateral. |
| |
|
| Interest Rate |
25% fixed rate per annum, which shall accrue and be payable in accordance with Schedule 1. |
| |
|
| Default Interest Rate |
3%
per annum over and above the Interest Rate of 25% on the amount of outstanding principal and interest at the relevant
time. |
| |
|
| Repayment |
In accordance with the repayment schedule set out in Schedule 1. |
| |
|
| |
|
|
Transaction Documents |
The final understanding between the Parties in relation to the potential transaction contemplated by this Term Sheet, pursuant to discussions, negotiations and diligence will be set out in certain definitive documents (“Transaction Documents”) including but not limited to: |
| |
|
| |
(i) |
A facility agreement between the Lender and the Borrower; and |
| |
(ii) |
All other
security documents, subordination agreements and/or inter-creditor agreements as may be required. |
| |
|
|
| |
The Parties agree and acknowledge that the Lender may specify other documents to be executed which would classify as “Transaction
Documents” based on the outcome of discussions. |
| |
|
| Financial Covenants |
Coverage ratio of 100% on the current assets of the Borrower for the outstanding principal of the Loan Amount taken together with the outstanding principal amount of the Itria Loans. Cure period of 15 days from any breach of this covenant. |
| |
|
|
Reporting Requirements |
(i) |
Details of weekly collections, weekly sales/bookings and inventory purchase for each week, to be provided within 2 business days of the end of the relevant week. |
| |
|
|
| |
(ii) |
Cash balance to be provided weekly within 1 business day of the end of the relevant week. |
| |
|
|
| |
(iii) |
Cash reconciliation reports for each month within 3 business days from the end of the relevant month. |
| |
|
|
| |
(iv) |
Monthly MIS (together with P&L and balance sheet) within 5 business days from the end of the relevant calendar month. |
| |
|
Event of Default and
Consequences |
Standard event of default (including breach of financial covenants and/or reporting requirements) and consequential rights in favor of the Lender. |
| |
|
| Confidentiality |
This document and its contents are being delivered to the Company by the Lender and are accepted by the Company and the Lender on the express condition that the Company and the Lender maintain its confidentiality. |
| |
|
Schedule 1
Repayment Installments
| | |
| | |
| | |
| | |
Loan Amount | |
| Installment # | |
Loan Amount | | |
Principal | | |
Interest | | |
Balance | |
| | |
$ | 3,000,000 | | |
| | | |
| | | |
$ | 3,000,000 | |
| 1 | |
$ | 3,000,000 | | |
$ | (17,557 | ) | |
$ | (62,500 | ) | |
$ | 2,982,443 | |
| 2 | |
$ | 2,982,443 | | |
$ | (17,923 | ) | |
$ | (62,134 | ) | |
$ | 2,964,520 | |
| 3 | |
$ | 2,964,520 | | |
$ | (18,296 | ) | |
$ | (61,761 | ) | |
$ | 2,946,223 | |
| 4 | |
$ | 2,946,223 | | |
$ | (18,678 | ) | |
$ | (61,380 | ) | |
$ | 2,927,546 | |
| 5 | |
$ | 2,927,546 | | |
$ | (19,067 | ) | |
$ | (60,991 | ) | |
$ | 2,908,479 | |
| 6 | |
$ | 2,908,479 | | |
$ | (19,464 | ) | |
$ | (60,593 | ) | |
$ | 2,889,015 | |
| 7 | |
$ | 2,889,015 | | |
$ | (133,930 | ) | |
$ | (60,188 | ) | |
$ | 2,755,085 | |
| 8 | |
$ | 2,755,085 | | |
$ | (136,721 | ) | |
$ | (57,398 | ) | |
$ | 2,618,364 | |
| 9 | |
$ | 2,618,364 | | |
$ | (139,569 | ) | |
$ | (54,549 | ) | |
$ | 2,478,795 | |
| 19 | |
$ | 2,478,795 | | |
$ | (142,477 | ) | |
$ | (51,642 | ) | |
$ | 2,336,318 | |
| 11 | |
$ | 2,336,318 | | |
$ | (145,445 | ) | |
$ | (48,673 | ) | |
$ | 2,190,874 | |
| 12 | |
$ | 2,190,874 | | |
$ | (148,475 | ) | |
$ | (45,643 | ) | |
$ | 2,042,399 | |
| 13 | |
$ | 2,042,399 | | |
$ | (151,568 | ) | |
$ | (42,550 | ) | |
$ | 1,890,830 | |
| 14 | |
$ | 1,890,830 | | |
$ | (154,726 | ) | |
$ | (39,392 | ) | |
$ | 1,736,105 | |
| 15 | |
$ | 1,736,105 | | |
$ | (157,949 | ) | |
$ | (36,169 | ) | |
$ | 1,578,155 | |
| 16 | |
$ | 1,578,155 | | |
$ | (161,240 | ) | |
$ | (32,878 | ) | |
$ | 1,416,915 | |
| 17 | |
$ | 1,416,915 | | |
$ | (164,599 | ) | |
$ | (29,519 | ) | |
$ | 1,252,316 | |
| 18 | |
$ | 1,252,316 | | |
$ | (168,028 | ) | |
$ | (26,090 | ) | |
$ | 1,084,288 | |
| 19 | |
$ | 1,084,288 | | |
$ | (171,529 | ) | |
$ | (22,589 | ) | |
$ | 912,759 | |
| 20 | |
$ | 912,759 | | |
$ | (175,102 | ) | |
$ | (19,016 | ) | |
$ | 737,657 | |
| 21 | |
$ | 737,657 | | |
$ | (178,750 | ) | |
$ | (15,368 | ) | |
$ | 558,907 | |
| 22 | |
$ | 558,907 | | |
$ | (182,474 | ) | |
$ | (11,644 | ) | |
$ | 376,432 | |
| 23 | |
$ | 376,432 | | |
$ | (186,276 | ) | |
$ | (7,842 | ) | |
$ | 190,157 | |
| 24 | |
$ | 190,157 | | |
$ | (190,157 | ) | |
$ | (3,962 | ) | |
$ | - | |
Exhibit 10.23
SHORT FORM AGREEMENT
This short form agreement (Agreement) is being executed on this
November ___, 2023 between:
| 1. | zSpace, Inc., a Delaware corporation, having its address at 2050 Gateway Place, Ste. 100-302, San
Jose, Ca 95110 (Borrower); and |
| 2. | Fiza Investments Limited a limited liability company incorporated in Cayman Islands, having its address at 2nd
Floor, Regatta Office Park, West Bay Road, P.O. Box 10655, Grand Cayman KY1-1006, Caymen Islands (Lender). |
The Borrower and the Lender are collectively referred to as “Parties”
and individually as “Party”.
RECITALS
| A. | The Borrower has a requirement of funds for an amount of up to USD $1,300,000 (Loan Amount). |
| B. | The Borrower has approached the Lender to lend the Loan Amount to the Borrower. The Borrower and the Lender
are in the process of finalizing definitive documents (including but not limited to security documents) for the purpose of the Lender
extending the Loan Amount to the Borrower (Loan Agreement). |
| C. | The Parties agree and acknowledge that the Borrower is in immediate requirement of the Loan Amount. The
Lender has agreed to advance the Loan Amount, on the basis of the terms and conditions set out in this Agreement. |
OPERATIVE TERMS
| 1. | The Lender has agreed to advance the Loan Amount to the Borrower on the following terms: |
| 1.1. | The Loan Amount shall be disbursed to the Borrower within 2 business days from the date of execution of
this Agreement. |
| 1.2. | The Loan Amount shall be the aggregate loan amount to be disbursed under the Loan Agreement (and the Lender
shall have no liability to disburse any further amounts). The key commercial terms for the advancement of the Loan Amount are as set out
in Annexure A, which the Borrower acknowledges to be acceptable to it. The Parties agree that the Loan Agreementshall be executed
on the basis of the terms set out in Annexure A. |
| 1.3. | Subject to the execution of the Loan Agreement, the initial maturity date for the Loan Amount shall
be 15 business days from the date of advancement of the Loan Amount (Maturity Date). Notwithstanding the above, in the event
that (a) the Loan Agreement together with all documents pursuant thereto (in such form as may be acceptable to the Lender) are
executed on or prior to the Maturity Date; and (b) all approvals needed to be obtained by the Borrower from all relevant third
parties, are obtained (to the satisfaction of the Lender) on or prior to the Maturity Date (conditions (a) and
(b) collectively, the “Conditions”), then the Maturity Date for
the Loan Amount shall stand extended to the maturity date as set out in the Loan Agreement. |
| 1.4. | Till the Conditions are met, the Loan Amount shall be subject to the conditions set out in Annexure A,
provided that the Maturity Date shall be as stated in Clause 1.3 above. In the event that the Conditions are complied with on or prior
to the Maturity Date, then Loan Amount will be subject to the terms and conditions set out in the Loan Agreement (including but not limited
to payment of interest, repayment and prepayment terms). Provided however that the interest on the Loan Amount shall be calculated on
and from the date of disbursal of the Loan Amount under this Agreement. |
| 1.5. | In the event the Conditions are not complied with on or prior to the Maturity Date, then the entire Loan
Amount shall be repaid in full to the Lender on the day immediately succeeding the Maturity Date (together with interest as stated in
Annexure A). If the Loan Amount (together with interest) is not so repaid, then the Lender will have the right to take such actions, at
the sole cost and expense of the Borrower, as it may desire to enforce its recovery rights in respect of the Loan Amount (together with
interest) at law, under contract or in equity. |
| For and on behalf of Borrower |
|
| zSpace, Inc. |
|
| |
|
| /s/ Joseph B. Powers |
|
| Joseph B. Powers |
|
| Chief Financial Officer |
|
| |
|
| For and on behalf of Lender |
|
| |
|
| |
|
| |
|
ANNEXURE A
Key Commercial Terms
| KEY TERMS |
| Company |
zSpace Inc. (a Delaware, USA registered company) |
| |
|
| Lender |
Fiza Investments Limited |
| |
|
| Loan Amount |
Provision of up to $1,300,000in form of secured debt. |
| |
|
| Use of proceeds |
To be utilized for working capital purposes of the Borrower |
| |
|
| Maturity Date |
Till the Conditions are completed, 15 days from the date of disbusrsement. |
| |
Once the Conditions are completed, 24 months from date of disbursement. |
| |
|
| Security/Instrument |
Loan Amount will be in form of secured debt as described in the Loan Agreement. |
| |
|
| |
Security and collateral for the Loan Amount will be senior to existing bSpace Investments Ltd. secured debt aggregated to USD $31,500,000. |
| |
|
| |
Loan Amount will be subordinated to existing indebtedness provided by Itria Ventures (Itria Loans) in respect of receivables collateral. |
| |
|
| Interest Rate |
25% fixed rate per annum, which shall accrue and be payable in accordance with Schedule 1. |
| |
|
| Default Interest Rate |
3% per annum over and above the Interest Rate of 25% on the amount of outstanding principal and interest at the relevant time. |
| |
|
| Repayment |
In accordance with the repayment schedule set out in Schedule 1. |
| |
|
| |
|
Transaction
Documents |
The final understanding between the Parties in relation to the potential transaction contemplated by this Term Sheet, pursuant to discussions, negotiations and diligence will be set out in certain definitive documents (“Transaction Documents”) including but not limited to: |
| |
|
| |
(i) |
A facility agreement between the Lender and the Borrower; and |
| |
(ii) |
All other security documents, subordination agreements and/or inter-creditor agreements as may be required. |
| |
|
|
| |
The Parties agree and acknowledge that the Lender may specify other documents to be executed which would classify as “Transaction Documents” based on the outcome of discussions. |
| |
|
|
| Financial Covenants |
Coverage ratio of 100% on the current assets of the Borrower for the outstanding principal of the Loan Amount taken together with the outstanding principal amount of the Itria Loans. Cure period of 15 days from any breach of this covenant. |
| |
|
|
Reporting
Requirements |
(i) |
Details of weekly collections, weekly sales/bookings and inventory purchase for each week, to be provided within 2 business days of the end of the relevant week. |
|
|
|
| |
(ii) |
Cash balance to be provided within one business day of Nthe last business day of each week. |
| |
|
|
| |
(iii) |
Cash reconciliation reports for each month within 3 business days from the end of the relevant month. |
| |
|
|
| |
(iv) |
Monthly MIS (together with P&L and balance sheet) within 5 business days from the end of the relevant calendar month. |
| |
|
Event of Default and
Consequences |
Standard event of default (including breach of financial covenants and/or reporting requirements) and consequential rights in favor of the Lender. |
| |
|
| Confidentiality |
This document and its contents are being delivered to the Company by the Lender and are accepted by the Company and the Lender on the express condition that the Company and the Lender maintain its confidentiality. |
| |
|
|
Schedule 1
Repayment Installments
| |
| | |
| | |
| | |
Loan Amount | |
| Installment # | |
Loan Amount | | |
Principal | | |
Interest | | |
Balance | |
| | |
$ | 1,300,000 | | |
| | | |
| | | |
$ | 1,300,000 | |
| 1 | |
$ | 1,300,000.00 | | |
$ | (7,608.15 | ) | |
$ | (27,083.33 | ) | |
$ | 1,292,391.85 | |
| 2 | |
$ | 1,292,391.85 | | |
$ | (7,766.66 | ) | |
$ | (26,924.83 | ) | |
$ | 1,284,625.19 | |
| 3 | |
$ | 1,284,625.19 | | |
$ | (7,928.46 | ) | |
$ | (26,763.02 | ) | |
$ | 1,276,696.72 | |
| 4 | |
$ | 1,276,696.72 | | |
$ | (8,093.64 | ) | |
$ | (26,597.85 | ) | |
$ | 1,268,603.08 | |
| 5 | |
$ | 1,268,603.08 | | |
$ | (8,262.26 | ) | |
$ | (26,429.23 | ) | |
$ | 1,260,340.83 | |
| 6 | |
$ | 1,260,340.83 | | |
$ | (8,434.39 | ) | |
$ | (26,257.10 | ) | |
$ | 1,251,906.44 | |
| 7 | |
$ | 1,251,906.44 | | |
$ | (58,036.48 | ) | |
$ | (26,081.38 | ) | |
$ | 1,193,869.96 | |
| 8 | |
$ | 1,193,869.96 | | |
$ | (59,245.58 | ) | |
$ | (24,872.29 | ) | |
$ | 1,134,624.38 | |
| 9 | |
$ | 1,134,624.38 | | |
$ | (60,479.86 | ) | |
$ | (23,638.01 | ) | |
$ | 1,074,144.52 | |
| 19 | |
$ | 1,074,144.52 | | |
$ | (61,739.86 | ) | |
$ | (22,378.01 | ) | |
$ | 1,012,404.67 | |
| 11 | |
$ | 1,012,404.67 | | |
$ | (63,026.10 | ) | |
$ | (21,091.76 | ) | |
$ | 949,378.56 | |
| 12 | |
$ | 949,378.56 | | |
$ | (64,339.15 | ) | |
$ | (19,778.72 | ) | |
$ | 885,039.42 | |
| 13 | |
$ | 885,039.42 | | |
$ | (65,679.55 | ) | |
$ | (18,438.32 | ) | |
$ | 819,359.87 | |
| 14 | |
$ | 819,359.87 | | |
$ | (67,047.87 | ) | |
$ | (17,070.00 | ) | |
$ | 752,312.00 | |
| 15 | |
$ | 752,312.00 | | |
$ | (68,444.70 | ) | |
$ | (15,673.17 | ) | |
$ | 683,867.30 | |
| 16 | |
$ | 683,867.30 | | |
$ | (69,870.63 | ) | |
$ | (14,247.24 | ) | |
$ | 613,996.67 | |
| 17 | |
$ | 613,996.67 | | |
$ | (71,326.27 | ) | |
$ | (12,791.60 | ) | |
$ | 542,670.40 | |
| 18 | |
$ | 542,670.40 | | |
$ | (72,812.23 | ) | |
$ | (11,305.63 | ) | |
$ | 469,858.17 | |
| 19 | |
$ | 469,858.17 | | |
$ | (74,329.15 | ) | |
$ | (9,788.71 | ) | |
$ | 395,529.02 | |
| 20 | |
$ | 395,529.02 | | |
$ | (75,877.68 | ) | |
$ | (8,240.19 | ) | |
$ | 319,651.34 | |
| 21 | |
$ | 319,651.34 | | |
$ | (77,458.46 | ) | |
$ | (6,659.40 | ) | |
$ | 242,192.88 | |
| 22 | |
$ | 242,192.88 | | |
$ | (79,072.18 | ) | |
$ | (5,045.68 | ) | |
$ | 163,120.69 | |
| 23 | |
$ | 163,120.69 | | |
$ | (80,719.52 | ) | |
$ | (3,398.35 | ) | |
$ | 82,401.18 | |
| 24 | |
$ | 82,401.18 | | |
$ | (82,401.18 | ) | |
$ | (1,716.69 | ) | |
$ | - | |
Exhibit 10.24
EXCHANGE AGREEMENT
This Exchange Agreement
(this “Agreement”) is made and entered into as of December 29, 2023 (the “Effective Date”),
by and between zSpace, Inc., a Delaware corporation (the “Company”), and bSpace Investments Limited (“bSpace”).
RECITALS
WHEREAS, prior
to the amendment to the Company’s Amended and Restated Certificate of Incorporation effective as of the date hereof (the “Charter
Amendment”) that was filed in connection with a recapitalization of certain of the Company’s securities (the “Recapitalization”),
bSpace was the holder of 58,972 shares of the Company’s Non-Convertible Non-Voting Preferred Stock (the “NCNV Shares”).
WHEREAS, pursuant
to and in connection with the Charter Amendment, the NCNV Shares held by bSpace were automatically reclassified into the same number of
shares of the Company’s Non-Convertible Non-Voting Preferred Stock 1 (the “NCNV Shares 1”) (the “Reclassification”).
WHEREAS, in connection
with the Recapitalization, bSpace will exchange 11,722 of its NCNV 1 Shares that were issued in the Reclassification (the “Exchange
Shares”) for 11,722 shares of the Company’s Non-Convertible Non-Voting Preferred Stock 3 (the “NCNV 3 Shares”)
to be issued by the Company pursuant to the terms of this Agreement (the “Exchange”).
NOW THEREFORE,
in consideration of these premises and for other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
AGREEMENT
1. Agreement
To Exchange.
1.1 Authorization
of NCNV 3 Shares. The Company has authorized the issuance to bSpace of the NCNV 3 Shares. The NCNV 3 Shares have the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation of the Company, as may be amended and/or
restated from time to time (the “Restated Certificate”), a copy of which was previously made available to bSpace.
1.2 Exchange of
Securities. Subject to the terms and conditions of this Agreement, effective upon the Effective Date, bSpace hereby surrenders the
Exchange Shares to the Company in exchange for the Company’s issuance to bSpace of 11,722 NCNV 3 Shares as set forth in the recitals
hereof. For US federal income tax purposes, the Reclassification and Exchange are intended to be treated as a tax-deferred recapitalization
under Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Charter
Amendment and this Agreement are intended to be and are adopted as a plan of reorganization within the meaning of Section 354(a)(1) of
the Code and Treasury Regulations Section 1.368-2(g).
2. Closing
and Delivery.
2.1 Closing.
The closing of the Exchange (the “Closing”) shall take place remotely by the electronic exchange of signatures, or
at such other time, place, and manner upon which the Company and bSpace agree, either orally or in writing.
2.2 Delivery.
bSpace hereby delivers and surrenders to the Company the Exchange Shares. Subject to the foregoing, at the Closing, the Company will deliver
to bSpace a certificate (electronic or physical) representing the NCNV 3 Shares to which bSpace is entitled as a result of the exchange
provisions herein.
3. Representations
and Warranties of the Company.
The Company hereby represents
and warrants to bSpace as of the date of this Agreement as follows:
3.1 Authorization;
Binding Obligations. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization
of this Agreement, the performance of all obligations of the Company hereunder at the Closing and the authorization, issuance and delivery
of the NCNV 3 Shares pursuant hereto has been taken or will be taken prior to the Closing. This Agreement constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of creditors’ rights, and (ii) general principles of
equity that restrict the availability of equitable remedies. The issuance of the NCNV 3 Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied with.
3.2 Non-Contravention.
The execution and delivery of this Agreement by the Company, and the issuance of the shares of NCNV 3 Shares, do not and will not
conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the
Restated Certificate or the Company’s Bylaws (the “Bylaws”), each as currently in effect, (ii) any
agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, or (iii) any
existing applicable law, rule, or regulation or any applicable decree, judgment, or order.
4. Representations
and Warranties of bSpace. bSpace hereby represents and warrants to the Company as follows:
4.1 Authorization;
Binding Obligations. All action on the part of bSpace necessary for the authorization of this Agreement and the performance of all
obligations of bSpace hereunder has been taken or will be taken prior to the Closing. This Agreement constitutes a valid and binding obligation
of such entity enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of creditors’ rights and (ii) general principles of equity
that restrict the availability of equitable remedies.
4.2 Non-Contravention.
The execution and delivery of this Agreement by bSpace, and the consummation by bSpace of the other transactions contemplated hereunder,
do not and will not conflict with or result in a breach by such entity of any of the terms or provisions of, or constitute a default under
any agreement or instrument to which bSpace is a party or by which it or any of its properties or assets are bound, or any existing applicable
law, rule, or regulation or any applicable decree, judgment, or order.
5. Restrictive
Legends and Stop-Transfer Orders. bSpace will not assign, hypothecate, donate, encumber or otherwise dispose of any interest in
the NCNV 3 Shares except in compliance with the provisions of applicable securities laws. bSpace understands and agrees that the
Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the NCNV 3 Shares
pursuant to the Exchange, together with any other legends that may be required by state or federal securities laws, the Restated
Certificate or the Bylaws:
THE SHARES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
bSpace agrees that, to
ensure compliance with the restrictions imposed by this Agreement the Company may issue appropriate “stop-transfer”
instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to
the same effect in its own records. The Company will not be required (a) to transfer on its books any NCNV 3 Shares that have
been sold or otherwise transferred in violation of any of the provisions of this Agreement or (b) to treat as owner of such
NCNV 3 Shares, or to accord the right to pay dividends, to any stockholder or other transferee to whom such shares have been so
transferred.
6. Miscellaneous.
6.1 Successors
and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors
and assignees of the parties.
6.2 Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the
conflicts of law principles thereof.
6.3 Severability.
If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforced in accordance
with its terms.
6.4 Further Assurances.
The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
6.5 Counterparts.
This Agreement may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an
original, but all of which 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, Uniform Electronic Transactions Act
or other applicable law) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered
and be valid and effective for all purposes.
6.6 Entire Agreement.
This Agreement reflects the entire agreement among the parties with respect to the matters set forth herein and supersedes any prior agreements,
commitments, discussions and understandings, oral or written, with respect thereto.
(Remainder of Page Intentionally Left Blank - Signature
Pages Follow)
IN WITNESS WHEREOF, the parties hereto
have executed this Exchange Agreement as of the date set forth in the first paragraph hereof.
| |
COMPANY: |
| |
zSpace, Inc. |
| |
|
| |
|
| |
By: |
/s/ Paul Kellenberger |
| |
Name: Paul Kellenberger |
| |
Title: Chief Executive Officer |
| |
|
| |
|
| |
bSpace Investments Limited |
| |
|
| |
|
| |
By: |
/s/ Mohammed Al Hassan |
| |
Name: Mohammed Al Hassan |
| |
Title: Authorized Signatory |
Exhibit 10.25
ZSPACE, INC.
CONVERSION AND LOAN TERMINATION AGREEMENT
This Conversion
and Amendment Agreement (this “Agreement”) is entered into effective as of December 30, 2023 (the “Effective
Date”), by and between zSpace, Inc., a Delaware corporation (the “Company”), and bSpace Investments
Limited (“bSpace”).
RECITALS
A. On
December 4, 2020, the parties entered into that certain Amended and Restated Loan and Security Agreement (as amended to date, the
“bSpace Loan Agreement”), which bSpace Loan Agreement, among other things, (i) has a principal amount outstanding
of $31,500,000.00 as of the Effective Date (the “Principal Amount”), (ii) is subordinated to certain other
Company indebtedness, (iii) is secured by Collateral (as defined therein), and (iv) provides for the payment of interest and
certain fees and other amounts, including a Repayment Premium (as defined therein) of $47,250,000.00 when repaid in certain circumstances.
All capitalized terms used herein that are not otherwise defined shall have the meanings ascribed to such terms in the bSpace Loan Agreement.
B. Pursuant
to that certain Closing Fee Letter Agreement entered into in connection with the bSpace Loan Agreement dated December 4, 2020,
between Gulf Islamic Investments LLC (“GII”) and the Company (the “Fee
Letter”), the Company will owe GII an advisory fee, the right to which GII has assigned or will assign to bSpace.
C. Pursuant
to the terms of that certain Amendment and Conversion Agreement, by and between the Company and bSpace, dated May 16, 2022
(“2022 bSpace Agreement”), $58,971,944 of the balance under the bSpace Loan Agreement (which amount
represented the Repayment Premium plus the interest on the Principal Amount through March 15, 2023 at the interest rate
applicable during the applicable period plus the applicable fees under the Fee Letter through March 15, 2023) was
converted into 58,972 shares of the Company’s Non-Convertible Non-Voting Preferred Stock on August 12, 2022 (the
“2022 Conversion”), which shares were reclassified and/or exchanged into 47,250 shares of the
Company’s Non-Convertible Non-Voting Preferred Stock 1 (the “NCNV Preferred Stock 1”) and
11,722 shares of the Company’s Non-Convertible Non-Voting Preferred Stock 3 (the “NCNV Preferred Stock
3”) on or prior to the Effective Date. The 2022 bSpace Agreement also contemplated a Conversion and PIPE Investment
(as both such terms were defined in the 2022 bSpace Agreement), but they did not occur in accordance with the terms of the 2022
bSpace Agreement.
D. Prior to the Effective Date, bSpace sold
47,250 shares of its NCNV Preferred Stock 1 and 2,750 shares of its NCNV Preferred Stock 3.
E. As
of Effective Date, the total balance outstanding under the bSpace Loan Agreement and Fee Letter, after accounting for the 2022
Conversion, is $36,918,000 (the “Balance”), which amount includes the Principal Amount and interest
and fees thereunder.
F. It
is the intent of the parties hereto that the Balance convert into fully paid and nonassessable shares of the NCNV Preferred Stock 3 pursuant
to the terms and conditions set forth in this Agreement and to enter into this Agreement in furtherance thereof.
G. The bSpace Loan Agreement provides
that its terms may not be amended except in a writing signed by the Company and bSpace.
AGREEMENT
NOW, THEREFORE, in consideration
of the mutual promises and representations hereinafter set forth, the parties hereto agree as follows:
1. Conversion
of Balance. Notwithstanding the provisions of the bSpace Loan Agreement, and effective immediately on the Effective Date, the
entire Balance is hereby automatically cancelled and converted into 36,918 shares of the NCNV Preferred Stock 3 (the “Conversion”
and such shares, the “Conversion Shares”) and the Balance is hereby reduced to zero dollars ($0), in each case,
without any further action on the part of the Company or bSpace. As soon as practicable following the Conversion, the Company will issue
to bSpace an electronic stock certificate for the Conversion Shares issued in connection with the Conversion (with applicable legends
as set forth below and as may be required under applicable securities laws and/or agreements between bSpace and the Company) and the Conversion
Shares issued in connection with the Conversion will be validly issued, fully paid and nonassessable.
2. Acknowledgments;
Waiver; Consent. In connection with the Conversion contemplated hereby (and with acknowledgement
to the completion of the 2022 Conversion), and effective immediately upon the Effective Date, (i) all of the Company’s Obligations
(as defined in the bSpace Loan Agreement) and any other obligations and liabilities under the bSpace Loan Agreement or any Loan (as defined
therein) hereby are discharged and released in full without any further action on the part of the Company or bSpace, (ii) bSpace
is not entitled to any further consideration in respect of the bSpace Loan Agreement or any Loan thereunder, (iii) the bSpace Loan
Agreement is hereby amended in any and all ways necessary to be consistent with this Agreement, (iv) the bSpace Loan Agreement and
any Loan thereunder hereby is terminated, cancelled and extinguished and of no further force or effect (other than as contemplated by
the bSpace Loan Agreement with respect to Section 9.2 thereof), (v) the security interest granted to bSpace under the bSpace
Loan Agreement with respect to the Collateral (as defined therein) is terminated automatically without any further action on the part
of the Company or bSpace, (vi) the Company is authorized to take any and all actions to evidence the termination of the security
interest described in clause (v) hereof, (vii) bSpace will execute and deliver, or cause to be executed and delivered all such
documents and/or instruments, and will take or cause to be taken such further or other action as is reasonably necessary or desirable
in order to carry out the intent and purpose of clause (v) hereof, (viii) bSpace waives any rights to notice, consent, deliverables
or other procedural requirements under the bSpace Loan Agreement whether related to the Conversion or otherwise, and (ix) it is confirmed
and acknowledged by bSpace that the representations, warranties, covenants and acknowledgements made in this Agreement are made with the
intention that they may be relied upon by the Company in determining bSpace’s eligibility to purchase the Conversion Shares under
applicable securities laws.
3. Representations of bSpace.
(a) Securities Law Representations. bSpace represents, as of the Effective Date that:
(i) Purchase
for Own Account. The Conversion Shares are being acquired for investment for bSpace’s own account, not as a nominee or agent,
and not with a view to the public resale or distribution thereof within the meaning of the U.S. Securities Act of 1933, as amended (the
“Securities Act”), and bSpace has no present intent to sell, grant any participation in, or otherwise distribute
the same.
(ii) Investment
Experience. bSpace understands that the purchase of the Conversion Shares involves substantial risk. bSpace (i) has experience
as an investor in securities of private companies that are similar to the Company and acknowledges that bSpace is able to fend for itself,
can bear the economic risk of bSpace’s investment in the Conversion Shares and has such knowledge and experience in financial or
business matters that bSpace is capable of evaluating the merits and risks of this investment in the Conversion Shares and protecting
its own interests in connection with this investment, and (ii) has a preexisting personal or business relationship with the Company
and certain of its officers, directors or controlling persons of a nature and duration that enables bSpace to be aware of the character,
business acumen and financial circumstances of such persons.
(iii) Accredited
Investor Status. bSpace is an “accredited investor” within the meaning of Regulation D promulgated under the Securities
Act.
(iv) Restricted
Securities. bSpace understands that the Conversion Shares are characterized as “restricted securities” under the
Securities Act, and Rule 144 promulgated thereunder inasmuch as they will be acquired from the Company in a transaction not
involving a public offering, and that under the Securities Act and applicable regulations thereunder, the Conversion Shares may be
resold without registration under the Securities Act only in certain limited circumstances. bSpace is familiar with Rule 144,
as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. bSpace understands that
the Company is under no obligation to register any of the Conversion Shares. bSpace understands that no public market now exists for
any of the Conversion Shares and that it is uncertain whether a public market will ever exist for the Conversion Shares.
(v) No
Solicitation. At no time was bSpace presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television
or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Conversion Shares.
(vi) Foreign
Investors. bSpace has satisfied itself as to the full observance of the laws of its jurisdiction in connection with the offer, sale
and purchase of the Conversion Shares and the transactions contemplated by this Agreement, including (i) the legal requirements within
its jurisdiction for the purchase of the Conversion Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may
be relevant to the purchase, holding, redemption, sale, or transfer of the Conversion Shares. bSpace’s purchase of and continued
beneficial ownership of the Conversion Shares will not violate any applicable securities or other laws of bSpace’s jurisdiction.
(vii) Foreign
Investment Regulations. bSpace represents that any consideration to be transferred for Conversion Shares pursuant to this
Agreement does not derive from activity that is or was contrary to law or from a person or location that is or was the subject of a
United States embargo or other economic sanction and that no consideration to be paid for the Conversion Shares in accordance with
this Agreement will provide the basis for liability for any person under United States anti-money laundering laws or economic
sanctions laws. bSpace further represents that neither bSpace nor any of its nominees or affiliates is on the specially designated
OFAC list or similar European Union watch list.
(viii) Legends.
bSpace understands and agrees that the certificates evidencing the Conversion Shares will bear legends substantially similar to
those set forth below in addition to any other legend that may be required by applicable law, by the Company’s Amended and
Restated Certificate of Incorporation or the Company’s bylaws, or by any agreement between the Company and bSpace:
THE SHARES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
The legend set forth above shall be
removed by the Company from any certificate evidencing the Conversion Shares upon delivery to the Company of an opinion of counsel, reasonably
satisfactory to the Company, that a registration statement under the Securities Act is at that time in effect with respect to the Conversion
Shares or that such security can be freely transferred in a public sale (other than pursuant to Rule 144 or Rule 145 under the
Securities Act) without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Conversion Shares. The Company may impose stop-transfer instructions on the
Conversion Shares in accordance with the foregoing restrictions.
(b) Authority;
Binding Effect. By signing below, both parties agree and acknowledge that such party (i) has all requisite power, right and
authority to enter into this Agreement and to consummate each of the transactions contemplated hereby, (ii) has duly taken, or will
take at the applicable time, all corporate or other entity actions necessary to authorize the transactions contemplated by this Agreement,
and (iii) the persons executing and delivering this Agreement on behalf of each party are duly authorized to do so. Other than as
expressly contemplated hereby, neither bSpace nor the Company has assigned any of its rights or obligations under the bSpace Loan Agreement,
including with respect to payment of the Balance.
4. Taxes.
(a) Withholding. As
contemplated by Section 11.5 of the bSpace Loan Agreement, bSpace acknowledges that the Conversion, or a portion thereof,
constitutes a payment of interest for U.S. federal income tax purposes that is potentially subject to withholding Tax (as defined in
the bSpace Loan Agreement) and, as such, bSpace has delivered to the Company, on or prior to the Effective Date, IRS
Form W-8 and a U.S. Tax Compliance Certificate in substantially the form that was attached to the bSpace Loan Agreement as Schedule
J. As such, the Company shall not withhold any Tax in connection with the Conversion.
(b) The
parties intend that the Conversion Shares be treated as stock described in Section 1563(c)(1)(A) of the Internal Revenue
Code of 1986, as amended (the “Code”), and each party shall file all Tax returns and reports consistent
with, and take no position inconsistent with, such treatment (whether in audits, Tax returns or otherwise) unless there is a change
in applicable law or unless required to do so pursuant to a “determination” within the meaning of Section
1313(a) of the Code.
(c) Other Consequences.
bSpace has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. bSpace has relied solely on such advisors and not on any statements or representations
of the Company, the Company’s counsel, or any of the Company’s agents. bSpace understands that it (and not the Company)
will be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this
Agreement.
5. Condition
to Performance of Obligations. Unless waived by the applicable party to which such
condition is owed, the obligations of the parties under this Agreement are subject to (i) each
of the representations and warranties made by each party hereto in Section 3 being true and complete on the Effective Date,
(ii) execution and delivery by bSpace of any consents and agreement(s) reasonably requested in order to effect the
Conversion, and (iii) delivery by bSpace and the Company, as applicable, of the forms referenced in Section 4 hereof.
Promptly following the Conversion, bSpace shall authorize, execute and deliver, or cause to be executed and delivered, in each case
at the sole expense of the Company, releases, termination statements, certificates, instruments, notices, filings, registrations or
other documents, as the Company or its designees may from time to time reasonably request, to effectuate, or reflect on public
record, the termination of the bSpace Loan Agreement and the release and discharge of all such liens, security interests and other
rights in favor of the bSpace in connection therewith.
6. General Provisions.
(a) Successors
and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the
parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators
and legal representatives. This Agreement is not assignable by bSpace without the prior written consent of the Company.
(b) Governing
Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect
to that body of laws pertaining to conflict of laws.
(c) Further
Assurances. bSpace and the Company will execute and deliver, or cause to be executed and delivered all such documents and/or instruments,
and will take or cause to be taken such further or other action as is reasonably necessary or desirable in order to carry out the intent
and purpose of this Agreement.
(d) Enforceability.
In case any provision of this Agreement is declared invalid, illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions will not in any way be affected or impaired thereby.
(e) Titles
and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded
in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” will
mean “sections” in this Agreement
(f) Entire
Agreement. This Agreement, and the documents referred to herein, constitute the entire agreement and understanding of the parties
with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written,
between or among the parties hereto with respect to the specific subject matter hereof. In the event of a conflict between this Agreement
and the bSpace Loan Agreement or between this Agreement and the 2022 bSpace Agreement, this Agreement shall govern.
(g) Amendment
and Waivers. This Agreement may be amended only by a written agreement executed by each of the Company and bSpace. No amendment
or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party
against which enforcement is sought. Any amendment effected in accordance with this Subsection will be binding upon all parties hereto
and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement will
constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision
herein will constitute a subsequent waiver of such provision or of any other provision herein, nor will it constitute the waiver of any
performance other than the actual performance specifically waived.
(h) Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original,
and all of which together will constitute one and the same agreement.
(i) Electronic
Signatures. Signature pages may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying
with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any signature page so delivered
shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
(j) RELEASE
OF CLAIMS. FOR AND IN CONSIDERATION OF BSPACE’S AGREEMENTS CONTAINED
HEREIN, THE COMPANY, TOGETHER WITH ITS, SUCCESSORS AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES BSPACE AND EACH OF ITS RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES,
AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND FORMER DIRECTORS,
OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS,
AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED
OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON
OR BEFORE THE EFFECTIVE DATE THAT ANY OF THE RELEASORS MAY NOW HAVE AGAINST THE RELEASED PARTIES, IF ANY, IRRESPECTIVE
OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION
ARISING DIRECTLY OR INDIRECTLY FROM THE BSPACE LOAN AGREEMENT, ANY PRIOR OR EXISTING LOANS BETWEEN RELEASORS ANY RELEASED PARTIES, ANY
OF THE LOAN DOCUMENTS (AS DEFINED IN THE BSPACE LOAN AGREEMENT), THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER ANY OF THE LOAN DOCUMENTS,
AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW
INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT
MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.”
(k) Surviving
Indemnification. Notwithstanding anything to the contrary herein, the indemnification provisions of section 9.2 of the bSpace
Loan Agreement shall apply to this Agreement as if it were a Loan Document (as defined in the bSpace Loan Agreement) and shall survive
termination of the bSpace Loan Agreement and this Agreement.
[Signature Page Follows]
In Witness Whereof, the undersigned
have executed this Conversion and Loan Termination Agreement as of the Effective Date.
| COMPANY: |
|
| |
|
| zSpace, Inc. |
|
| |
|
| |
|
| By: |
/s/ Paul Kellenberger |
|
| Name: Paul Kellenberger |
|
| Title: Chief Executive Officer |
|
| |
|
| |
|
| BSPACE: |
|
| |
|
| bSpace Investments Limited |
|
| |
|
| |
|
| By: |
/s/ Mohammed Al Hassan |
|
| Name: Mohammed Al Hassan |
|
| Title: Authorized Signatory |
|
SIGNATURE PAGE TO ZSPACE, INC. CONVERSION AND LOAN TERMINATION
AGREEMENT
Exhibit
10.26
ZSPACE,
INC.
CONVERSION
AND LOAN TERMINATION AGREEMENT
This
Conversion and Amendment Agreement (this “Agreement”) is entered into effective as of December 30, 2023
(the “Effective Date”), by and between zSpace, Inc., a Delaware corporation (the “Company”),
and Kuwait Investment Authority, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose
of managing, in the name and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait,
and having its registered office at Block 1, Street 201, Sharq, P.O. Box 64, Safat, 13001, Kuwait City, Kuwait (“KIA”).
RECITALS
A. On
February 13, 2019, the Company issued that certain Promissory Note with an aggregate principal amount of Five Million Dollars
($5,000,000.00) to KIA (the “Original KIA Note”).
B. On December 4, 2020, the Original KIA Note was amended and restated by that certain Amended and Restated Promissory Note (the
“KIA Note”), which KIA Note (i) has a principal amount outstanding of $5,000,000.00 as
of the Effective Date (the “Principal Amount”), (ii) is subordinated to certain other Company indebtedness,
(iii) accrues interest at a rate of 2.75% per annum from the issue date of the Original KIA Note, and (iv) provides for the payment
of a Premium Amount (as defined therein) of $7,500,000 (the “Repayment Premium”) when
repaid in certain circumstances.
C. Pursuant to the terms of that certain Amendment and Conversion Agreement dated May 16, 2022 (“2022 KIA Agreement”),
$8,061,678 of the balance under the KIA Note (which amount represented the Repayment Premium plus the interest on the Principal
Amount through March 15, 2023) was converted into 8,062 shares of the Company’s Non-Convertible Non-Voting Preferred Stock
on August 12, 2022 (the “2022 Conversion”), which shares were reclassified and/or exchanged into 7,500
shares of the Company’s Non-Convertible Non-Voting Preferred Stock 1 (the “NCNV Preferred Stock 1”)
and 562 shares of the Company’s Non-Convertible Non Voting Preferred Stock 2 (the “NCNV Preferred Stock 2”)
on or prior to the Effective Date. The 2022 KIA Agreement also contemplated a PIPE Investment (as defined therein), but that PIPE
Investment will not occur in accordance with the terms of the 2022 KIA Agreement.
D. As of the Effective Date, the total balance outstanding under the KIA Note, after accounting for the 2022 Conversion, is $5,189,863.01
(the “Balance”), which amount includes the Principal Amount and other interest thereunder.
E. It is the intent of the parties hereto that the Balance convert into fully paid and nonassessable shares of the NCNV Preferred
Stock 2 pursuant to the terms and conditions set forth in this Agreement and enter into this Agreement in furtherance thereof.
F. The KIA Note provides that none of its terms or provisions may be excluded, modified or amended except by a written instrument
duly executed on behalf of KIA, expressly referring to the KIA Note and setting forth the provision so excluded, modified or amended,
and the Company and KIA further agreed not to amend the terms of the KIA Note without the consent of bSpace Investments Limited
(“bSpace”) and dSpace Investments Limited (“dSpace”).
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises and representations hereinafter set forth, the parties hereto agree as
follows:
1. Conversion
of Balance. Notwithstanding the provisions of the KIA Note, and effective immediately on the Effective Date, the entire
Balance is hereby automatically cancelled and converted into 5,190 shares of the NCNV Preferred Stock 2 (the “Conversion”
and such shares, the “Conversion Shares” and the Balance is hereby reduced to zero dollars ($0), in
each case, without any further action on the part of the Company, KIA, bSpace or dSpace. As soon as practicable following the
Conversion, the Company will issue to KIA an electronic stock certificate for the Conversion Shares issued in connection with
the Conversion (with applicable legends as set forth below and as may be required under applicable securities laws and/or agreements
between KIA and the Company) and the Conversion Shares issued in connection with the Conversion will be validly issued, fully
paid and nonassessable.
2. Acknowledgments; Waiver; Consent. In connection with the Conversion contemplated hereby (and with acknowledgement to
the completion of the 2022 Conversion), and effective immediately upon the Effective Date, (i) all of the Company’s obligations
and liabilities under the KIA Notes hereby are discharged and released in full without any further action on the part of the Company,
KIA, bSpace or dSpace, (ii) KIA is not entitled to any further consideration in respect of the KIA Note, (iii) the KIA Note is
hereby amended in any and all ways necessary to be consistent with this Agreement, and each of bSpace and dSpace hereby agrees
to and acknowledges such amendments, (iv) the KIA Note hereby is terminated, cancelled and extinguished and of no further force
or effect, (v) any security interest granted to KIA under the KIA Note is terminated automatically without any further action
on the part of the Company or KIA, (vi) the Company is authorized to take any and all actions to evidence the termination of the
security interest described in clause (v) hereof, (vii) KIA will execute and deliver, or cause to be executed and delivered all
such documents and/or instruments, and will take or cause to be taken such further or other action as is reasonably necessary
or desirable in order to carry out the intent and purpose of clause (v) hereof, (viii) KIA waives any rights to notice, consent,
deliverables or other procedural requirements under the KIA Note whether related to the Conversion or otherwise, and (ix) it is
confirmed and acknowledged by KIA that the representations, warranties, covenants and acknowledgements made in this Agreement
are made with the intention that they may be relied upon by the Company in determining KIA’s eligibility to purchase the
Conversion Shares under applicable securities laws.
3. Representations of KIA.
(a) Securities
Law Representations. KIA represents, as of the Effective Date that:
(i) Purchase
for Own Account. The Conversion Shares are being acquired for investment for KIA’s own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within the meaning of the U.S. Securities Act of 1933,
as amended (the “Securities Act”), and KIA has no present intent to sell, grant any participation in,
or otherwise distribute the same.
(ii) Investment Experience. KIA understands that the purchase of the Conversion Shares involves substantial risk. KIA (i) has
experience as an investor in securities of private companies that are similar to the Company and acknowledges that KIA is able
to fend for itself, can bear the economic risk of KIA’s investment in the Conversion Shares and has such knowledge and experience
in financial or business matters that KIA is capable of evaluating the merits and risks of this investment in the Conversion Shares
and protecting its own interests in connection with this investment, and (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables KIA to be
aware of the character, business acumen and financial circumstances of such persons.
(iii) Accredited Investor Status. KIA is an “accredited investor” within the meaning of Regulation D promulgated
under the Securities Act.
(iv)
Restricted Securities. KIA understands that the Conversion Shares are characterized as “restricted securities”
under the Securities Act, and Rule 144 promulgated thereunder inasmuch as they will be acquired from the Company in a transaction
not involving a public offering, and that under the Securities Act and applicable regulations thereunder, the Conversion Shares
may be resold without registration under the Securities Act only in certain limited circumstances. KIA is familiar with Rule 144,
as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. KIA understands that
the Company is under no obligation to register any of the Conversion Shares. KIA understands that no public market now exists
for any of the Conversion Shares and that it is uncertain whether a public market will ever exist for the Conversion Shares.
(v) No Solicitation. At no time was KIA presented with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Conversion
Shares.
(vi) Foreign Investors. KIA has satisfied itself as to the full observance of the laws of its jurisdiction in connection with
the offer, sale and purchase of the Conversion Shares and the transactions contemplated by this Agreement, including (i) the legal
requirements within its jurisdiction for the purchase of the Conversion Shares, (ii) any foreign exchange restrictions applicable
to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Conversion Shares. KIA’s
purchase of and continued beneficial ownership of the Conversion Shares will not violate any applicable securities or other laws
of KIA’s jurisdiction.
(vii)
Foreign Investment Regulations. KIA represents that any consideration to be transferred for Conversion Shares pursuant
to this Agreement does not derive from activity that is or was contrary to law or from a person or location that is or was the
subject of a United States embargo or other economic sanction and that no consideration to be paid for the Conversion Shares in
accordance with this Agreement will provide the basis for liability for any person under United States anti-money laundering laws
or economic sanctions laws. KIA further represents that neither KIA nor any of its nominees or affiliates is on the specially
designated OFAC list or similar European Union watch list.
(viii)
Legends. KIA understands and agrees that the certificates evidencing the Conversion Shares will bear legends substantially
similar to those set forth below in addition to any other legend that may be required by applicable law, by the Company’s
Amended and Restated Certificate of Incorporation or the Company’s bylaws, or by any agreement between the Company and KIA:
THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
The
legend set forth above shall be removed by the Company from any certificate evidencing the Conversion Shares upon delivery to
the Company of an opinion of counsel, reasonably satisfactory to the Company, that a registration statement under the Securities
Act is at that time in effect with respect to the Conversion Shares or that such security can be freely transferred in a public
sale (other than pursuant to Rule 144 or Rule 145 under the Securities Act) without such a registration statement being in effect
and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued
the Conversion Shares. The Company may impose stop-transfer instructions on the Conversion Shares in accordance with the foregoing
restrictions.
(b) Authority;
Binding Effect. By signing below, both parties agree and acknowledge that such party (i) has all requisite power, right
and authority to enter into this Agreement and to consummate each of the transactions contemplated hereby, (ii) has duly taken,
or will take at the applicable time, all corporate or other entity actions necessary to authorize the transactions contemplated
by this Agreement, and (iii) the persons executing and delivering this Agreement on behalf of each party are duly authorized to
do so. Other than as expressly contemplated hereby, neither KIA nor the Company has assigned any of its rights or obligations
under the KIA Note, including with respect to payment of the Balance.
4.
Taxes.
(a) Withholding.
KIA acknowledges that the Conversion, or a portion thereof, constitutes a payment of interest for U.S. federal income tax
purposes that is potentially subject to withholding tax and, as such, KIA has delivered to the Company, on or prior to the Effective
Date, IRS Form W-8EXP and any other forms reasonably requested by the Company to demonstrate an adequate exemption from such withholding
requirement. In reliance on such forms, the Company agrees not to withhold any taxes in relation to the Conversion except as otherwise
required by applicable law, and the Company agrees to provide KIA with prior written notice should the Company conclude that any
such tax is required to be withheld under applicable law.
(b) Other
Consequences. KIA has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. KIA has relied solely on such advisors and (except with regard
to withholding taxes, as provided in Section 4(a)) KIA has not relied on any statements or representations of the Company, the
Company’s counsel, or any of the Company’s agents regarding the federal, state, local and foreign tax consequences
of this investment and the transactions contemplated by this Agreement. KIA understands that it (and not the Company) will be
responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
5.
Condition to Performance of Obligations. Unless waived by the applicable party to which such condition is owed, the
obligations of the parties under this Agreement are subject to (i) each of the representations and warranties made by each party
hereto in Section 3 being true and complete on the Effective Date, (ii) execution and delivery by KIA of any consents and agreement(s)
reasonably requested in order to effect the Conversion, and (iii) delivery by KIA and the Company, as applicable, of the forms
referenced in Section 4 hereof. Promptly following the Conversion, KIA shall authorize, execute and deliver, or cause to be executed
and delivered, in each case at the sole expense of the Company, releases, termination statements, certificates, instruments, notices,
filings, registrations or other documents, as the Company or its designees may from time to time reasonably request, to effectuate,
or reflect on public record, the termination of the KIA Note and the release and discharge of any liens, security interests and
other rights in favor of the KIA in connection therewith.
6.
Consent of bSpace and dSpace. By its signature below, each of bSpace and dSpace hereby acknowledges and consents and
agrees to the transactions contemplated hereby for all purposes, including, without limitation, for the purpose of satisfying
the consent requirement in the KIA Note and waiving any restrictions imposed by the Subordination Agreement dated December 4,
2020.
7.
General Provisions.
(a) Successors and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights
and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns,
heirs, executors, administrators and legal representatives. This Agreement is not assignable by KIA without the prior written
consent of the Company.
(b) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to that body of laws pertaining to conflict of laws.
(c) Further Assurances. KIA, the Company, bSpace and dSpace will execute and deliver, or cause to be executed and delivered
all such documents and/or instruments, and will take or cause to be taken such further or other action as is reasonably necessary
or desirable in order to carry out the intent and purpose of this Agreement.
(d) Enforceability. In case any provision of this Agreement is declared invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
(e) Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and
will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein
to “sections” will mean “sections” in this Agreement
(f) Entire Agreement. This Agreement, and the documents referred to herein, constitute the entire agreement and understanding
of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether
oral or written, between or among the parties hereto with respect to the specific subject matter hereof. In the event of a conflict
between this Agreement and the KIA Note or between this Agreement and the 2022 KIA Agreement, this Agreement shall govern.
(g) Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the Company and
KIA and acknowledged by bSpace and dSpace. No amendment or waiver of, or modification of any obligation under this Agreement will
be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in
accordance with this Subsection will be binding upon all parties hereto and each of their respective successors and assigns. No
delay or failure to require performance of any provision of this Agreement will constitute a waiver of that provision as to that
or any other instance. No waiver granted under this Agreement as to any one provision herein will constitute a subsequent waiver
of such provision or of any other provision herein, nor will it constitute the waiver of any performance other than the actual
performance specifically waived.
(h) Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original,
and all of which together will constitute one and the same agreement.
(i) Electronic Signatures. Signature pages may be delivered via facsimile, electronic mail (including pdf or any electronic
signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any signature
page so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
(j) RELEASE
OF CLAIMS. FOR AND IN CONSIDERATION OF KIA’S AGREEMENTS CONTAINED HEREIN, THE COMPANY, TOGETHER WITH ITS, SUCCESSORS AND ASSIGNS
(INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES
KIA AND EACH OF ITS RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS,
AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS,
AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED
PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES
WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT
LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE EFFECTIVE DATE THAT ANY OF THE RELEASORS MAY NOW HAVE
AGAINST THE RELEASED PARTIES, IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS,
OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE KIA NOTE, ANY PRIOR OR EXISTING LOANS BETWEEN RELEASORS
ANY RELEASED PARTIES, THE KIA NOTE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER ANY OF THE LOAN DOCUMENTS, AND/OR NEGOTIATION FOR AND
EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING
INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW INCLUDING SECTION 1542
OF THE CALIFORNIA CIVIL CODE, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS
SETTLEMENT WITH THE DEBTOR.”
[Signature
Page Follows]
In Witness Whereof, the undersigned have executed this Conversion and Loan Termination Agreement as of the Effective Date.
| COMPANY: |
| |
| zSpace,
Inc. |
| |
| By: |
/s/ Paul Kellenberger |
|
| Name: |
Paul Kellenberger |
|
| Title: |
Chief Executive Officer |
|
KIA:
KUWAIT INVESTMENT AUTHORITY, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait, and having its registered office at Block 1, Street 201, Sharq, P.O. Box 64, Safat, 13001 Kuwait City, Kuwait.
| By: |
/s/ Hadeel F. Boukhadour |
|
| Name: |
Hadeel F. Boukhadour |
|
| Title: |
Director,
Private Equity, Alternative Investments |
|
| |
AGREED AND ACKNOWLEDGED BY:
dSpace Investments Limited |
|
| |
|
|
| By: |
|
|
| Name: |
Pankaj Gupta |
|
| Title: |
Authorized Signatory |
|
| bSpace Investments Limited |
|
| |
|
| By: |
|
|
| Name: |
|
|
| Title: |
|
|
| |
|
|
| By: |
|
|
| Name: |
|
|
| Title: |
|
|
Signature
Page to zSpace, Inc. Conversion and Loan Termination Agreement
Exhibit 10.27
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),OR UNDER THE SECURITIES LAWS
OF APPLICABLE STATES. THIS NOTE AND SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION UNDER SUCH LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THIS NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
ZSPACE, INC.
CONVERTIBLE PROMISSORY NOTE
| $5,000,000 |
Made as of March ___, 2024 |
Subject to the terms and conditions of this Convertible
Promissory Note (this “Note”), for value received, zSpace, Inc., a Delaware corporation (the “Company”),
hereby promises to pay to the order of Fiza Investments Limited or registered assigns (“Holder”), the principal
sum of $5,000,000, or such lesser amount as shall then equal the outstanding principal amount hereunder, together with interest accrued
on the unpaid principal amount at the Applicable Rate (as defined below). Interest shall accrue on a daily basis and compounding annually
at the Applicable Rate, and begin to accrue on the date of this Note and shall continue to accrue on the outstanding principal until
the entire Balance is paid (or converted, as provided in Section 6), and shall be computed based on the actual number of days elapsed
and on a year of 365 days.
The proceeds to the Company received in connection
with the issuance of this Note shall be used by the Company to repay other indebtedness and otherwise for general corporate purposes.
The following is a statement of the rights of Holder
and the terms and conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees.
1. DEFINITIONS.
The following definitions shall apply for purposes of this Note.
“Actual Conversion Amount”
means the amounts actually converted into Conversion Stock pursuant to Section 6 on an Actual Conversion Date, including, if accrued
interest and expenses convert pursuant to the terms of this Note, interest and expenses accrued through such Actual Conversion Date and
actually converted into Conversion Stock.
“Actual Conversion Date” means a
date on which the Balance is converted pursuant to Section 6.
“Affiliate” has the meaning ascribed
to it in Rule 144 promulgated under the Securities Act.
“Applicable Rate”
means on and from the date of Note an annual compounded interest rate of 20%, accrued daily, payable at the Maturity Date (as defined
below), subject to reduction in the event of a conversion pursuant to Section 6.1 or Section 6.2.
“Balance” means, at the applicable
time, the sum of all then outstanding Principal Balance, all then accrued but unpaid interest at the Applicable Rate and all other amounts
then accrued but unpaid under this Note.
“Business Day” means a
weekday on which banks are open for general banking business in San Francisco, California.
“Change of Control” means a Deemed
Liquidation Event as defined in the Charter.
“Charter” means the Company’s
Amended and Restated Certificate of Incorporation, as in effect on the date hereof.
“Common Stock” means the Common
Stock of the Company, par value $0.00001 per share.
“Company” shall include,
in addition to the Company identified in the opening paragraph of this Note, any corporation or other entity which succeeds to the Company’s
obligations under this Note, whether by permitted assignment, by merger or consolidation, operation of law or otherwise.
“Conversion Price” means
(a) in the case of a Next Financing, a per share amount equal to the lower of (i) the Next Financing Price multiplied by the
Conversion Rate, and (ii) $250,000,000 divided by the Pre-Money Fully-Diluted Capitalization, (b) in the case of an IPO, a per
share amount equal to the lower of (i) the IPO Price multiplied by the Conversion Rate, and (ii) $250,000,000 divided by the
Pre-Money Fully-Diluted Capitalization, and (c) in the case of a Maturity Conversion, a per share amount equal to $150,000,000 divided
by the Pre-Money Fully-Diluted Capitalization.
“Conversion Stock”
means (a) in the case of a Next Financing, a new series of the Company’s capital stock having identical rights, privileges,
preferences and restrictions as the capital stock sold by the Company in the Next Financing, other than with respect to (i) the per
share liquidation preferences and the initial conversion price for purposes of price-based anti-dilution protection, which will equal
the Conversion Price, (ii) the basis for any dividend rights, which will be based on the Conversion Price, and (iii) the shares
will be non-voting, (b) in the case of an IPO, shares of the Company’s Common Stock, and (c) in the case of a Maturity
Conversion, shares of the Company’s preferred stock having identical rights, privileges, preferences and restrictions as the senior
most series of preferred stock of the Company at the relevant time but with the highest liquidation preference, provided, that (i) the
per share liquidation preferences and the initial conversion price for purposes of price-based anti-dilution protection, which will equal
the Conversion Price, (ii) the basis for any dividend rights, which will be based on the Conversion Price, and (iii) the shares
will be non-voting. The number and character of shares of Conversion Stock are subject to adjustment as provided in this Note and the
term “Conversion Stock” shall include the stock and other securities and property that are, on an Actual Conversion
Date, receivable or issuable upon such conversion of this Note in accordance with its terms.
“Conversion Rate” means
(a) 85% if conversion occurs on or before December 31, 2024, and (b) 100% if conversion occurs on or after January 1,
2025.
“Event of Default”
has the meaning set forth in Section 4.
“Financing Documents” means
the Notes, and any document entered into or executed in connection with, or for the purpose of amending, the Notes.
“IPO” means the Company’s
first underwritten public offering of its Common Stock pursuant to an effective registration statement under the Securities Act.
“IPO Closing” means the closing of
the Company’s IPO.
“IPO Price” means the per share
offering price to the public of the Common Stock in the IPO.
“Lost Note Documentation”
means documentation satisfactory to the Company with regard to a lost or stolen Note, including, if required by the Company, an affidavit
of lost note and an indemnification agreement by Holder in favor of the Company with respect to such lost or stolen Note.
“Maturity Conversion” has the meaning
set forth in Section 6.3.
“Maturity Date” means the
earlier of (a) [ ], 2026 and (b) the time at which the Balance of this Note is due and payable upon an Event of Default; provided,
that, that if the Event of Default is cured as permitted in this Note, then the Maturity Date shall not thereafter be deemed to
have occurred with regard to such Event of Default under this clause (b).
“Next Financing” means
the Company’s next sale of its capital stock in a single transaction or in a series of related transactions (at the same terms)
for an aggregate gross purchase price paid to the Company or contractually obligated to be paid at subsequent closings of no less than
$20,000,000.00 (excluding the principal amount, and all accrued interest, of all Notes and all other outstanding convertible promissory
notes or SAFEs of the Company that are converted into Conversion Stock in such financing). For the avoidance of doubt, capital stock shall
not include any convertible note or any form of convertible debt.
“Next Financing Closing”
means the initial closing of the Next Financing (or a subsequent closing if such financing becomes a Next Financing after the initial
closing).
“Next Financing Price”
means the price per share of the capital stock sold by the Company in the Next Financing (before any discounts or adjustments).
“Notes” means a series
of convertible promissory notes issued to Holder on substantially identical terms and conditions as this Note, of which this Note is one.
“Pre-Money Fully-Diluted Capitalization”
means all shares of capital stock issued and outstanding at the applicable time, assuming full conversion or exercise of all then issued
and outstanding securities of the Company that are exercisable for or convertible into such capital stock (including without limitation,
all stock reserved by the Company in respect of any employee stock option plan/incentive plan).
“Principal Balance” means, at the
applicable time, all the then outstanding principal of this Note.
“Securities Act” means the Securities
Act of 1933, as amended.
“Standoff Period” means
the 6-month period following the effective date of the registration statement for the IPO with respect to 50% of the Conversion Stock,
and the 12-month period following the effective date of the registration statement for the IPO with respect to the remaining 50% of the
Conversion Stock.
2. REPAYMENT;
NO PREPAYMENT. The Balance under this Note is due and payable on the Maturity Date. Except with regard to the conversion
of this Note under Section 6, the Company may not pay any Balance of this Note before it becomes due without the prior written
consent of the Holder.
3. NOTES
PARI PASSU; APPLICATION OF PAYMENTS. Each of the Notes shall rank equally without preference
or priority of any kind over one another, and all payments and recoveries under any other Financing Document payable on account of principal
and interest on the Notes shall be paid and applied ratably and proportionately on the balances of all outstanding Notes on the basis
of their original principal balance. Subject to Section 6 and the foregoing provisions of this Section 3, all payments will
be applied first to the repayment of accrued fees and expenses under this Note, then to accrued interest (at the Applicable
Rate) until all then outstanding accrued interest has been paid in full, and then to the repayment of Principal Balance until all
Principal Balance has been paid in full. If after all applications of such payments have been made as provided in this Section 3,
then the remaining amount of such payment that are in either case in excess of the aggregate balances of all outstanding Notes, shall
be returned to the Company.
4. WITHOLDING
TAXES. All payments under the Note, and issuance of Conversion Stock under Section 6 of the Note, shall be made without
deduction or withholding for taxes, except to the extent required by applicable tax law. In connection with any payment of interest hereunder
(including as a result of a conversion event of the Notes into Conversion Stock), the Holder (or any transferee of a Holder) that is
entitled to an exemption from or reduction of withholding tax with respect to payments made under the Note shall deliver to the Company
such properly completed and executed documentation (including IRS Form W-9 or an applicable IRS Form W-8) reasonably requested
by the Company as will permit such payments to be made without withholding or at a reduced rate of withholding. In the case of a Holder
that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Holder”), the Non-U.S.
Holder shall, to the extent it is legally entitled to do so, deliver to Company two copies of whichever of the following is applicable:
(i) in the case of a Non-U.S. Holder claiming the benefits of an income tax treaty to which the United States is a party, duly completed
copies of IRS Form W-8BEN or W-8BEN-E, as applicable, claiming eligibility for benefits of an income tax treaty to which the United
States of America is a party; (ii) duly completed copies of IRS Form W-8ECI; (iii) duly completed copies of IRS Form W-8EXP;
or (iv) in the case of a Non-U.S. Holder claiming the benefits of the exemption for portfolio interest under Section 881(c) of
the Code, (x) a certificate in a form reasonably acceptable to the Company, to the effect that such Non-U.S. Holder is not (A) a
“bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Company
within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” that is a “related
person” with respect to the Company, as described in section 881(c)(3)(C) of the Code and (y) duly completed copies of
IRS Form W 8BEN or W 8BEN-E (or any subsequent versions thereof or successors thereto). A Non-U.S. Holder also shall deliver to
the Company at the time or times prescribed by law and at such time or times reasonably requested by the Company such documentation prescribed
by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably
requested by the Company as may be necessary for the Company to comply with its obligations under the Foreign Account Tax Compliance
Act (“FATCA”). Notwithstanding the generality of the foregoing, the Company and the Holder shall reasonably cooperate
to reduce any withholding for taxes to the extent permitted by applicable tax law.
5. EVENTS
OF DEFAULT. Each of the following events shall constitute an “Event of Default” hereunder:
(a) the Company fails to make any payment when
due under this Note on the applicable due date;
(b) a
receiver is appointed for any material part of the Company’s property, the Company makes a general assignment for the benefit of
creditors, or the Company becomes a debtor or alleged debtor in a case under the U.S. Bankruptcy Code or becomes the subject of any other
bankruptcy or similar proceeding for the general adjustment of its debts or for its liquidation;
(c) the Company has breached
any material obligation to Holder under this Note and/or there exists any default in respect of any other indebtedness of the Company
and, if such breach is capable of cure, does not cure such breach within 20 days after written notice thereof has been given by or on
behalf of Holder to the Company; or
(d) the Company’s
Board of Directors (the “Board”) or stockholders adopt a resolution for the liquidation, dissolution or winding
up of the Company.
Upon the occurrence of any Event of Default, all accrued but unpaid
expenses, accrued but unpaid interest (at the Applicable Rate), all principal and any other amounts outstanding under this Note shall
(i) in the case of any Event of Default under Section 4(b), become immediately due and payable in full without further notice
or demand by Holder and (ii) in the case of any Event of Default other than under Section 4(b), become immediately due and payable
upon written notice by or on behalf of the affected Holder(s) to the Company.
6. CONVERSION.
6.1
Conversion in Next Financing. If the Company has not paid the entire Balance before the Next Financing Closing, then,
at the Next Financing Closing: (a) occurring on or before December 31, 2024, the entire Principal Balance then outstanding shall
automatically be converted into that number of shares of Conversion Stock obtained by dividing (a) the entire Principal Balance by
(b) the Conversion Price then in effect; or (b) occurring after December 31, 2024, the entire Balance then outstanding
shall automatically be converted into that number of shares of Conversion Stock obtained by dividing (a) the entire Balance by (b) the
Conversion Price then in effect, in each case rounded down to the nearest whole number of shares. Such conversion shall be deemed to occur
under this Section 6.1 as of immediately prior to the Next Financing Closing, without regard to whether Holder has then delivered
to the Company this Note (or the Lost Note Documentation, if applicable) or executed any other documents required to be executed by the
investors participating in the Next Financing (the “Next Financing Documents”); provided, that,
the Holder shall be required to execute the Next Financing Documents. In the event of conversion of the Principal Balance pursuant to
Section 6.1(a) above, the Company shall have no further liability to repay any portion of any accrued but unpaid interest to
the Holder, and such interest shall be automatically waived.
6.2 Conversion
in IPO. If the Company has not paid the entire Balance before the IPO, then, immediately prior to the IPO Closing: (a) occurring
on or before December 31, 2024, the entire Principal Balance then outstanding shall automatically be converted into that number
of shares of Conversion Stock obtained by dividing (a) the entire Principal Balance by (b) the Conversion Price then in effect;
or (b) occurring after December 31, 2024, the entire Balance then outstanding shall automatically be converted into that number
of shares of Conversion Stock obtained by dividing (a) the entire Balance by (b) the Conversion Price then in effect,
in each case rounded down to the nearest whole number of shares. Such conversion shall be deemed to occur under this Section 6.2
as of immediately prior to the IPO Closing, without regard to whether Holder has then delivered to the Company this Note (or the Lost
Note Documentation, if applicable) or executed any other documents required to be executed by other stockholders in connection with the
IPO (the “IPO Documents”); provided, that, the Holder shall be required to execute the IPO Documents.
In the event of conversion of the Principal Balance pursuant to Section 6.2(a) above, the Company shall have no further liability
to repay any portion of any accrued but unpaid interest to the Holder, and such interest shall be automatically waived.
6.3
Conversion Following Maturity Date. In the event the Company has not consummated a Next Financing or an IPO prior to
the Maturity Date, then, following the Maturity Date, the Holder may elect to convert the entire Balance then outstanding into that number
of shares of Conversion Stock obtained by dividing (i) the entire Balance by (ii) the Conversion Price then in effect, rounded
down to the nearest whole number of shares (the “Maturity Conversion”). Such Maturity Conversion shall be deemed
to occur under this Section 6.3 on the date of such election by Holder, without regard to whether Holder has then delivered to the
Company this Note (or the Lost Note Documentation, if applicable) or executed a conversion agreement and any other agreements that were
executed by the other stockholder investors who hold the relevant Conversion Stock (the “Maturity Conversion Documents”);
provided, that, the Holder shall be required to execute the Maturity Conversion Documents.
6.4
Change of Control. If at any time before payment or conversion of the entire Balance, the Company effects a Change of
Control, each Note shall be entitled to receive a cash payment in an amount equal to the entire Balance then outstanding under this Note.
6.5
Termination of Rights. Except for the right to obtain certificates representing the Conversion Stock under Section 7,
all rights with respect to this Note shall terminate upon the effective conversion of the entire Principal Balance/Balance of the Note
as provided in Section 6.1, 6.2, 6.3 or 6.4, whichever is applicable. Notwithstanding the foregoing, Holder agrees to surrender this
Note to the Company (or Lost Note Documentation, if applicable) as soon as practicable after conversion. In any event, Holder shall not
be entitled to receive any stock certificates representing the shares of Conversion Stock issuable upon conversion of this Note unless
and until Holder has surrendered the original of this Note (or Lost Note Documentation, if applicable) and executed and delivered to the
Company the Next Financing Documents, IPO Documents or Maturity Conversion Documents, as applicable.
7. CERTIFICATES;
NO FRACTIONAL SHARES. Subject to Section 6.5, as soon as practicable after conversion
of this Note pursuant to Section 6.1, 6.2, 6.3 or 6.4, as applicable, the Company at its expense will cause to be issued in the name
of Holder and to be delivered to Holder, a certificate or certificates for the number of shares of Conversion Stock to which Holder shall
be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion
of legal counsel of the Company, by the Charter and the Company’s Bylaws and by any agreement between the Company and Holder), together
with any other securities and property to which Holder is entitled upon such conversion under the terms of this Note. No fractional shares
shall be issued upon conversion of this Note. If upon any conversion of this Note (and after aggregating the amounts of all other Notes
held by the same Holder which are converted at the same time as this Note), a fraction of a share would otherwise be issued, then Holder
agrees to forfeit any payment in cash or right to receive any fractional share.
8. ADJUSTMENT
PROVISIONS. So long as any of the Principal Balance/Balance, as applicable, of this Note remains outstanding and the conversion
right under Section 6 has not terminated, the number and character of shares of Conversion Stock issuable upon conversion of this
Note upon an Actual Conversion Date and, to the extent set forth in this Section 8, the Conversion Price therefor, are each subject
to adjustment upon each occurrence of an adjustment event described in Sections 8.1 through 8.4 occurring between the date this Note is
issued and such Actual Conversion Date.
8.1
Adjustment for Stock Splits and Stock Dividends. The Conversion Price and
the number of shares of Conversion Stock shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock
split or other similar event affecting the number of outstanding shares of Conversion Stock without the payment of consideration to the
Company therefor at any time before an Actual Conversion Date.
8.2 Adjustment for Other
Dividends and Distributions. If the Company shall make or issue, or shall fix a record date for the determination of eligible
holders of its capital stock entitled to receive, a dividend or other distribution payable with respect to the Conversion Stock that is
payable in securities of the Company (other than issuances with respect to which adjustment is made under Sections 8.1 or 8.3), or in
assets (other than cash dividends) (each, a “Dividend Event”), and such dividend or other distribution is actually
made, then, and in each such case, Holder, upon conversion of an Actual Conversion Amount at any time after such Dividend Event, shall
receive, in addition to the Conversion Stock issuable upon such conversion of the Note, the securities or other assets that would have
been issuable to Holder had Holder, immediately prior to such Dividend Event, converted such Actual Conversion Amount into Conversion
Stock.
8.3 Adjustment
for Consolidation or Merger. If the Company shall consolidate with or merge into one or more other corporations or
other entities, and pursuant to such consolidation or merger stock, other securities or other property is issued or paid to holders
of Conversion Stock (each, a “Reorganization Event”), then, and in each such case, Holder, upon
conversion of an Actual Conversion Amount after the consummation of such Reorganization Event, shall be entitled to receive (in lieu
of the stock or other securities and property that Holder would have been entitled to receive under the terms of this Note upon such
conversion but for such Reorganization Event), the stock or other securities or property that Holder would have been entitled to
receive upon the consummation of such Reorganization Event if, immediately prior to such Reorganization Event, Holder had converted
such Actual Conversion Amount into Conversion Stock, all subject to further adjustment as provided in this Note, and the successor
corporation or other successor entity in such Reorganization Event shall duly execute and deliver to Holder a supplement to this
Note acknowledging such corporation’s or other entity’s obligations under this Note; and in each such case, the terms of
the Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note
after the consummation of such Reorganization Event.
8.4
Conversion of Stock. In each case not otherwise covered in Section 8.3, where (a) all
the outstanding Conversion Stock is converted, pursuant to the terms of the Charter, into Common Stock or other securities or property,
or (b) the Conversion Stock otherwise ceases to exist or to be authorized under the Charter (each a “Stock Event”),
then Holder, upon conversion of this Note at any time after such Stock Event, shall receive, in lieu of the number of shares of Conversion
Stock that would have been issuable upon conversion of this Note immediately prior to such Stock Event, the stock and other securities
and property that Holder would have been entitled to receive upon the Stock Event, if immediately prior to such Stock Event, Holder had
converted the Actual Conversion Amount into Conversion Stock.
8.5 Notice
of Adjustments. The Company shall promptly give written notice of each adjustment of the Conversion Price or the number
or type of shares of Conversion Stock or other securities or property issuable upon conversion of this Note that is required under this
Section 8. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment
or readjustment is based.
8.6 No Change Necessary.
The form of this Note may, but need not, be changed because of any adjustment in the Conversion Price or in the number or type of shares
of Conversion Stock issuable upon its conversion, upon the written request and at the expense of the Holder of this Note.
8.7
Reservation of Stock. If the number of shares of Conversion Stock or other securities authorized and reserved for issuance
upon conversion of this Note shall not be sufficient to effect the conversion of the Principal Balance/Balance of this Note, as applicable,
then the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Conversion Stock or other securities issuable upon conversion of this Note as shall be sufficient for such purpose.
9. PROVISIONS RELATING TO STOCKHOLDER RIGHTS
AND RESTRICTIONS.
9.1
Rights as Investor. Upon conversion of the Principal Balance/Balance, as applicable, in connection with the Next Financing
and execution and delivery to the Company of the Next Financing Documents, the IPO and execution and delivery to the Company of the IPO
Documents, or the Maturity Conversion and execution and delivery to the Company of the Maturity Conversion Documents, Holder shall be
entitled to the rights and be subject to all other obligations of and in the Conversion Stock.
9.2 “Market Stand-Off”
Agreement. Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company
held by such Holder immediately prior to the closing of the Company’s IPO (other than those securities included in the registration)
during the Standoff Period. The obligations described in this Section shall not apply to the transfer of any shares to any trust
for the direct or indirect benefit of the Holder or the immediate family of the Holder or the transfer of any shares to an Affiliate of
the Holder, provided that the trustee of the trust or the Affiliate, as the case may be, agrees to be bound in writing by the restrictions
set forth herein, and provided further that any such transfer shall not involve a disposition for value. The Company may impose stop-transfer
instructions and stamp any security subject to the foregoing restriction with a legend until the end of such Standoff Period. Each Holder
agrees to execute a market standoff agreement with the underwriters in such offering in customary form consistent with the provisions
of this Section. For the avoidance of doubt, such underwriters are intended third-party beneficiaries hereof.
9.3
Restrictions in Bylaws. Holder agrees to be bound by and comply with the limitations on transfer contained in the Amended
and Restated Bylaws of the Company, as may be amended from time to time (the “Bylaws”), and acknowledges that
Holder has received a copy of the Bylaws containing such provisions.
9.4
No Voting or Other Rights. This Note does not entitle Holder to any voting rights or other rights as a stockholder of
the Company, unless and until (and only to the extent that) this Note is actually converted into shares of the Company’s capital
stock with voting rights in accordance with its terms. In the absence of conversion of this Note into Conversion Stock, no provisions
of this Note and no enumeration herein of the rights or privileges of Holder, shall cause Holder to be a stockholder of the Company for
any purpose.
10.
REPRESENTATIONS AND WARRANTIES OF HOLDER. In order to induce the Company to issue this Note to the Holder, the Holder
has made representations and warranties to the Company as set forth below.
10.1
Authorization. This Note constitutes, Holder’s valid and legally binding obligations, enforceable against Holder
in accordance with its terms, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors’ rights generally and (b) the effect of rules of
law governing the availability of equitable remedies. Holder represents and warrants to the Company that Holder has full power and authority
to enter into this Note.
10.2
Purchase for Own Account. The Notes, the shares of the Conversion Stock, and the Company’s Common
Stock issuable upon conversion of such Conversion Stock (collectively, the “Securities”) will be acquired
for investment for Holder’s own account, not as a nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act, and Holder has no present intention of selling, granting any participation in, or
otherwise distributing the same.
10.3
No Solicitation. At no time was Holder presented with or solicited by any publicly issued or circulated newspaper, mail,
radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Securities.
10.4
Disclosure of Information. Holder has received or has had full access to all the information Holder considers necessary
or appropriate to make an informed investment decision with respect to the Securities. Holder further has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain additional information
(to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify
any information furnished to Holder or to which Holder had access.
10.5
Investment Experience. Holder understands that the purchase of the Securities involves substantial risk. Holder has
experience as an investor in securities of companies in the development stage and acknowledges that Holder is able to fend for itself,
can bear the economic risk of Holder’s investment in the Securities. Holder either: (a) has such knowledge and experience in
financial or business matters that Holder is capable of evaluating the merits and risks of this investment in the Securities and protecting
Holder’s own interests in connection with this investment in the Securities; or (b) has a preexisting personal or business
relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder
to be aware of the character, business acumen and financial circumstances of such persons.
10.6
Accredited Investor Status. Holder is familiar with the definition of, and qualifies as,
an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act.
10.7
Foreign Investors. If Holder is not a United States person (as defined by Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended), Holder hereby represents that it has satisfied itself as to the full observance of the laws of its
jurisdiction in connection with any invitation to purchase the Securities or any use of this Note, including (i) the legal requirements
within its jurisdiction for the purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may
be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. Holder’s subscription and payment for and
continued beneficial ownership of the Securities will not violate any applicable securities or other laws of Holder’s jurisdiction.
10.8
Regulation S Representations and Restrictions. If Holder’s address on the signature page hereto is an address
located outside of the United States, Holder makes the following additional representations, warranties and agreements:
10.8.1 Holder is not a U.S.
Person as defined in Rule 902(k) of Regulation S under the Securities Act (“Regulation S”). The offer
and sale of the Note to Holder was made in an offshore transaction (as defined in Rule 902(h) of Regulation S), no directed
selling efforts (as defined in Rule 902(c) of Regulation S) were made in the United States, and Holder is not acquiring the
Note (or the Conversion Stock) for the account or benefit of any U.S. Person;
10.8.2 Holder will not, during
the restricted period applicable to the Conversion Stock set forth in the legend set forth below (the “Restricted Period”)
and to any certificate representing the Conversion Stock, offer or sell any of the foregoing securities (or create or maintain any derivative
position equivalent thereto) in the United States, to or for the account or benefit of a U.S. Person or other than in accordance with
Regulation S; and
10.8.3 Holder will, after
the expiration of the applicable Restricted Period, offer, sell, pledge or otherwise transfer the Note (or create or maintain any derivative
position equivalent thereto) only pursuant to registration under the Securities Act or any available exemption therefrom and, in any case,
in accordance with applicable state securities laws.
10.8.4 Holder acknowledges
and agrees that the Company shall not register the transfer of the Note (or the Conversion Stock) in violation of these restrictions.
Holder acknowledges and agrees that the certificates evidencing the Conversion Stock will bear the legend set forth below (in addition
to any other legend required by applicable federal, state or foreign securities laws or provided in any other agreement with the Company):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
AND THE COMPANY DOES NOT INTEND TO REGISTER THEM. PRIOR TO ONE YEAR FROM THE DATE SUCH SHARES WERE ORIGINALLY PURCHASED, THE SHARES MAY NOT
BE OFFERED OR SOLD (INCLUDING OPENING A SHORT POSITION IN SUCH SECURITIES) IN THE UNITED STATES OR TO U.S. PERSONS AS DEFINED BY RULE
902(k) ADOPTED UNDER THE ACT, OTHER THAN TO DISTRIBUTORS, UNLESS THE SHARES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. PURCHASERS OF SHARES PRIOR TO ONE YEAR FROM THE DATE SUCH SHARES WERE ORIGINALLY PURCHASED,
MAY RESELL SUCH SECURITIES ONLY PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT OR OTHERWISE IN ACCORDANCE WITH THE PROVISIONS
OF REGULATION S OF THE ACT, OR IN TRANSACTIONS EFFECTED OUTSIDE OF THE UNITED STATES PROVIDED THEY DO NOT SOLICIT (AND NO ONE ACTING
ON THEIR BEHALF SOLICITS) PURCHASERS IN THE UNITED STATES OR OTHERWISE ENGAGE(S) IN SELLING EFFORTS IN THE UNITED STATES AND PROVIDED
THAT HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT. A HOLDER OF THE SECURITIES
WHO IS A DISTRIBUTOR, DEALER, SUB-UNDERWRITER OR OTHER SECURITIES PROFESSIONAL, IN ADDITION, CANNOT PRIOR TO ONE YEAR FROM THE DATE
SUCH SHARES WERE ORIGINALLY PURCHASED RESELL THE SECURITIES TO A U.S. PERSON AS DEFINED BY RULE 902(k) OF REGULATION S UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
10.9 Restricted
Securities. Holder understands that the Securities are characterized as “restricted securities” under the Securities
Act and Rule 144 promulgated thereunder (“Rule 144”) since they are being acquired from the Company
in a transaction not involving a public offering, and that under the Securities Act and applicable regulations thereunder the Securities
may be resold without registration under the Securities Act only in certain limited circumstances. Holder further understands that the
Company is under no obligation to register the Securities, and the Company has no present plans to do so. Furthermore, Holder is familiar
with Rule 144, as presently in effect, and understands the limitations imposed thereby and by the Securities Act on resale of the
Securities without such registration. Holder understands that, whether or not the Securities
may be resold in the future without registration under the Securities Act, no public market now exists for any of the Securities and that
it is uncertain whether a public market will ever exist for the Securities.
10.10
Further Limitations on Disposition. Without in any way limiting the representations set forth above, Holder further
agrees not to make any disposition of all or any portion of the Securities unless and until:
10.10.1 there is then in effect
a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such
effective registration statement; or
10.10.2 Holder shall have
notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding
the proposed disposition and, at the expense of Holder or its transferee, with an opinion of counsel reasonably satisfactory in form and
substance to the Company that such disposition will not require registration of such Securities under the Securities Act.
10.10.3 Notwithstanding the
provisions of clauses (a) and (b) of this Section 10.10.7, no such registration statement or opinion of counsel shall be
required for any transfer: (i) of any Securities in compliance with Rule 144 or Rule 144A promulgated under the Securities
Act when the Company is promptly provided evidence of such compliance; (ii) of any Securities for no consideration by Holder that
is a partnership or a corporation to (A) a partner of such partnership or stockholders of such corporation, (B) an affiliate
of such partnership or corporation, (C) a retired partner of such partnership who retires after the date hereof, (D) the estate
of any deceased partner of such partnership or deceased stockholders of such corporation; (iii) by gift, will or intestate succession
by Holder to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing or (iv) of any Securities
by Holder to any person or entity controlling, controlled by or under common control with Holder, including an investment fund directly
or indirectly managed or controlled by the same persons or entities that directly or indirectly manage or control Holder; provided, that,
in each of the foregoing cases the transferee agrees in writing to be subject to the terms of this Section 10 to the same extent
as if the transferee had been an original Holder hereunder.
10.11 Legends.
10.11.1 Holder understands
and agrees that the certificates evidencing the Securities will bear legends substantially similar to those set forth below in addition
to any other legend that may be required by applicable law, the Charter or the Company’s Bylaws, Section 10.8 of this Note,
or any other agreement between the Company and Holder:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES
LAWS OF APPLICABLE STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION UNDER SUCH
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY ARE
SUBJECT TO A 180- DAY MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT
BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION
IS BINDING ON TRANSFEREES OF THESE SHARES.
THE TRANSFER OF THE SECURITIES REPRESENTED
HEREBY ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL SET FORTH IN THE COMPANY'S AMENDED AND RESTATED BYLAWS
(AS MAY BE AMENDED, MODIFIED AND/OR RESTATED FROM TIME TO TIME), COPIES OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS. THE COMPANY SHALL NOT REGISTER OR OTHERWISE RECOGNIZE OR GIVE EFFECT TO ANY PURPORTED TRANSFER
OF SECURITIES THAT DOES NOT COMPLY WITH SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL.
10.11.2 The first legend above
shall be removed by the Company from any certificate evidencing the Securities upon delivery to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company, that either (i) a registration statement under the Securities Act is
at that time in effect with respect to the legended security or (ii) such security can be freely transferred in a public sale (other
than pursuant to Rule 144, Rule 144A or Rule 145 promulgated under the Securities Act) without such a registration statement
being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company
issued the Securities.
11.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Holder that the statements
in the following paragraphs of this Section 11 are all true and complete as of the date of this Note.
11.1
Organization, Good Standing and Qualification. The Company has been duly incorporated and organized, and is validly
existing in good standing, under the laws of the State of Delaware. The Company has the corporate power and authority to own and operate
its properties and assets and to carry on its business as currently conducted.
11.2 Due
Authorization. All corporate action on the part of the Board and the Company’s stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of the Company under, this Note has been taken or will
be taken prior to the date of this Note. This Note constitutes valid and legally binding obligations of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally
and (b) the effect of rules of law governing the availability of equitable remedies.
11.3
Corporate Power. The Company has the corporate power and authority to execute and deliver this Note to which it is a
signatory, to issue to the Holder this Note and to carry out and perform all its obligations under this Note.
11.4
Valid Issuance. The Conversion Stock, when issued, sold and delivered in accordance with the terms of this Note for
the consideration provided for herein, will be duly and validly issued, fully paid and nonassessable. Based in part on the representations
made by Holder in Section 10 hereof, the offer and sale of this Note in accordance herewith and (assuming no change in currently
applicable law or in the Charter), no transfer of the Note by the Holder and no commission or other remuneration is paid or given, directly
or indirectly, for soliciting the issuance of shares of Conversion Stock upon conversion of this Note) the issuance of the Conversion
Stock are exempt from the registration and prospectus delivery requirements of the Securities Act, and the securities registration and
qualification requirements of the currently effective provisions of the securities laws of the states in which the Holder is resident.
11.5 Compliance with Other
Instruments. The execution, delivery and performance of this Note will not result in any violation or default of, or be in conflict
with or result in a violation or breach of, with or without the passage of time or the giving of notice or both, the Charter or the Company’s
Bylaws, any judgment, order or decree of any court or arbitrator to which the Company is a party or is subject, any material agreement
or contract of the Company, or, to the Company’s knowledge, a violation of any applicable material statute, law, regulation or order.
11.6
Governmental Approvals. The execution, delivery and performance by the Company of this Note does not require the approval
or consent of, or any filing with, any governmental authority or agency.
12. GENERAL
PROVISIONS.
12.1
Waivers. The Company and all endorsers of this Note hereby waive notice, presentment, protest and notice of dishonor.
12.2
Attorneys’ Fees. In the event any party is required to engage the services of an attorney for the purpose of enforcing
this Note, or any provision thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs in enforcing
this Note, including attorneys’ fees.
12.3 Transfer.
Neither this Note nor any rights hereunder may be assigned, conveyed or transferred, in whole or in part, without the Company’s
prior written consent, which the Company may withhold in its sole discretion. Subject to the foregoing, the rights and obligations of
the Company and Holder under this Note and the other Financing Documents shall be binding upon and benefit their respective permitted
successors, assigns, heirs, administrators and transferees.
12.4
Governing Law. This Note shall be governed by and construed under the internal laws of the State of California as applied
to agreements among California residents entered into and to be performed entirely within the State of California, without reference to
principles of conflict of laws or choice of laws.
12.5
Counterparts; Signatures. This Note may be executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This Note may be executed and delivered by facsimile, portable
document format (.pdf) or electronic signature and delivery of the signature page by such method will be deemed to have the same
effect as if the original signature had been delivered to the other parties.
12.6
Headings. The headings and captions used in this Note are used only for convenience and are not to be considered in construing
or interpreting this Note. All references in this Note to sections, paragraphs, exhibits and schedules shall, unless otherwise provided,
refer to sections hereof and exhibits and schedules attached hereto, all of which exhibits and schedules are incorporated herein by this
reference.
12.7 Notices.
Unless otherwise provided herein, any notice required or permitted under this Note shall be given in writing and shall be deemed
effectively given (a) at the time of personal delivery, if delivered in person, (b) one (1) Business Day after
deposit with an express overnight courier for United States deliveries, or three (3) Business Days after deposit with an
international express air courier for deliveries outside of the United States, in each case with proof of delivery from the courier
requested, or (c) four (4) Business Days after deposit in the United States mail by certified mail (return receipt
requested) for United States deliveries, when addressed to the Holder to be notified at the address indicated for such party on
Exhibit A or, in the case of the Company, at 2050 Gateway Place, Suite 100-302, San Jose, Ca 95110 or at such other
address as any party may designate by giving ten (10) days’ advance written notice to all other parties in accordance
with the provisions of this Section 12.7.
12.8
Amendments and Waivers. Any term of this Note and the Notes may be amended and the observance of any term of this Note
may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent
of the Company and the Holder. Any amendment or waiver effected in accordance with this Section 12.8 shall be binding upon each holder
of Notes then outstanding, each future holder of such securities, and the Company.
12.9
Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Note to the extent they are held to be unenforceable and the remainder of the Note shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its terms.
12.10
Holder Consent. Holder hereby provides to consent to the issuance of the Notes for all purposes required under that
certain Loan and Security Agreement originally entered into between the Company and Holder on November 3, 2022.
[Signature page follows]
IN WITNESS WHEREOF,
the Company has caused this Convertible Promissory Note to be signed in its name as of the date first written above.
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THE COMPANY: |
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ZSPACE, INC. |
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By: |
/s/ Joseph
B. Powers |
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Name: |
Joseph B. Powers |
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Title: |
Chief Financial Officer |
| AGREED AND ACKNOWLEDGED: |
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| Fiza Investments Limited |
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Exhibit 10.28
Case ID: 1603307
TERM LOAN SUMMARY
This Term Loan Summary forms a
part of and is incorporated by reference into the Business Loan and Security Agreement that follows.
| Agreement
Date: |
May
17, 2024,
which
may be different than the funding date |
| Borrower: |
ZSPACE,
INC., A Delaware Corporation |
| Lender: |
Itria
Ventures LLC |
| Loan
Amount: |
$500,000.00 |
Origination
Fee
(Deducted
from Loan Amount) |
$2,500.00 |
Underwriting
Fee
(Deducted
from Loan Amount) |
$0.00 |
Net
Loan Amount:
(Loan
Amount less Origination Fee and
Underwriting
Fee) |
$497,500.00 |
Funded
Amount:
(Net
Loan Amount less other amounts due to Lender or any other lenders on Effective Date) |
$497,500.00
paid
to Borrower at funding of the Loan |
| Monthly
Periodic Payment: |
$24,721.13
once a month*
*Actual
Periodic Payment amount may vary. See Section 1(e)(ii) |
| Payment
Schedule: |
24
payments of $24,721.13 (each a “Periodic Payment”), due on
the dates provided in the Agreement (“Periodic Payment
Date(s)”)
(See Section 1(e)) |
| Term: |
24
Months
from
the Loan funding date (“Term”) |
| Interest
Rate: |
17.0%,
subject to adjustment, including a Default Interest Rate (See Section 3) |
| Business
Purpose Loan: |
The
Loan proceeds funded to Borrower must be used solely and exclusively for working capital
and other business purposes in Borrower’s business; and must never be used for
personal, consumer,
family or household purposes. |
| Other
Fees: |
n
Returned Payment Fee: $25.00
n
Late Fee: 3% of each missed Periodic Payment
Administrative
Fee: up to 5% of the unpaid principal balance if there is an Event of Default (See Section 4) |
| Collateral: |
The
Loan is secured by Borrower’s business assets (See Section 5) |
| Guarantor(s): |
The
Loan is guaranteed by:
zSpace
Technologies (Shanghai) Ltd. and zSpace KKK
(See
Section 14) |
| Servicer |
Itria
Ventures LLC (See Section 1(f)) |
| Prepayment: |
The
Loan may be prepaid by Borrower (See Section 3(d)) |
| Borrower
Loan Dashboard: |
Operated
by the Servicer (See Section 1(e)(i)) |
BUSINESS
LOAN AND SECURITY AGREEMENT
This
BUSINESS LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into by and among Itria Ventures LLC,
a Delaware limited liability company, as lender (including its successors and assigns, “Lender”, “we”,
“us” or “our”), the Borrower identified in the Term Loan Summary (“Borrower”,
“you” or “your”) and each Guarantor identified in the Term Loan Summary (each, a “Guarantor”
and, collectively, the “ Guarantors”). This Agreement sets out the legal terms and conditions of the business loan
being made by Lender to Borrower (“Loan”). Capitalized terms used below may also be defined in the Term Loan Summary
on the prior page.
(a) Term
Loan Summary. The Term Loan Summary contains some of the terms applicable to your Loan. The Term Loan Summary forms a part of and
is incorporated by reference into this Agreement. You agree to repay the Loan to Lender as provided in the Term Loan Summary and this
Agreement.
(b) Effective
Date. This Agreement shall become effective upon the execution and delivery of this Agreement by Borrower, each Guarantor and Lender
and the disbursement of the Funded Amount in accordance with the terms of this Agreement to Borrower (“Effective Date”).
(c) Loan
Proceeds Disbursed to Borrower. On the Effective Date, the amount of Loan proceeds disbursed to Borrower shall be the Funded Amount
specified in the Term Loan Summary.
(d) Business
Purpose Loan. The proceeds of the Loan must be used solely for working capital or other use in Borrower’s business and not
for any other purpose. Further, the proceeds of the Loan shall not be used for personal, consumer, family or household purposes. Borrower
agrees that a breach of this provision will not affect Lender’s right to enforce this Agreement.
| (e) | Loan
and Payment Information. |
(i) Borrower
will have access to relevant Loan information, including: (A) Loan balance, (B) Periodic Payment amount (payable either every
business day (“Daily Periodic Payment”), or four (4) times a month (“Weekly Periodic Payment”)
or two (2) times a month (“Bi-monthly Periodic Payment”), or once a month (“Monthly Periodic Payment”),
as specified on the Term Loan Summary), (C) the Interest Amount (as defined in Section 3(e)), (D) Periodic Payment Dates,
(E) total Repayment Amount,(F) total amount of Periodic Payments made to date, (G) the amount of payments in arrears and
(H) any other fees or payments specified in this Agreement, in each case via: (1) the “Borrower Loan Dashboard”
referenced in the Term Loan Summary; or (2) other electronic communication sent to Borrower by Lender that contain the above information.
Borrower will receive a unique dashboard ID and must set up a unique password in order to access the Borrower Loan Dashboard. The Borrower
Loan Dashboard will be operated by the Servicer (as defined). You can also access the above information by contacting your Lender case
manager or Servicer, whose contact information will be displayed on the Borrower Loan Dashboard or provided to you via email. Servicer
may also send Borrower an email payment reminder or prepayment confirmation from time to time (“Email Alert”).
(ii) The
actual Monthly Periodic Payment amount and the Interest Amount may be (x) slightly lower than the dollar amount set forth in the
Term Loan Summary, depending on the date that the Loan is funded or (y) higher than the dollar amount set forth in the Term Loan
Summary, if any payments are missed. The actual Monthly Periodic Payment amount and/or Interest Amount can be found on the Borrower Loan
Dashboard.
(f) Servicer.
Lender may designate a servicer of the Loan from time to time with no less than five (5) business days written notice without
approval of Borrower. Lender shall initially service the Loan (in such capacity, including its successors (including backup servicers)
and assigns, “Servicer”). Servicer shall administer this Agreement on Lender’s behalf, including receipt of
payments and other fees on behalf of Lender. Borrower hereby authorizes Servicer to administer this Loan in all respects on Lender’s
behalf, including without limitation the authorization to ACH payments and fees from Borrower’s account(s) as provided in
Section 2. Accordingly, all references to “Lender” in connection with Loan administration shall also be deemed to refer
to “Servicer” in all cases, as fully as if set forth here in addition to or in lieu of Lender.
(g) Notices
to Lender. Except as expressly otherwise provided herein, all notices to Lender under this Agreement shall be given to Servicer.
Borrower shall give all such notices to Servicer in writing either via the Borrower Loan Dashboard or email, where Servicer’s contact
information including email shall be displayed, it being understood that no further notice to Lender shall be required. The email of
the current Servicer is: notices@itriaventures.com.
(a) Designated
Account(s). Please specify below: (i) all of Borrower’s and each Guarantor’s business bank accounts (each, a “Designated
Account” and collectively, “Designated Accounts”) and (ii) the Designated Account into which Lender
should disburse the proceeds of the Loan. If no account is so designated, Lender will disburse the Loan proceeds into the first account
listed below. By submitting the information below, you certify to Lender that each such account was established only for business purposes
and not for personal, consumer, family or household purposes. As specified in Section 2(c) below, Lender will be authorized
to withdraw funds from Borrower’s Designated Accounts as and when payments are due under this Agreement. As specified in Section 14,
Lender will be authorized to withdraw funds from any Guarantor’s Designated Accounts following the occurrence of an Event of Default
or as authorized by Borrower and/or Guarantor at a later date. Borrower and each Guarantor confirm to Lender that the Designated Accounts
listed below are business accounts and not consumer accounts. Upon an Event of Default, “Designated Accounts” includes
any other business bank or merchant processing account of Borrower and each Guarantor.
Account
#1* * REQUIRED
Deposit Funds / Withdrawals |
Account
#2
Deposit Funds / Withdrawals |
Account
#3
Deposit Funds / Withdrawals |
| Account
Holder: zSpace, Inc. |
Account
Holder: zSpace Technologies (Shanghai) Co. Ltd |
Account
Holder: zSpace KK |
| Bank
Name: East West Bank San Jose, Ca |
Bank
Name: China Merchants Bank Shanghai, PRC |
Bank
Name: Mizuho Bank - Yebisu Branch Tokyo, Japan |
| Routing
#: 322070381 |
Routing
#: SWIFT CMBCCNBS051 |
Routing
#: SWIFT MHCBJPJT |
| Account
#: 003188789 |
Account
#: 121926902310901 |
Account
#: 1625047 |
(b) Maintenance
of Designated Account(s). You agree to keep all Designated Account(s) referenced above open until all of your Obligations under
this Agreement have been repaid in full to Lender. You further agree to promptly notify Lender in writing if (i) there are
any changes to the account and routing numbers of the Designated Account(s) or (ii) you open any new business account (including
all details related such account), which new account(s) will be considered Designated Accounts for all purposes under this Agreement.
(c)
ACH Authorization. You hereby authorize Lender to debit via Automatic Clearing House (“ACH”) your Designated
Accounts on the periodic basis and in the amounts specified herein as required for repayment of the Loan, including all fees and payments
specified in this Agreement. You acknowledge that Lender shall have full read-only access to all Designated Accounts while this Agreement
is in effect. This authorization shall remain in full force and effect until all of the Obligations (as defined in Section 5(b) below)
have been repaid in full. Unless otherwise agreed to by Lender and Borrower in writing, Lender will withdraw the applicable Monthly Periodic
Payment specified in the Term Loan Summary (“Periodic Amount”), by initiating a debit via ACH from the Designated
Account(s). You hereby authorize Lender to debit this Periodic Amount from your Designated Accounts in accordance with the Payment Schedule,
until all Obligations have been paid in full. You understand and acknowledge that, due to the timing of the receipt
of data by Lender and the operations and rules of the ACH system as determined by the National Automated Clearing House Association,
Lender will not be able to confirm receipt of funds until after the actual debit. You agree to promptly provide any assistance
requested by Lender and/or another financial institution to confirm that you have authorized Lender to initiate ACH debits of your Designated
Accounts. You agree to be bound by the NACHA Operating Rules in effect when any ACH entry is submitted.
(d) Bank
Fees. Borrower understands that only Borrower, and not Lender (or Servicer) is responsible for any fees charged by Borrower’s
bank as the result of credits or debits initiated under this Agreement.
(a) Repayment
of Loan. You agree to pay Lender both (i) the Loan Amount and (ii) the Interest Amount (the sum of such amounts, the “Repayment
Amount”), in each case as specified herein. The Repayment Amount will be repaid to Lender via periodic ACH withdrawals of the
Periodic Amount on each Periodic Payment Date in accordance with the Payment Schedule. If you decide to prepay the Loan, you may do so
as provided in Section 3(d) below. At the end of the Term or upon prepayment, you must also pay Lender any other Obligations
then due and payable to Lender. You agree to pay Lender all amounts due under this Agreement in U.S. dollars. Time is of the essence
regarding all such payment obligations, meaning that all such amounts are due and payable to Lender strictly in accordance with this
Agreement. If a Periodic Payment Date falls on Saturday, Sunday or Federal Reserve holiday, the Periodic Amount will be due on the next
business day.
(b) Manner
of Repayment. The Loan shall be repaid by ACH withdrawals of the Periodic Amount from Borrower’s Designated Account(s) on
the Periodic Payment Dates. If Borrower knows that for any reason Lender will be unable to process a payment via ACH, then Borrower shall
immediately deposit sufficient funds into the Designated Account(s) so that the missed payment can be collected as provided above.
(c)
Application of Payments. Payments received on the Loan will be applied by the Lender as follows: (i) first,
to interest accrued on the Loan, (ii) second, to any fees, expenses and other Obligations that are then due and payable under this
Agreement and (iii) third, to the Loan Amount (as a reduction of the principal balance of the Loan).
(i) Prepayment.
You have the option to prepay the Loan in full by giving Lender prior written notice in the manner specified in clause
(ii) below and paying, on the date of such prepayment, an amount equal to (x) the Loan balance and the accrued Interest
Amount which is outstanding and unpaid on such date, if the Loan is to be prepaid in full or (y) the principal amount of the Loan
you wish to repay, as specified to the Lender in the Prepayment Notice under subparagraph (ii)below,plus (2) with out duplication
on interest payments, any fees, expenses and other Obligations that may then be due and payable under this Agreement (collectively, the
“Prepayment Amount”).Any future Monthly Periodic Payment will accordingly stand revised.
(ii)
Prepayment Notice. If you wish to prepay your Loan, you must give the Servicer prior written notice via the Borrower
Loan Dashboard or by email (“Prepayment Notice”), as provided in Section 1(g), that you intend to prepay
the Loan in full or in part as of a specified date. The initial Servicer’s email is: notices@itriaventures.com. If
you want to prepay the Loan in part only, you must specify the principal amount to be repaid as of the Prepayment Date in the Prepayment
Notice. The prepayment date (the “Prepayment Date”) specified in the Prepayment Notice must be a business day that
is no earlier than five (5) business days after the date of the Prepayment Notice and no later than the next scheduled Periodic
Payment Date. Lender will notify you in writing of the Prepayment Amount due and payable on the Prepayment Date via Email Alert or the
Borrower Dashboard not later than one (1) business day prior to the Prepayment Date.
(e) Interest;
Maximum Permitted Interest Rate. Prior to the occurrence of an Event of Default, the Loan will accrue at the Interest Rate specified
in the Term Loan Summary, calculated on the basis of a 365-day year (“Interest Rate”). The total interest expense
you will pay on the Loan (assuming there is no prepayment and no Event of Default) is the “Interest Amount”. From
and after the date 30 days following the occurrence of an Event of Default until such time as the Event of Default continues, the entire
unpaid principal balance of the Loan will bear interest at a rate 5% higher than the Interest Rate specified in the Term Loan Summary,
unless waived by the Lender at its sole discretion, but shall not in any event exceed maximum legal rate of interest permitted under
New York law (“Default Interest Rate”). Interest accrued at the Default Interest Rate will result in a higher total
Repayment Amount payable by you. In the event that a court of competent jurisdiction determines that Lender has charged or received
interest in excess of the maximum permitted rate, then (i) the applicable interest rate, inclusive of any fees or charges payable
under this Agreement that are determined by such court to constitute interest, shall be automatically reduced to the maximum rate permitted
by law and (ii) if required by law, any sums already collected from Borrower that exceed the maximum permitted rate will be refunded
or credited to Borrower.
| (a) | Fees.
Borrower shall pay the following fees to Lender or Servicer on behalf of Lender: |
(i) Origination
Fee: A one-time Origination Fee in the amount set forth in the Term Loan Summary (“Origination Fee”). The Origination
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(ii) Underwriting
Fee: A one-time Underwriting Fee in the amount set forth in the Term Loan Summary (“Underwriting Fee”). The Underwriting
Fee will be deducted from the proceeds of the Loan to be disbursed to Borrower on the Effective Date.
(iii)
Returned Payment Fee: A returned payment fee in the amount set forth in the Term Loan Summary that is due and payable to
Lender each time any electronic payment processed on Borrower’s Loan is returned unpaid or dishonored for any reason other than
reasons beyond the control of the Borrower (“Returned Payment Fee”).
(iv) Late
Fee: A late fee in the amount of 3% of each scheduled Monthly Periodic Payment on the Loan that is not received by Lender
in full on a timely basis in accordance with the Payment Schedule on a cumulative basis (including shortfalls and missed payments from
prior periods) for any reason other than reasons beyond the control of the Borrower (“Late Fee”).
(v) Administrative
Fee. Upon the occurrence of an Event of Default, a fee of up to 5% of the unpaid principal balance of the Loan (“Administrative
Fee”, and together with the Origination Fee, Underwriting Fee, Returned Payment Fee, Late Fee and Administrative Fee, the “Fees”),
for in-house collections enforcement costs, including in-house counsel time, legal filings, mailings, levies, and other expenses.
(b) Attorneys’
Fees and Collection Costs. In addition to the above Fees,Borrower shall pay to Lender on demand any and all third party collection
costs, attorneys’ fees and expenses, and any other expenses reasonably incurred by Lender to obtain or enforce payment of Borrower’s
Obligations or any Guarantor’s obligation to pay the Guaranteed Amount (collectively, “Enforcement Expenses”),
including, without limitation, expenses incurred in connection with: (i) any bankruptcy or insolvency proceedings of Borrower or
any Guarantor; (ii) the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection
therewith; and (iii) the perfection or protection of Lender’s rights in and to the Collateral. All such Enforcement Expenses
will become a part of the Obligations.
| 5. | SECURITY
INTEREST AND COLLATERAL |
(a) Secured
Loan. This Loan is secured by certain business assets of Borrower, which business assets are pledged as collateral to Lender as provided
below.
(b) Security
Interest. Borrower hereby grants to Lender a first priority security interest (“Security Interest”) in and to any
and all Collateral (as defined below) to secure the prompt and complete payment when due of all debts, liabilities and obligations
of any kind whatsoever of Borrower to Lender as set out in this Agreement or any other agreement in respect of the Repayment Amount,
whether fixed, contingent or otherwise, including, without limitation, the Repayment Amount and all other Fees and Enforcement Expenses
payable to Lender under this Agreement(collectively, “Obligations ”) and the performance by Borrower of all
of the covenants and obligations to be performed by it in accordance with this Agreement. “Collateral” means, collectively,
all of Borrower’s right, title and interest in, to and under the following property, whether tangible or intangible and whether
now owned or existing or hereafter arising or acquired and wherever located: (i) all inventory used in Borrower’s business
(as defined in Article 9 of the Uniform Commercial Code (the “UCC”) in effect from time to time in the State of New York);(ii) all Receivables
(as defined); and(iii) all proceeds from Receivables and/or rights to payment and collection of all debts, obligations
and liabilities owed to Borrower, including, without limitation, amounts due from merchant processors from credit or debit card transactions.
As used herein, “Receivables” means any and all: (i) funds that Merchant receives from its customers using credit
cards, charge cards,debit cards, prepaid cards, benefit cards, or similar cards to purchase Merchant’s products and/or services(including
without limitation any such funds that are processed by Merchant’s card processor(s)); (ii) funds that Merchant receives from
its customers in any manner of payment to purchase Merchant’s products and/or services; (iii) accounts, future accounts, contract
rights, choses in action, checks, notes, negotiable instruments and any other rights to receive payment; and (iv) insurance proceeds received
by Merchant (up to the Amount Sold, less total remittances under this Agreement). “Receivables” also includes the
Receivables of Merchant’s subsidiaries and affiliated companies and, upon a Material Breach, of any (x) new or existing company
owned or controlled by Merchant (collectively, an “ Other Business”), (y) any new or existing company, whether
owned or controlled by Merchant or any third party, to which all or a material portion of the business or assets of Merchant are sold
or otherwise transferred(collectively, a “Successor Company”) or (z) any affiliate of any of the foregoing, in
each case without the express prior written consent of Purchaser.
(c) Location
of Collateral. All Collateral shall be located at Borrower’s address as shown in the application for the Loan, except for inventory
or other Collateral sold in the ordinary course of Borrower’s business, but excluding any transaction prohibited under Section 8(b)(v),
including without limitation factoring or similar transactions.
(d) Maintenance
of Collateral. Borrower agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair
and condition at all times while this Agreement remains in effect. Borrower further agrees to pay when due all claims for work done on,
or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be
filed against the Collateral, excluding liens (i) authorized or consented to by Lender or Servicer in writing,
(ii) arising in connection with Permitted Indebtedness (as defined) or (iii) described on Schedule A(2) (collectively,
“Permitted Liens”). As used herein, “Permitted Indebtedness” means, collectively, (i) indebtedness
to Lender under this Agreement, (ii) unsecured indebtedness to trade creditors incurred in the ordinary course of business, (iii) unsecured
indebtedness in respect of business credit cards used for business purposes in the ordinary course of business, (iv) Indebtedness
secured by Liens permitted under the definition of “Permitted Liens” hereunder, (v) any indebtedness secured by assets
in respect of which no lien or security interest has been created in favor of the Lender and (vi) the indebtedness listed on Schedule
A(1), up to the respective individual and respective aggregate cap amounts specified therein. The Borrower shall inform the
Lender in writing of any Permitted Indebtedness prior to incurring such Permitted Indebtedness, it being clarified that no such consent
of the Lender will be required for the purpose of incurring any Permitted Indebtedness up to the aggregate cap on such indebtedness as
set out in Schedule A(1). Permitted Liens shall be set out on Schedule A(2).
(e) Priority
in Collateral; Intercreditor Agreement. The parties agree that Lender shall have a senior first position lien on the Collateral,
and Fiza Investments Limited (“Other Lender”) shall have a second secured position with respect to the Collateral.
To memorialize this seniority and ranking in respect of the security interests herein, Lender and the Other Lenders shall enter into
an intercreditor and subordination agreement on or prior to the Effective Date in the form attached as Schedule B(the “Intercreditor
Agreement”).
(f) Lender’s
Right to Maintain Collateral. Lender shall be entitled take any action that Lender deems appropriate, in its sole discretion, to
maintain or preserve the Collateral, including, without limitation, inspecting the Collateral, discharging or paying all taxes, liens,
security interests,encumbrances and other claims at any time levied or placed on the Collateral and paying all costs for insuring, maintaining
and preserving the Collateral, subject in each case to the provisions of the Intercreditor Agreement. To the extent permitted by applicable
law, all such expenses will become a part of the Obligations and, at Lender’s option, will be: (i) payable on demand; (ii) added
to the principal balance of the Loan and be payable with any installment payments due during the remaining term of the Loan; or (iii) if
not paid sooner, due and payable on the last day of the Term of the Loan.
(g) Filings;
Cooperation. Borrower hereby authorizes each of Lender and Servicer (on Lender’s behalf) to make filings under
in Article 9 of the Uniform Commercial Code (the “UCC”), as in effect from time to time in the State of
New York, including, without limitation, a UCC-1 financing statement and any other filings or recordations (against Borrower or the Collateral
that Lender deems necessary or desirable, in its sole discretion, to perfect or maintain the perfection of or otherwise protect Lender’s
Security Interest in the Collateral, subject in each case to the provisions of the Intercreditor Agreement). Upon request by Lender,
Borrower agrees to execute any documents or take any other action in connection with this Agreement as Lender deems necessary or desirable
to perfect or maintain the perfection of or otherwise protect Lender’s Security Interest in the Collateral.
(h) No
Liens. Other than Permitted Liens, Borrower shall not pledge or grant any security interest in any Collateral to any other person
or entity until all of the Obligations have been paid in full and this Agreement has been terminated.
(i) Taxes.
Borrower agrees to complete and file all necessary federal, state and local tax returns and will pay when due all taxes, assessments,
levies and liens upon the Collateral and provide evidence of such payments to Lender upon request.
| 6. | BORROWER
AND GUARANTOR AUTHORIZATIONS |
Borrower and each
Guarantor authorize each of Lender and/or Servicer from time to time, in their sole discretion, to:
(a) Credit
Reports and Information. Contact credit and database reporting companies to obtain credit and other reports and information on Borrower and each
Guarantor, including, without limitation, credit history and credit card, debit card and other payment card processing and charge back
history;
(b) Additional
Information. Require that Borrower and any Guarantor promptly provide Lender with such additional information about the financial
condition and operations of Borrower or any Guarantor, including without limitation financial statements and/or bank statements, as Lender
may reasonably request;
(c)
Credit Pulls. Do soft and/or hard credit pulls in each case as determined by the Lender or Servicer;
(d) Recorded
Calls. Monitor and/or record its telephone calls with Borrower, each Guarantor and their principals, owners, employees or agents
to confirm the content of conversations in connection with evaluations, training, monitoring for compliance and collections;
(e) Lease
information. Receive information regarding the commercial lease for the physical location of Borrower’s business from any applicable
leasing company and or agent and, upon the occurrence of an Event of Default,such other information as Servicer may reasonably request;and
(f) Contact
Borrower and Guarantors. Contact Borrower and any Guarantor regarding this Agreement or other business transactions during normal
business hours by phone, email or otherwise.
| 7. | BORROWER
REPRESENTATIONS AND WARRANTIES |
Borrower
represents and warrants to Lender that:
(a) Loan
Agreement. Borrower has reviewed this Agreement, understands its terms and conditions, and has freely and voluntarily executed this
Agreement without duress, pressure or coercion of any kind;
(b) Opportunity
for Review. Borrower has had a full opportunity to review this Agreement, request information of Lender and discuss this Agreement
with its attorney and/or legal or financial advisors;
(c) Compliance
with Law. Borrower has operated and will, at all times, operate its business in material compliance with all applicable federal,
state and local laws, statutes, regulations and rules relating to Borrower’s business;
(d) Sanctions;
Anti-Money Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, director, officer or employee or any Guarantor
is subject of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control,
the U.S. Department of State or any other relevant sanctions authority;
(e) Anti-Money
Laundering; Anti-Corruption. Neither Borrower nor any its affiliates, owners, directors, officers or employees or any Guarantor has
violated or has been investigated for violating (i) any applicable anti-money laundering laws and regulations or (i) any anti-corruption
or anti-bribery laws and regulations;
(f) Organization
and Qualification. Borrower is, and shall remain at all times during the term of the Loan, duly organized, licensed, validly existing
and in good standing under the laws of its state of formation or incorporation and in each other state in which it is does business;
(g) Authorization.
Borrower has the limited liability, corporate or other power and is duly authorized to execute, deliver and perform its obligations under
this Agreement and each other document executed in connection with this Agreement;
(h) Authorizationby
Control Parties. This Agreement has been approved by individuals (x) owning not less than a majority of the total equity and
voting power of Borrower and (y) having control of the operations and management of Borrower, and executed by duly authorized officers
of Borrower;
(i) Valid
Agreement. This Agreement constitutes the legal, valid and binding obligation of Borrower except as such obligations may be modified
by bankruptcy laws or laws affecting the rights of creditors generally;
(j) Collateral.
Borrower has good and marketable title to all of its business assets that are included in the Collateral, free and clear of any liens,
security interests, restrictions, pledges and encumbrances of any kind, other than Permitted Liens and those in favor of Lender;
(k) No
Approvals. The execution and performance of this Agreement by Borrower does not require any governmental or third party consent,
license or approval and will not conflict with or cause a breach in any agreement or organizational documents of Borrower;
(l) Accurate
Disclosure. All information submitted by Borrower to Lender, or to Servicer on Lender’s behalf, in connection with its Loan
application and this Agreement (including, without limitation, Borrower’s legal name, location and ownership) is true, correct
and complete;
(m) Litigation
Disclosure. Borrower has accurately disclosed to Lender all lawsuits, arbitrations, proceedings or investigations (collectively,
“Actions”) pending or, to Borrower’s knowledge, threatened in writing against Borrower, any Guarantor or their
respective assets;
(n) Potentially
Adverse Actions. There are no Actions pending or, to Borrower’s knowledge, threatened in writing against Borrower or any of
its assets before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse
effect on its financial condition, business, assets or prospects or the value of the Collateral;
(o) Potentially
Adverse Facts Disclosed. Borrower has fully and accurately disclosed all material facts relating to its business, financial condition
and prospects, including all circumstances that might have a material adverse effect on Borrower’s financial condition, business,
assets or prospects or the value of the Collateral;
(p) Solvency.
Borrower is solvent and is not contemplating any bankruptcy or other insolvency proceeding, receivership or assignment for the benefit
of creditors and not such action or proceeding has been filed against Borrower; and
(q)
Licenses. Borrower has fully disclosed to Lender all Licenses required to operate its business.
| 8. | BORROWER
COVENANTS (AGREEMENTS) |
(a) Affirmative
Covenants. Borrower covenants and agrees that it will:
(i) Repayment
of Loan. Pay the Repayment Amount to Lender in accordance with the Payment Schedule and pay all other Obligations owed to Lender
when due in accordance with this Agreement, subject to the provisions of this Agreement;
(ii) Use
of Loan Proceeds. Use the proceeds of the Loan disbursed to Borrower on the Effective Date solely and exclusively for working capital
and other uses in Borrower’s business;
(iii) Performance
of Agreements. Promptly perform all obligations owed to Lender and covenants and agreements of Borrower under this Agreement;
(iv) Notice
to Lender. Promptly notify Lender in writing of (x) an actual or potential Event of Default as soon as Borrower becomes aware
of same; (y) any occurrence that has or may have a material adverse effect on Borrower’s financial condition, assets, business
or prospects or the value of the Collateral or (z) the filing of any Action against Borrower or its assets;
(v) Lender
Right to Information. Promptly provide Lender with any information, records, bank statements or other information relating to the
Loan, the Collateral or Borrower’s financial condition as lender may reasonably request;
(vi) Lender
Right to Contact. Allow Lender or any of its agents to contact Borrower (including any cellular or mobile telephone, work telephone
or email) from time to time as Lender may determine in its business judgment;
(vii) Lender
Right to Audit. Allow Lender or any of its agents, on reasonable prior notice of not less than ten (10) business days to Borrower,
to (x) inspect Borrower’s accounting books and records, receipts and other documents and information that relate to Borrower’s
accounts, Loan payments, Collateral or the general financial condition of Borrower and (y) make copies made thereof on-site or off-premises;
(viii) Recordkeeping.
Borrower will at all times keep accurate and complete records of Borrower’s Designated Account(s) and Collateral. Except as
expressly provided herein, Lender shall have no obligation to maintain any electronic or other records or any documents in connection
with this Agreement;
(ix) Licenses.
Borrower will maintain, renew and supplement as required all Licenses needed to operate Borrower’s business under applicable law;
(x) Duty
to Update. Borrower will promptly update Servicer upon incurring new Permitted Indebtedness and/or implementation of any Permitted
Lien;
(xi) Subsidiaries.
Borrower has two subsidiaries: zSpace Technologies (Shanghai) Ltd., a company organized under the laws of the Peoples Republic of China,
and zSpace KKK, a company organized under the laws of Japan, each of which is a Guarantor under this Agreement; and
(xii) Cooperation.
Reasonably cooperate with Lender in all aspects regarding the Loan and this Agreement, including with respect to the maintenance of Collateral.
(b) Negative
Covenants. Borrower covenants and agrees that, until all of the Obligations have been paid in full and this Agreement has been terminated,
it will not,without the prior written consent of the Lender:
(i) No
Corporate Changes. Change its name, its tax identification number, legal structure or jurisdiction of organization or conduct Borrower’s
business under any name other than as disclosed to Lender, other than pursuant to or as a direct consequence of any initial public offering,
provided no such change shall result in a Change in Control or have a material adverse effect on the business, assets, financial condition
or prospects of Borrower;
(ii) No
Business Changes. Change (x) its place of business or principal executive office, its mailing address,or (y) its line
of business or its credit card processor(s), other than expressly pre-approved by Lender in writing;
(iii)
No Collateral Changes. Change the nature of the Collateral;
(iv)
No Family or Household Uses. Use the Loan proceeds for any personal, consumer, family or household purposes;
(v) No
Additional Indebtedness. Incur additional indebtedness, directly or indirectly via any subsidiary, other than (i) (x) intercompany
payables between subsidiaries or from any subsidiary to Borrower only and (y) trade payables in the ordinary course of business or take
out additional financing (including without limitation merchant cash advance or factoring or A/R financing products) or (ii) Permitted
Indebtedness;
(vi) No
Liens. Place or permit any additional liens, security interests or other encumbrances on the Collateral, other than Permitted Liens;
(vii)
No Subsidiaries. Borrower will not create any subsidiaries without out the prior written consent of Lender; and
(viii) No
Mergers, Consolidations or Sales. (1) Merge or consolidate with or into any other business entity, other than a Permitted Acquisition
(as defined); (2) enter into any joint venture or partnership with any person, firm or corporation, except in each case, in connection with a Permitted
Acquisition; (3) sell, dispose or transfer assets of Borrower other than pursuant to a Permitted Transfer (as defined) and
in the ordinary course of business; or (4) sell, dispose or transfer any equity interest in Borrower that would confer, directly
or indirectly, majority equity ownership of the Borrower or operating control through its executive management team (a
“Change in Control”)to a new entity or individual.
“Permitted
Acquisition” means (A) any purchase or other acquisition by Borrower or its subsidiaries (including the creation and capitalization
of any subsidiary in connection with such purchase or other acquisition) of (x) all of the capital stock of a person that, upon
the consummation thereof, will become a wholly-owned subsidiary (including as a result of a merger or consolidation) or (y) all
or substantially all the assets of, or assets constituting one or more business units of, any person or (B) a merger, combination
or acquisition consisting of a transaction or series of related transactions in which (i) the holders of the voting securities of
the Borrower outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction
or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of
the Borrower or such other surviving or resulting entity and (ii) the executive management team of Borrower immediately prior to
such transaction or series of related transactions retains, immediately after such transaction or series of related transactions, control
of the operations of Borrower or such other surviving or resulting entity; provided, that, with respect to each such Permitted Acquisition,
the aggregate cash consideration paid in connection with all such Permitted Acquisitions does not exceed $3,000,000. The Borrower
shall inform the Lender in writing of any Permitted Acquisition as soon as reasonably practicable prior to the closing of any such transaction,
it being understood that Lender consent is not required.
“Permitted
Investment” means, collectively, (A) Borrower’s following investments, subject to the aggregate dollar cap for all
such investments of $5,000,000, (i) investments existing on the Effective Date, including investments (directly or via another subsidiary)
in subsidiaries; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any
agency or any State thereof maturing within one (1) year from the date of acquisition thereof; (iii) commercial paper maturing
no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P -2 from either Standard &
Poor’s Corporation or Moody’s Investors Service (approx. $0 on the Effective Date); (iv) bank certificates of deposit
maturing no more than one (1) year from the date of investment therein (approx. $0 on the Effective Date); (v) bank money market
accounts; and (vi) Investments in bank deposit or checking accounts or otherwise permitted by, and subject to the terms and conditions
of Section 2; (vii) investments consisting of the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business consistent with past practice (approx. $0 on the Effective Date); (viii) investments
made in connection with Permitted Transfers, up to $1,000,000 in the aggregate during any 12-month period after the Effective Date; (ix) investments
by Borrower (directly or via another subsidiary) in subsidiaries, up to $750,000 in the aggregate during any 12-month period after the
Effective Date; (x) investments not to exceed $250,000 in the aggregate in any fiscal year consisting of (A) travel advances
and employee relocation loans and other employee loans and advances in the ordinary course of business, and (B) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower or its subsidiaries pursuant to employee stock purchase
plan agreements approved by Borrower’s board of directors, up to $150,000 in the aggregate during any 12-month period after the
Effective Date; (xi) investments (including debt obligations) made in connection with the bankruptcy or reorganization of customers
or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary
course of Borrower’s business, up to $200,000 in the aggregate during any 12-month period after the Effective Date; (xii) investments
consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements, in each
case, entered into in the ordinary course of business and designed to protect against fluctuations in interest rates, currency exchange
rates or commodity prices, but in no case for speculation purposes, up to $250,000 in the aggregate during any 12-month period after
the Effective Date; (xiii) subject to the limitations set forth in the definition of “Permitted Acquisition”, any investments
or expenditures made in connection with or pursuant to any Acquisition that qualifies as a Permitted Acquisition under this Agreement;
(xiv) investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers,
in the ordinary course of business, provided that this clause (xiii) shall not apply to investments of Borrower
in any subsidiary; and (xiv) other investments in an aggregate amount not to exceed $250,000 in any fiscal year of Borrower.
“Permitted Transfer”
means a Transfer:
i. Of inventory
in the ordinary course of business;
ii. Of
non-exclusive licenses for the use of the property of Borrower or its subsidiaries in the ordinary course of business;
iii. Of
worn-out, surplus, fully-depreciated or obsolete equipment that is, in the reasonable judgment of Borrower, no longer economically practicable
to maintain or useful in the ordinary course of business of Borrower;
iv.
Consisting of grants of security interests and other Liens that constitute Permitted Liens;
v. Of
assets,including Permitted Investments and distributions pursuant to stock plans;
vi. (1) by
any subsidiary to another subsidiary, or (2) from a subsidiary to Borrower;
vii. Consisting
of the sale or issuance of any common stock, common partnership, common membership, or other common ownership interest or other common
equity securities of Borrower that is not otherwise prohibited by this Agreement;
viii. Consisting
of the sale of real property by any subsidiary of Borrower; provided that any such sale of real property is made in exchange for cash
in an amount that is not less than the fair market value of such real property, as confirmed by documentation as may be reasonably requested
by Lender; or
ix. Of
other assets of Borrower or its subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.
(a) The
occurrence of any one or more of the following events shall constitute, upon ten (10) days prior written notice by Servicer to
Borrower,in the event the default has not been cured within such period, an event of default under this Agreement (each, an “Event
of Default”):
(i) Borrower
fails to pay the Periodic Amount in full when due not later than the scheduled Periodic Payment Date (whether for a Daily Periodic Payment,
Weekly Periodic Payment, Bi-monthly Periodic Payment, or Monthly Periodic Payment), time being of the essence;
(ii)
Borrower fails to pay any other Obligations in full when due in
accordance with the terms of this Agreement;
(iii) the
determination by Lender, in its reasonable business judgment, that Borrower has failed to promptly perform any term, covenant or condition
in this Agreement, including, without limitation, the obligation to give written notice to Lender upon the occurrence of certain events;
(iv) the
determination by Lender, in its reasonable business judgment, that any representation or warranty made by Borrower or any Guarantor to
Lender in this Agreement or otherwise made by Borrower (or on behalf of Borrower) in connection with the Loan (including, without limitation,
the Loan application) is false or misleading;
(v) Borrower
incurs any additional indebtedness or financing in violation of this Agreement, other than Permitted Indebtedness, as provided in Section 8(b)(v);
(vi) Borrower
fails to maintain in full force and effect any License necessary to operate its business;
(vii) all
or any portion of the Collateral is subject to a security interest, lien or other encumbrance (other than Permitted Liens and those in
favor of Lender) in violation of this Agreement;
(viii) Borrower
fails to maintain Lender’s first priority perfected lien on the Collateral;
(ix) Borrower
changes credit card processors or any Designated Accounts in violation of this Agreement;
(x) the
voluntary or involuntary filing by or against Borrower of any case or proceeding under the federal bankruptcy code, any state or federal
bankruptcy law, assignment for the benefit of creditors or other similar law protecting the rights of creditors;
(xi) the
commencement of any judicial or non-judicial proceeding by or against Borrower that seeks to accomplish a reorganization or arrangement
with its creditors;
(xii) the
filing of a state or federal tax lien against Borrower or its assets, other than Permitted Liens;
(xiii) the
entry of any court order that enjoins, restrains or in any way prevents Borrower from conducting any material part of its business affairs
in the ordinary course of business;
(xiv) Borrower
liquidates, dissolves or otherwise terminates its existence or ceases to carry on any substantial part of Borrower’s business as
presently conducted, other than as permitted under Section8(b)(i);
(xv) the
inability of Borrower to generally pay its debts as they become due;
(xvi) the
failure by Borrower to promptly provide Lender with information and/or documents requested by Lender in its reasonable business judgment,
including without limitation that specified in Section 6(b);
(xvii) the
entry of any judgment against Borrower;
(xviii) the
diminution or lapse of insurance coverage on Borrower’s assets; or
(xix) the
occurrence of any material adverse change to Borrower’s business, assets, financial condition or prospects, including, without
limitation, any default under or acceleration of third party indebtedness (to the extent permitted under this Agreement), or the value
of the Collateral.
| 10. | REMEDIES
OF LENDER UPON DEFAULT |
Upon
the occurrence of an Event of Default, Lender shall have and may exercise, directly or through Servicer, any one or more of the following
rights and remedies, in each case without notice to Borrower or any Guarantor:
(a) Accelerate
Obligations: Lender may declare the full Repayment Amount and all other Obligations under this Agreement immediately due and payable.
(b) Debit
Amounts Due from Designated Accounts: Lender may debit from the Designated Account(s) of Borrower any and all Obligations
that Borrower failed to pay.
(c) Legal
Process. Lender may commence other legal action, and enforce any right or remedy, against Borrower or any Guarantor.
(d) Freeze
Borrower Accounts. Lender may freeze or otherwise take control of Borrower’s bank and merchant processing accounts (including,
without limitation, the Designated Accounts) and notify Borrower account debtors and obligors to make payments directly to Lender.
(e) Rights
in Collateral: Lender may exercise all rights of a secured creditor under the UCC in the Collateral, including, without limitation:
(i) Sale
of Collateral. Lender may sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own
name or in the name of Borrower and/or any Guarantor, at public auction or private sale;
(ii) Collect
Revenues. Lender may collect the payments, rents, income, and revenues from the Collateral;
(iii) Transfer
Collateral. Lender may transfer any Collateral to itself or Lender’s nominee or assignee and receive the payments, income and
revenues therefrom and hold the same as security for the Obligations or apply it to payment of the Obligations;
(iv) Appoint
a Receiver. Lender may appoint a receiver to take possession of all or any part of the Collateral, with the power to protect and
preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply
the proceeds against the Obligations; and
(v) Other
Remedies. Lender may exercise any other rights and remedies under the UCC or at law or equity for any deficiency.
(f) Remedies
Cumulative and Non-Exclusive: Lender’s remedies shall be cumulative and may be exercised singularly or concurrently, and shall
not prevent Lender from thereafter exercising other remedies. The remedies specified above are not exclusive of any other remedies to
Lender under applicable law.
| 11. | LIMITATION
OF LIABILITY; INDEMNIFICATION |
(a) Limitation
of Liability. YOU HEREBY AGREE THAT, TO THE EXTENT PERMITTED BY LAW, YOUR SOLE REMEDY AGAINST LENDER FOR ANY CLAIM ARISING UNDER
OR IN ANY WAY RELATED THIS AGREEMENT (WHETHER BASED UPON CONTRACT, TORT, STATUTE, REGULATION, COMMON LAW OR EQUITY) WILL BE MONEY DAMAGES
NOT TO EXCEED THE GREATER OF (i) THE AMOUNT OF FUNDS OVERPAID TO LENDER, IF ANY, AND (ii) TEN THOUSAND DOLLARS ($10,000).
YOU FURTHER AGREE THAT, TO THE EXTENT PERMITTED BY LAW, LENDER SHALL NOT BE LIABLE FOR, AND YOU HEREBY WAIVE, ANY AND ALL CLAIMS FOR
INDIRECT, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, LOST PROFITS
OR LOSS OF BUSINESS), EVEN IF YOU HAVE BEEN ADVISED OF THE POSSIBLLITY OF SUCH DAMAGES. IF YOU FILE ANY CLAIM OR ACTION AGAINST LENDER
IN VIOLATION OF THIS SECTION 11(a), YOU AGREE TO PAY ALL OF LENDER’S COSTS INCURRED IN THE MATTER (INCLUDING ATTORNEYS’
FEES).
(b) Indemnification.
In addition, you agree to indemnify and hold harmless Lender, its officers, directors, shareholders and agents (including, without limitation,
Servicer) from all losses, costs, damage, liabilities or expenses (including, without limitation, court costs and reasonable attorneys’
fees) that Lender may sustain or incur by reason of defending or protecting Lender’s security interest or the priority thereof
or enforcing the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter arising out of or in
connection with this Agreement and/or any other documents now or hereafter executed in connection with this Agreement, the Obligations
and/or the Collateral, excluding damages arising directly from Lender’s gross negligence or willful misconduct. This indemnity
shall survive the repayment of the Obligations and the termination of this Agreement.
12.
GOVERNING LAW; PERSONAL JURISDICTION; VENUE; CONSENT TO SERVICE; WAIVER OF JURY TRIAL AND CLASS ACTIONS; WAIVER OF CONSUMER DEFENSES;
WAIVER OF CERTAIN ACTIONS; ARBITRATION.
(a) Governing
Law. EXCEPT FOR SECTION 12(h), WHICH SHALL BE GOVERNED EXCLUSIVELY BY THE FEDERAL ARBITRATION ACT, THIS AGREEMENT, AND
ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT, TORT OR STATUTE) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT,
OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT (INCLUDING ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR
RELATED TO ANY REPRESENTATION OR WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT OR AS AN INDUCEMENT TO ENTER INTO THIS AGREEMENT),
SHALL BE GOVERNED BY, AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY LAWS
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE COLLATERAL, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Borrower and each Guarantor expressly acknowledge that Lender maintains its principal office in the State of New York and extends this
Loan from that office. Accordingly, the parties agree that this Agreement and its subject matter bears a “significant, material
and reasonable relationship” with the State of New York.
(b) Personal
Jurisdiction; Venue. BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT OR ANY ACT, TRANSACTION, DISPUTE OR CONTROVERSY ARISING HEREUNDER OR THEREUNDER OR RELATING HERETO OR THERETO,
AND BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER
TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO SECTION 12(h) BELOW, ANY JUDICIAL
PROCEEDING BY BORROWER AGAINST LENDER, ANY ASSIGNEE OR AFFILIATE THEREOF OR ANY OTHER PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK COUNTY, NEW YORK.
(c) Consent
to Service. Borrower and each Guarantor waive personal service of any and all process upon Borrower and Guarantor and consent that
service of process may be made by mail (at Borrower’s primary business address specified in the Loan application) or by any other
method permitted by law.
(d) Waiver
of Jury Trial and Class Actions. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT THAT THEY MAY HAVE TO (1) TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY
OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY); AND (2) ASSERT
ANY CLAIMS AGAINST ANY OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER
IS PROHIBITED BY PUBLIC POLICY. TO THE EXTENT ANY PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE
ACTION AGAINST ANY OTHER PARTY, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY WILL NOT BE ENTITLED TO RECOVER ATTORNEYS’
FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT);
(2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY
RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION; AND (3) THE FOREGOING WAIVERS ARE ESSENTIAL TERMS OF THIS AGREEMENT.
YOU UNDERSTAND AND AGREE THAT, BY SIGNING THIS AGREEMENT, (1) YOU ARE PERMANENTLY WAIVING YOUR RIGHT TO A JURY TRIAL AND (2) YOU
MUST BRING CLAIMS AGAINST LENDER ONLY IN YOUR INDIVIDUAL OR CORPORATE CAPACITY, AS APPLICABLE, AND NOT AS A PLAINTIFF OR CLASS MEMBER
IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.
(e) Waiver
of Consumer Defenses. Borrower and each Guarantor hereby waive any defense, regardless of the actual use of Loan proceeds by Borrower
or Guarantor, claiming that the Loan was made to Borrower for personal, consumer, family or household purposes. Borrower and each Guarantor
understand and agree that the Loan has been made to Borrower solely as a business loan for Borrower’s business as set forth in
this Agreement.
(f) Waiver
of Certain Actions. To the extent not prohibited by applicable law, the Borrower and each Guarantor waive demand, notice of nonpayment,
notice of intention to accelerate, notice of acceleration, presentment, protest, notice of dishonor and notice of protest. Borrower and
each Guarantor further agree that: (i) Lender is not required to file suit, show diligence in collection against Borrower or any
Guarantor, or proceed against any Collateral or the Guarantor Collateral (as defined); (ii) Lender may, but will not be obligated
to, substitute, exchange or release any Collateral; (iii) Lender may, but will not be obligated to, perfect Lender’s Security
Interest in any Collateral or the Guarantor Security Interest (as defined) in any Guarantor Collateral; (iv) Lender may, but will
not be obligated to, sue one or more persons or entities without joining or suing others; and (v) Lender may modify, renew, or extend
this Agreement without notice to or approval by any person (other than the party with whom the modification, renewal or extension is
made).
(g) Reduced
Statute of Limitations. Borrower and Lender each agree that: (i) it will not bring against the other party any claim,
action or legal or administrative proceeding of any kind or under any legal or equitable theory or request for relief of any kind to
enforce or arising out of or relating to in any material respect this Agreement (collectively, “Action or Proceeding”)after
the date two (2) years from the sooner to occur of (x) the payment of the Repayment Amount in full to Lender and (y) the
effective date of termination of this Agreement for any reason (such period, the “Limitations Period”); (ii) all
statutes of limitations under applicable law shall in all cases be limited to the Limitations Period; and (iii) the Limitations Period
is a reasonable period of time in which to bring an Action or Proceeding under or relating to this Agreement
(h) Arbitration.
Notwithstanding any provision hereof, and excluding (i) the enforcement or domestication of, or litigation relating to, any judgment,
(ii) the enforcement of any provision of this Agreement against Borrower and/or any Guarantor and (iii) any action by or on
behalf of Lender for injunctive relief under this Agreement, each party (Borrower, each Guarantor and Lender) agrees to arbitrate all
disputes and claims arising out of or relating to this Agreement (collectively, “Claims”) at the request of the other
party. If a party seeks to have a dispute settled by arbitration, that party must first send to the other party, by certified mail, a
written Notice of Intent to Arbitrate (“Arbitration Notice”). If the parties do not reach an agreement to resolve
the Claim within thirty (30) days after the Arbitration Notice is received, Lender and Borrower agree that the Claim will be resolved
by a final and binding arbitration proceeding with JAMS, Inc. (“JAMS”)in New York County,New York under the Optional
Expedited Arbitration Procedures then in effect. The parties agree that, except as otherwise expressly required by JAMS rules, (i) the
party filing arbitration shall pay all JAMS filing fees and reasonable administrative fees; (ii) thereafter, each party shall bear
its own arbitration costs and fees, including witness fees and attorneys’ fees; and (iii) each party shall bear an equal share
of the arbitrator’s fees; provided, if the arbitrator finds that either the substance of the Claims of any party or the relief
sought by any party is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal Rule of Civil
Procedure 11(b)), then the arbitrator shall award the other party all of its costs and fees of the arbitration, including witness and
reasonable attorneys’ fees. Borrower and each Guarantor agree that (i) arbitration is the required and exclusive forum for
the resolution of all Claims and (ii) to the fullest extent permitted by law, Borrower and each Guarantor are permanently giving
up their right to a jury trial in any forum and the right to a judicial forum for the resolution of any and all Claims. Further, the
parties agree that the arbitrator may not consolidate proceedings for more than one person’s Claims, and may not otherwise preside
over any form of a representative or class proceeding, and that if this specific provision is found unenforceable, then the entirety
of this arbitration clause shall be null and void. This arbitration section is governed by the Federal Arbitration Act, 9 U.S.C. §§
1-16.
BORROWER
MAY OPT OUT OF ARBITRATION. In order to opt out of this Arbitration Clause, Borrower shall send Lender a written notice executed
by Borrower, stating that Borrower does not want the arbitration clause set forth in this Section 12(h)to apply to this Agreement.
For any opt out to be effective, an opt out notice, duly executed by Borrower, must be sent to the following address by registered mail,
within ten (10) business days after the Effective Date, to Servicer, whose contact information will be set forth on the Borrower
Loan Dashboard. As of the date of this Agreement Servicer is: Itria Ventures LLC, One Penn Plaza, Suite 4530, New York, NY 10119,
Attention: President and General Counsel, with a copy in all cases by email to: notices@itriaventures.com.
(a) Entire
Agreement; Modifications. This Agreement, including the Term Loan Summary, the Guaranty and Schedules, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, whether written
or oral. This Agreement may only be modified by written amendment signed by the parties, and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
(b) Interpretation.
Section and paragraph headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.
This Agreement has been reviewed by all parties and their respective counsel and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.
(c) No
Assignment by Borrower. You may not assign this Agreement or any rights herein or delegate any duties, in whole or in part, without
the prior written consent of Lender, and any purported assignment or delegation by Borrower without such consent shall be void ab
initio.
(d) Assignment
by Lender. Lender may assign, sell and transfer this Agreement or any rights herein, in whole or in part, to any person, without
the consent of Borrower. In connection with any such assignment by Lender, Lender may disclose all documents and information that
Lender now or hereafter may have relating to Borrower, Borrower’s business or any Guarantor to the assignee or purchaser (“Assignee”).
After any such assignment, Lender may continue to service the Loan on behalf of the Assignee or transfer or delegate servicing to another
person. Lender will maintain a register of each such assignment within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of
the Internal Revenue Code, as amended and any related Treasury regulations.
(e) Confidentiality.
Borrower shall not make, publish or otherwise disseminate in any manner, including via the internet or any social media, a copy of this
Agreement or any part thereof or make any public statement or description, including via the internet or any social media, of the terms
of this Agreement, except to its employees and advisors who have a legitimate “need to know” such information.
(f) Notices.
All communications between the parties with respect of, or notices, requests, directions, consents or other information sent under, this
Agreement shall be in writing and delivered by email (with proof of transmission) to an email address of the other party at which such
party normally receives email communications as of the time the notice is sent or, at the request of any party, by Federal Express or
other internationally recognized courier (with signature). All such communications and notices shall be effective upon sending via email
with proof of transmission or via courier with signature. Notice may be sent to Lender via the Borrower Loan Dashboard or by email, as
set forth in Section 1(g). Servicer email, as of the date hereof, is: notices@itriaventures.com.
(g) No
Waiver. Any waiver of rights under this Agreement must be in writing and will not be inferred from any failure to exercise or partial
exercise of any right hereunder.
(h) Severability.
If one or more provisions of this Agreement is determined to be invalid, illegal or unenforceable in any respect in any jurisdiction,
such determination shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction or any other provision
of this Agreement.
(i) Further
Assurances. The parties agree to execute such further and additional documents, instruments, and writings as may be necessary, proper,
required, desirable, or convenient for the purpose of fully effectuating the terms and provisions of this Agreement.
(j) Counterparts.
This Agreement may be executed in multiple counterparts, all of which taken together shall be deemed to constitute one and the same original
instrument. Transmission by email or other form of electronic transmission of an executed counterpart of this Agreement shall be deemed
an executed original.
(k) Consent
to Electronic Transactions. Borrower expressly consents to conducting this transaction by electronic means, including by email
communications, electronic signatures, the creation of a duly authenticated security interest by electronic signature and the retention
and storage of electronic records, to the maximum extent permitted by law. Borrower agrees that Lender shall not provide Borrower
with a paper copy of this Agreement or other document relating thereto unless specifically requested by Borrower in writing.
(l) Survival
of Terms. All representations, warranties and covenants herein, including in the Guaranty, shall survive the execution and delivery
of this Agreement and shall continue in full force until all Obligations under this Agreement shall have been satisfied and paid in full
and this Agreement shall have terminated, except that the indemnification obligations in Section 11(b) shall survive
the repayment of the Obligations and the termination of this Agreement.
(m) Other
Names. Borrower and each Guarantor hereby acknowledge and agree that Lender may be using “doing business as” or “d/b/a”
names in connection with various matters relating to this Agreement and the Loan, including the filing of UCC-1 financing statements
and other notices or filings (which may be filed in such other names or in the name of Lender’s agent or representative).
(a) Guaranty.
Each Guarantor, jointly and severally, absolutely, irrevocably and unconditionally guarantees (this “Guaranty”): (i) the
prompt payment to Lender, including its successors and assignees, of the Repayment Amount and all of Borrower’s other Obligations
under this Agreement (collectively, “Guaranteed Amount”). Upon an Event of Default under this Agreement, each Guarantor
agrees to pay the Guaranteed Amount to Lender on demand, without requiring Lender first to enforce payment against Borrower or its right
with respect to the Collateral. This Guaranty is a guarantee of payment, and is an absolute, unconditional, primary, and continuing obligation
of each Guarantor. Each Guarantor’s obligations hereunder are independent of Borrower’s payment obligations and a separate
claim may be brought against each Guarantor, whether or not a claim is made against Borrower. This Guaranty will remain in full force
and effect until the Guaranteed Amount has been paid in full to Lender and this Agreement has been terminated.
(b) Security
Interest. Other than with respect to Permitted Liens, each Guarantor hereby grants to Lender a first priority security interest (“Guarantor
Security Interest”) in and to any and all Guarantor Collateral (as defined below) to secure the prompt and complete payment
when due of the Guaranteed Amount and the performance of Borrower’s covenants and obligations under this Agreement. “Guarantor
Collateral” means all of Guarantor’s right, title and interest in, to and under the following property, whether tangible
or intangible and whether now owned or existing or hereafter arising or acquired and wherever located: (i) all personal property
used in Guarantor’s business, including, without limitation, cash and cash equivalents, Receivables, accounts receivables, accounts,
chattel paper, deposit accounts, securities accounts, documents, investment property, fixtures, general intangibles, payment intangibles,
instruments, inventory, goods, equipment, letter of credit rights, as-extracted collateral and commercial tort claims (as those terms
are defined in Article 9 of the UCC in effect from time to time in the State of New York), (ii) all licenses, permits or other
such governmental document or instrument required in connection with the Borrower’s business and all registrations, recordings
and applications therefor and all renewals, reissues and extensions thereof, (iii) all proceeds from and rights to payment and collection
of all debts, obligations and liabilities owed to Borrower, including, without limitation, amounts due from merchant processors from
credit or debit card transactions; and (iv) all products, proceeds, accessions, accessories, parts, attachments, supplies and replacements
of the property described in clause (i), (ii) and (iii). Notwithstanding the foregoing, Guarantor Collateral shall not include any
assets of Guarantor to the extent a security interest in such assets would result in materially adverse tax consequences to Guarantor
and/or Borrower, as reasonably determined by Borrower and subject to Lender’s reasonable approval (in respect of which Guarantor
and/or Borrower will provide information and/or documentation requested by Lender), which approval shall not be unreasonably withheld,
delayed or conditioned.
(c) Each
Guarantor hereby authorizes Lender to make such UCC filings (including, without limitation, a UCC-1 financing statement) and any other
filings or recordations (including, without limitation, filings with the U.S. Patent and Trademark Office and U.S. Copyright Office)
against Guarantor or the Guarantor Collateral that Lender deems necessary or desirable, in its sole discretion, to perfect or maintain
the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral. Upon request by Lender,each
Guarantor agrees to execute any documents or take any other action in connection with this Agreement as Lender deems necessary or desirable
to perfect or maintain the perfection of or otherwise protect Lender’s Guarantor Security Interest in the Guarantor Collateral.
(d) Upon
the failure of any Guarantor to pay to Lender the Guaranteed Amount as provided hereunder, Lender may exercise all rights of a secured
creditor under the UCC in the Guarantor Collateral.
(e) Acknowledgment.
Each Guarantor acknowledges that this Guaranty covers each liability, obligation, representation and warranty, covenant and agreement
and waiver of Borrower under this Agreement. Further, each Guarantor represents and warrants that he or she is a legal resident of the
United States of America. Each Guarantor also consents to service of any pleadings or other court documents by electronic mail at Borrower’s
email address provided by Borrower.
(f) ACH
Authorization. Each Guarantor hereby authorize Lender, and Servicer on Lender’s behalf, to debit via ACH any of its Designated
Accounts for the amounts due and payable by such Guarantor under this Guaranty.
(g) Waivers.
Each Guarantor hereby irrevocably and unconditionally affirms all waivers of Borrower in this Agreement, including, without limitation,
those set forth in Sections 11 and 12.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF,
Borrower, each Guarantor and Lender by their duly authorized officers have executed this Agreement, in each case on the date specified
below. By signing this Agreement, Borrower and each Guarantor hereby affirm to Lender that they have read and understand this Agreement.
BORROWER: ZSPACE, INC.,
| TAX ID #: 352284050 |
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| By: |
X |
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Name: |
PAUL
EMIL KELLENBERGER |
|
Title: |
CEO |
| |
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| |
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| By: |
X |
|
Name: |
ERICKSON HEFFLER
DEOLIVEIRA |
|
Title: |
CFO |
| GUARANTOR:
ZSPACE, INC. |
|
| |
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| By: |
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|
| |
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| Name: |
ERICKSON
HEFFLER DEOLIVEIRA |
|
| |
|
| SS#: xxx-xx-2210
(last 4 digits) |
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| |
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| GUARANTOR:
ZSPACE, INC. |
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| |
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| By: |
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| |
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| Name: |
PAUL
EMIL KELLENBERGER |
|
| |
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| SS#: xxx-xx-0655
(last 4 digits) |
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| GUARANTOR:
ZSPACE TECHNOLOGIES (SHANGHAI) LTD. |
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| |
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| By: |
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| |
|
| Name: |
PAUL
EMIL KELLENBERGER |
|
| |
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| SS#: xxx-xx-0655
(last 4 digits) |
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| GUARANTOR:
ZSPACE KKK |
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| |
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| By: |
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| |
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| Name: |
JOSEPH
BRYAN POWERS |
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| SS#: xxx-xx-2018
(last 4 digits) |
|
STATE OF _________)
COUNTY OF _______________)
I, a Notary Public,
do hereby certify that on this ____ day of ____________, 2024, appeared before me ______________________________, the (title(s)) of Borrower,
and a Guarantor under the within Business Loan and Security Agreement, each personally known to me or proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the foregoing agreement, and swore and acknowledged to me that he or she executed
the same by and in the name of Borrower and/or as Guarantor, respectively, for the purpose and in the capacity therein expressed, and
that the statements contained therein are true and correct.
| Notary Signature: |
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| Name of Notary: |
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| Notary Commission
Expires: |
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Schedule
A
Permitted
Indebtedness; Permitted Liens
(1) Permitted
Indebtedness. The following indebtedness shall be deemed “Permitted Indebtedness” as per Section 5(d) of
the Agreement up to the respective principal amounts and aggregate cap specified below.
| Lender |
Individual
Agreement |
Outstanding
Principal |
Security
Interest |
Interest
Rate |
Maturity
Date |
| Fiza
Investments Limited |
Loan
and Security Agreement, November 3, 2022 |
$5,000,000 |
Secured |
20% |
Sep-12-2023 |
| Fiza
Investments Limited |
Loan
and Security Agreement, May 29, 2023 |
$2,336,318 |
Secured |
25% |
May-28-2025 |
| Fiza
Investments Limited |
Loan
and Security Agreement, November 18, 2023 |
$1,276,697 |
Secured |
25% |
Nov-28-2025 |
| Fiza
Investments Limited |
Loan
and Security Agreement, March 9, 2024 |
$5,000,000 |
Secured |
13% |
Mar-09-2026 |
Aggregate Dollar
Cap. The aggregate principal amount of all Permitted Indebtedness (including Permitted Indebtedness incurred after the Funding Date)
shall not at any one time exceed $30,000,000.
(2) Permitted
Liens. “Permitted Liens” means the following:
(a) any
Liens (i) existing on the Effective Date and disclosed in this Schedule as Permitted Indebtedness (excluding Liens to be satisfied
with the proceeds hereunder), (ii) arising under this Agreement or (iii) created in respect of any other Permitted Indebtedness;
(b) Liens
for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, provided the same have no priority over any of Lender’s security
interests;
(c) Liens
(i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment
or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (ii) existing on such
equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon
or accessions or additions thereto, and the proceeds of such equipment;
(d) Liens
incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses
(a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered
by the existing Lien (together with an improvements thereon or accessions or additions thereto) and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase (except by the amount of any fees, premium or other charges incurred in connection
with such extension, renewal or refinancing);
(e) Liens
in favor of financial institutions arising in connection with Borrower’s or its Subsidiaries’ deposit accounts and/or securities
accounts held at such institutions, provided that Lender has a perfected security interest in such accounts to the extent required hereunder;
(f) Liens
of carriers, landlords, banks (including customary rights of set off), warehousemen, mechanics, suppliers, or other possessory Liens
that are imposed by law arising in the ordinary course of business, so long as the underlying obligations are not delinquent or remain
payable without penalty or are being contested in good faith by appropriate proceedings which have the effect of staying or preventing
the forfeiture or sale of the property subject to any such Lien;
(g) Liens
securing payment of workers’ compensation, employment insurance, old-age pensions, social security, and other like obligations
incurred in the ordinary course of business (other than Liens imposed by ERISA);
(h) Deposits
to secure (i) the performance of bids, tenders, trade contracts, leases, government contracts, statutory obligations, customs and
other obligations of a similar nature, in each case, incurred in the ordinary course of business;
(i) Liens
in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation
of goods; and
(j) Easements,
rights or way, restrictions, encroachments, and other minor defects or irregularities of title, in each case, that do not interfere in
any material respect with the ordinary conduct of Borrower’s or its Subsidiaries’ businesses; and leases, subleases, non-exclusive
licenses or sublicenses of property (other than intellectual property) granted in the ordinary course of Borrower’s business (or,
if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses
do not prohibit granting Lender a security interest therein.
Schedule
B
Form of
Intercreditor Agreement
Exhibit 10.29
INTERCREDITOR AGREEMENT
This INTERCREDITOR
AGREEMENT is made as of May 17, 2024 (this “Agreement”) between Itria Ventures LLC (“Itria”),
on the one hand, and Fiza Investments Limited, on the other hand (“Creditor”), with respect to their security interests
in the assets of ZSPACE, INC., a Delaware corporation (the “Company”). Reference is made to that certain Business
Loan and Security Agreement dated May 17, 2024, between Itria, as lender and Company, as borrower (the “Loan Agreement”).
Capitalized terms not defined herein shall have the meaning set out in the Loan Agreement.
WHEREAS, Itria
has provided a loan to the Company as provided in the Loan Agreement, pursuant to which Itria has a first priority senior secured UCC
lien on all Collateral (as defined herein) of the Company (the “Itria Lien”). As used herein, “Collateral”
shall have the meaning assigned to the term “Collateral” in the Loan Agreement.
WHEREAS, the Creditor
has entered into multiple financing facilities with the Company (the “Creditor Facility”), pursuant to which Creditor
has (i) a first position security interest in all collateral of the Company other than Collateral (“Other Collateral”)
and (ii) a second priority security interest in the Collateral being second only to the Itria Lien (collectively, the “Creditor
Security Interest”).
NOW THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Until the Creditor
Facility has been repaid in full, (i) the Creditor Security Interest shall be senior and superior to and independent of the Itria
Lien (or this Agreement) with respect to the Other Collateral and (ii) the Itria Lien shall be senior and superior to the Creditor
Security Interest, which shall be junior to the Itria Lien with respect to the Collateral.
2. Until the Repayment
Amount (as defined in the Loan Agreement) shall have been repaid in full or prepaid in accordance with the Loan Agreement or Itria shall
have given its prior consent in writing, each Creditor agrees that it will not enforce any rights pursuant to the Creditor Facility in
so far as such enforcement relates to any Collateral.
3.[Intentionally Not Used].
4. Notwithstanding
any provision hereof, Creditor acknowledges that Itria shall be entitled to receive its repayment from Company pursuant the Loan Agreement
on the terms and conditions provided therein, without subordination. Notwithstanding any provision hereof, Itria acknowledges that
each Creditor shall be entitled to receive its repayment from Company (if any) pursuant the Creditor Facility on the terms and conditions
provided therein, without subordination.
5.
This Agreement: (a) contains the entire understanding between the parties regarding the subject matter hereof; (b) may not
be assigned without the prior written consent of the other party (any purported assignment without such consent is null and void); (c) shall
be construed according to the laws of the State of New York, without giving effect to its conflict of laws principles, (d) may be
executed in any number of counterparts, each of which shall be deemed an original and each of which shall constitute the same legal instrument;
and (e) may not be amended except by written agreement signed by the parties. The parties hereby irrevocably designate the State
and Federal Courts of the State of New York, New York County, located in the borough of Manhattan, as the exclusive tribunals for the
resolution of any dispute hereunder, and consent to the exclusive jurisdiction of such tribunals.
[SIGNATURE PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties have executed this Subordination Agreement as of the date first written above by its duly authorized officer.
| ITRIA VENTURES LLC |
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FIZA INVESTMENTS LIMITED |
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| By: |
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By: |
/s/ Husain Zariwala |
| Name: |
Ramit Arora |
|
Name: |
Husain Zariwala |
| Title: |
President |
|
Title: |
Authorized Signatory |
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By: |
/s/ Imran Ladhani |
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Name: |
Imran Ladhani |
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Title: |
Authorized Signatory |
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| ACCEPTED AND AGREED: |
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| |
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| ZSPACE, INC. |
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| By: |
/s/ Paul E. Kellenberger |
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| Name: |
Paul E. Kellenberger |
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| Title: |
CEO |
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| By: |
/s/ Erickson H. DeOliveira |
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| Name: |
Erickson H. DeOliveira |
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| Title: |
CFO |
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Exhibit 10.30
LETTER AGREEMENT
This letter agreement (Agreement) is executed as
of May 17, 2024, by and between:
| 1. | FIZA INVESTMENTS LIMITED, a limited liability company incorporated in Cayman Islands, having its address
at 2nd Floor, Regatta Office Park, West Bay Road P.O Box 10655, Grand Cayman
KY1 – 1006, Cayman Islands (Existing Creditor); and |
| 2. | ITRIA VENTURES LLC, a Delaware limited liability company, having its address at One Penn Plaza,
Suite 3130, New York, NY 10119 (New Creditor). |
RECITALS:
| A. | The Existing Creditor has advanced multiple secured loan facilities for an aggregate amount of USD 14,300,000
(Existing Facility) to zSpace, Inc., a Delaware corporation, having its address at 2050 Gateway Place, Ste. 100-302, San Jose,
Ca 95110 (Borrower). |
| B. | The New Creditor is by and under a business loan and security agreements dated as of May 15, 2024
(New Facility Agreements) advancing a secured loan facility of USD 2,000,000 (New Facility). |
| C. | The Existing Creditor and the New Creditor are entering into this Agreement to record their inter-se understanding
in respect of the Existing Facility and the New Facility. |
OPERATIVE TERMS:
| 1. | Until such time as the New Facility (or any amount under the New Facility Agreements) has been repaid
in full by the Borrower, the Existing Creditor shall not without the prior written consent of the New Creditor make any repayment demand
against the Borrower for any portion of the Existing Facility in priority to the New Facility, except where any such repayment is to be
made on a pari passu basis proportionately in respect of the both the Existing Facility and the New Facility. |
| 2. | This Agreement shall cease to have any effect whatsoever on and from the date on which the New Facility
and all amounts payable under the New Facility Agreements are repaid in full by the Borrower or the indebtedness in respect thereof otherwise
stands extinguished. |
| 3. | This Agreement: (a) contains the entire understanding between the parties regarding the subject matter
hereof; (b) may not be assigned without the prior written consent of the other party (any purported assignment without such consent
is null and void); (c) shall be construed according to the laws of the State of New York, without giving effect to its conflict of
laws principles, (d) may be executed in any number of counterparts, each of which shall be deemed an original and each of which shall
constitute the same legal instrument; and (e) may not be amended except by written agreement signed by the parties. |
| 4. | The parties hereby irrevocably designate the State and Federal Courts of the State of New York, New York
County, located in the borough of Manhattan, as the exclusive tribunals for the resolution of any dispute hereunder, and consent to the
exclusive jurisdiction of such tribunals. |
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above by its duly authorized officer.
| ITRIA VENTURES LLC |
FIZA INVESTMENTS LIMITED |
| By: |
|
|
By: |
/s/ Husain Zariwala |
| Name: Ramit Arora |
Name: Husain Zariwala |
| Title: President |
Title: Authorized Signatory |
| |
Name: Imran Ladhani |
| |
Title: Authorized Signatory |
Exhibit 10.31
LETTER AGREEMENT
This letter agreement (Agreement) is executed as
of June 05, 2024 by and between:
| 1. | FIZA INVESTMENTS LIMITED, a limited liability company incorporated in Cayman Islands, having its address
at 2nd Floor, Regatta Office Park, West Bay Road P.O Box 10655, Grand Cayman
KY1 – 1006, Cayman Islands (Existing Creditor); and |
| 2. | ITRIA VENTURES LLC, a Delaware limited liability company, having its address at One Penn Plaza,
Suite 3130, New York, NY 10119 (New Creditor). |
RECITALS:
| A. | The Existing Creditor has advanced multiple secured loan facilities for an aggregate amount of USD 14,300,000
(Existing Facility) to zSpace, Inc., a Delaware corporation, having its address at 2050 Gateway Place, Ste. 100-302, San Jose,
Ca 95110 (Borrower). |
| B. | The New Creditor is by and under a business loan and security agreements dated as of June 04, 2024
(New Facility Agreements) advancing a secured loan facility of USD 1,500,000 (New Facility). |
| C. | The Existing Creditor and the New Creditor are entering into this Agreement to record their inter-se understanding
in respect of the Existing Facility and the New Facility. |
OPERATIVE TERMS:
| 1. | Until such time as the New Facility (or any amount under the New Facility Agreements) has been repaid
in full by the Borrower, the Existing Creditor shall not without the prior written consent of the New Creditor make any repayment demand
against the Borrower for any portion of the Existing Facility in priority to the New Facility, except where any such repayment is to be
made on a pari passu basis proportionately in respect of the both the Existing Facility and the New Facility. |
| 2. | This Agreement shall cease to have any effect whatsoever on and from the date on which the New Facility
and all amounts payable under the New Facility Agreements are repaid in full by the Borrower or the indebtedness in respect thereof otherwise
stands extinguished. |
| 3. | This Agreement: (a) contains the entire understanding between the parties regarding the subject matter
hereof; (b) may not be assigned without the prior written consent of the other party (any purported assignment without such consent
is null and void); (c) shall be construed according to the laws of the State of New York, without giving effect to its conflict of
laws principles, (d) may be executed in any number of counterparts, each of which shall be deemed an original and each of which shall
constitute the same legal instrument; and (e) may not be amended except by written agreement signed by the parties. |
| 4. | The parties hereby irrevocably designate the State and Federal Courts of the State of New York, New York
County, located in the borough of Manhattan, as the exclusive tribunals for the resolution of any dispute hereunder, and consent to the
exclusive jurisdiction of such tribunals. |
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above by its duly authorized officer.
| ITRIA VENTURES LLC |
FIZA INVESTMENTS LIMITED |
| By: |
|
|
By: |
/s/ Husain Zariwala |
| Name: Ramit Arora |
Name: Husain Zariwala |
| Title: President |
Title: Authorized Signatory |
| |
Name: Imran Ladhani |
| |
Title: Authorized Signatory |
Exhibit 10.32
INTERCREDITOR AGREEMENT
This INTERCREDITOR
AGREEMENT is made as of June 05, 2024 (this “Agreement”) between Itria Ventures LLC (“Itria”), on
the one hand, and Fiza Investments Limited, on the other hand (“Creditor”), with respect to their security interests
in the assets of ZSPACE, INC., a Delaware corporation (the “Company”). Reference is made to that certain Business
Loan and Security Agreement dated June 04, 2024 between Itria, as lender and Company, as borrower (the “Loan Agreement”).
Capitalized terms not defined herein shall have the meaning set out in the Loan Agreement.
WHEREAS, Itria
has provided a loan to the Company as provided in the Loan Agreement, pursuant to which Itria has a first priority senior secured UCC
lien on all Collateral (as defined herein) of the Company (the “Itria Lien”). As used herein, “Collateral”
shall have the meaning assigned to the term “Collateral” in the Loan Agreement.
WHEREAS,
the Creditor has entered into multiple financing facilities with the Company (the “Creditor Facility”), pursuant to
which Creditor has (i) a first position security interest in all collateral of the Company other than Collateral (“Other
Collateral”) and (ii) a second priority security interest in the Collateral being second only to the Itria Lien (collectively,
the “Creditor Security Interest”).
NOW THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Until
the Creditor Facility has been repaid in full, (i) the Creditor Security Interest shall be senior and superior to and independent
of the Itria Lien (or this Agreement) with respect to the Other Collateral and (ii) the Itria Lien shall be senior and superior to
the Creditor Security Interest, which shall be junior to the Itria Lien with respect to the Collateral.
2. Until
the Repayment Amount (as defined in the Loan Agreement) shall have been repaid in full or prepaid in accordance with the Loan Agreement
or Itria shall have given its prior consent in writing, each Creditor agrees that it will not enforce any rights pursuant to the Creditor
Facility in so far as such enforcement relates to any Collateral.
3.
[Intentionally Not Used].
4. Notwithstanding
any provision hereof, Creditor acknowledges that Itria shall be entitled to receive its repayment from Company pursuant the Loan Agreement
on the terms and conditions provided therein, without subordination. Notwithstanding any provision hereof, Itria acknowledges that
each Creditor shall be entitled to receive its repayment from Company (if any) pursuant the Creditor Facility on the terms and conditions
provided therein, without subordination.
5.
This Agreement: (a) contains the entire understanding between the parties regarding the subject matter hereof; (b) may not
be assigned without the prior written consent of the other party (any purported assignment without such consent is null and void);
(c) shall be construed according to the laws of the State of New York, without giving effect to its conflict of laws
principles, (d) may be executed in any number of counterparts, each of which shall be deemed an original and each of which
shall constitute the same legal instrument; and (e) may not be amended except by written agreement signed by the parties. The
parties hereby irrevocably designate the State and Federal Courts of the State of New
IN WITNESS
WHEREOF, the parties have executed this Subordination Agreement as of the date first written above by its duly authorized officer.
| ITRIA VENTURES LLC |
|
FIZA INVESTMENTS LIMITED |
| |
|
|
| |
|
|
| By: |
|
|
By: |
/s/ Husain Zariwala |
| Name: Ramit Arora |
|
Name: |
Husain Zariwala |
| Title: President |
|
Title: |
Authorized Signatory |
| |
|
|
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| |
|
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| |
|
By: |
/s/ Imran Ladhani |
| |
|
Name: |
Imran Ladhani |
| |
|
Title: |
Authorized Signatory |
| ACCEPTED AND AGREED: |
|
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| |
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| ZSPACE, INC. |
|
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| By: |
/s/ Paul E. Kellenberger |
|
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| |
Name: Paul E. Kellenberger |
|
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| |
Title: CEO |
|
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| |
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| By: |
/s/ Joseph B. Powers |
|
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| |
Name: Joseph B. Powers |
|
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| |
Title: CFO |
|
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|
Exhibit 23.1
Consent of Independent Registered Public Accounting
Firm
We hereby consent to the use in the
Prospectus constituting a part of this Registration Statement of our report dated May 13, 2024, relating to the consolidated
financial statements of zSpace, Inc. (the Company), which are contained in that Prospectus. Our report contains an explanatory
paragraph regarding the Company’s ability to continue as a going concern.
We also consent to the reference to us under the
caption “Experts” in the Prospectus.
/s/ BDO USA, P.C.
Spokane, Washington
June 21, 2024
Exhibit 99.1
Consent of Director Nominee
zSpace, Inc. is filing a Registration
Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities
Act”), in connection with the initial public offering of common shares of zSpace, Inc. In connection therewith, I hereby consent,
pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of zSpace, Inc. in the Registration
Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement
and any amendments thereto.
|
By: |
/s/ Jane Swift |
| |
Name: |
Jane Swift |
Date: May 6, 2024
Exhibit 99.2
Consent of Director Nominee
zSpace, Inc. is filing a Registration
Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities
Act”), in connection with the initial public offering of common shares of zSpace, Inc. In connection therewith, I hereby consent,
pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of zSpace, Inc. in the Registration
Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement
and any amendments thereto.
| |
By: |
/s/ Abhay Pande |
| |
Name: |
Abhay Pande |
Date: May 6, 2024
Exhibit 99.3
Consent of Director Nominee
zSpace, Inc. is filing
a Registration Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the
“Securities Act”), in connection with the initial public offering of common shares of zSpace, Inc. In connection therewith, I
hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of zSpace, Inc.
in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such
Registration Statement and any amendments thereto.
| |
By: |
/s/ Joanna Morris |
| |
Name: |
Joanna Morris |
Date: June 3, 2024
Exhibit 99.4
Consent of Director Nominee
zSpace, Inc. is filing
a Registration Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the
“Securities Act”), in connection with the initial public offering of common shares of zSpace, Inc. In connection therewith, I
hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of zSpace, Inc.
in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such
Registration Statement and any amendments thereto.
| |
By: |
/s/ Angela Galardi Prince |
| |
Name: |
Angela Galardi Prince |
Date: May 31, 2024
Exhibit 107
Calculation of Filing Fee Table
Form S-1
(Form Type)
zSpace, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered Securities
| |
Security
Type |
Security Class Title |
Fee
Calculation |
Amount
Registered |
Proposed
Maximum
Offering
Price
Per Unit |
Maximum
Aggregate
Offering
Price(1)(2) |
Fee Rate |
Amount of
Registration
Fee |
| Fees to Be Paid |
Equity |
Common Stock, par
value $0.00001 per share |
457(o) |
— |
— |
$30,000,000.00 |
0.0001476 |
$4,428.00 |
| |
|
Total Offering Amounts |
|
$30,000,000.00 |
|
$4,428.00 |
| |
|
Total Fees Previously Paid |
|
|
|
— |
| |
|
Total Fee Offsets |
|
|
|
— |
| |
|
Net Fee Due |
|
|
|
$4,428.00 |
| (1) |
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
| (2) |
Includes the aggregate offering price of additional shares that the underwriters have the option to purchase. |
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